New York Insurance Coverage Law Update – August 26, 2022 | Rivkin Radler LLP | Business Insurance

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Southern District Holds Unjust Enrichment Claim Does Not Cover “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, allegedly 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 suit with their homeowners insurer, Executive Risk Indemnity, which refused, and the owners filed a declaratory judgment action. The United States District Court for the Southern District of New York upheld the insurer’s disclaimer and agreed that the lawsuit was not for covered “property damage.” Although the apartment was damaged by the sprinkler failure, the court found that Zale did not seek to hold the owners liable for the damage to the property. Instead, Zale’s complaint sounded exclusively like unjust enrichment, alleging that homeowners were responsible for the cost of additional labor and materials needed after sprinkler failure. The court also found that even if Zale claimed property damage, the “property damage to any covered person” exclusion would apply to the bar coverage. [Godfrey v. Exec. Risk Indem. Inc., 2022 U.S. Dist. LEXIS 118004 (S.D.N.Y. July 5, 2022).]

Second Department Holds That The Limitation In The Policy For Damage To Property Used For Business Purposes Will Be Interpreted In Favor Of The Insured

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After personal property was stolen from the insured’s home, he filed a claim for its loss with his homeowners 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 manner for any ‘business’ purpose.” The insured brought a coverage action to recover his full loss and the trial court awarded summary judgment to the insured. On appeal, the New York Supreme Court, Appellate Division, Second Department, affirmed, reasoning that any ambiguity must be construed in favor of the insured. The court stated that the policy defined “business”, but did not define the terms “use” or “business purpose”, and “did not make it clear whether the phrase ‘at any time'” means at any time during the term of the policy. . or, as suggested by the insurer, broadly covers use at any time during the life of the insured, including the distant past. The court found that the language of the policy is reasonably amenable to an interpretation that would not apply the limitation to the subject property, which was a unique property created by the insured decades earlier and held 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 Dismisses Claim for Punitive Damages Based on Alleged Bad Faith

After being struck by a vehicle, the insured filed a claim under the underinsured motorist provisions in her automobile policy with New York Central Mutual Fire Insurance Company and then sued the insurer for punitive damages based on the alleged bad faith of the insurer by 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 reasoned that there is no separate tort for bad faith refusal to honor an insurance contract under New York law; and the insured did not assert a claim for bad faith refusal to settle because there was no claim against the insured to be settled. And even assuming the insured established a separate tort cause of action of bad faith refusal to settle, the insured failed to assert a recognizable claim for punitive damages, which requires conduct that is both (i) “morally reprehensible and such wanton dishonesty as to imply a criminal disregard for civil obligations” and (ii) “part of a pattern directed 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).]

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