New York Insurance Coverage Law Update – August 26, 2022 | Rivkin Radler LLP
The Southern District Upholds This Uncovered Unjust Enrichment Claim “Property Damage” Claim
The owners of an apartment in Manhattan hired Zale Contracting to renovate their apartment. After the apartment’s sprinkler system failed, Zale, with the owners’ consent, reportedly repaired the damage caused by the failure and purchased and installed new materials, resulting in additional costs of $280,000. When the owners refused to pay, Zale sued them for “unjust enrichment.” The owners filed a complaint with their home insurer, Executive Risk Indemnity, who declined the offer, and the owners sued for a declaratory judgment. The United States District Court for the Southern District of New York upheld the insurer’s disclaimer, agreeing that the lawsuit did not relate to covered “property damage.” Although the apartment was damaged by the sprinkler failure, the court found that Zale did not seek to hold the owners responsible for this property damage. Instead, Zale’s complaint rang exclusively about unjust enrichment, alleging that the owners were responsible for the cost of labor and additional materials needed after the sprinkler failed. The court also found that even if Zale alleged property damage, the exclusion of “property damage to property belonging to any covered person” would apply to bar coverage. [Godfrey v. Exec. Risk Indem. Inc., 2022 U.S. Dist. LEXIS 118004 (S.D.N.Y. July 5, 2022).]
The Second Department argues that the policy’s limitation for damage to property used for business purposes must be construed in favor of the insured.
After personal property was stolen from the insured’s home, he submitted a claim for his loss to his home insurer, Automobile Insurance Company of Hartford, Connecticut. The insurer limited the insured’s recovery for the loss to $12,500 based on a limitation in the policy for property “used at any time or in any way for ‘business’ purposes.” The insured sued for warranty to recover its full loss, and the trial court granted summary judgment to the insured. On appeal, the New York Supreme Court, Appellate Division, Second Department, upheld, holding that any ambiguity should be construed in favor of the insured. The court said the policy defined “the business,” but it did not define the terms “use” or “business purpose,” and it “did not specify whether the phrase ‘at any time’ means at any time. time during the policy. period or, as the insurer has suggested, broadly covers use at any time in the life of the insured, including the distant past. The court found that the wording of the policy is reasonably susceptible to an interpretation that would not apply the limitation to the property at issue, which was unique property created by the insured decades earlier and maintained as part of a collection. [Birnkrant v. Automobile Ins. Co. of Hartford, Conn., 2022 N.Y. App. Div. LEXIS 4086 (2d Dep’t June 29, 2022).]
Second Department denies punitive damages claim based on alleged bad faith
After being struck by a vehicle, the insured filed a claim under the underinsured motorist provisions of her auto insurance policy with New York Central Mutual Fire Insurance Company, then sued the insurer in punitive damages due to the insurer’s alleged bad faith in breaching the insurance contract. The New York Supreme Court, Appellate Division, Second Department, reversed the trial court’s denial of the insurer’s motion to dismiss the insured’s claim for punitive damages. The court held that there was no separate tort for refusal in bad faith to comply with an insurance contract under New York law; and the insured did not allege a claim for bad faith refusal to settle because there was no claim against the insured to settle. And even assuming that the insured declared a cause of action for the independent tort of bad faith refusal to settle, the insured did not allege a recognized claim for punitive damages, which requires conduct which is both (i) “morally wrong and of such wanton dishonesty as involving criminal indifference to civil obligations” and (ii) “part of a pattern aimed at the general public”. [Schlusselburg v. N.Y. Cent. Mut. Fire Ins. Co., 2022 N.Y. App. Div. LEXIS 3422 (2d Dep’t June 1, 2022).]