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

Southern District Holds Unjust Enrichment Claim Uncovered “Property Damage” Claim

The owners of a Manhattan apartment 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, incurring additional costs of $280,000. When the owners refused to pay, Zale sued them for “unjust enrichment.” The owners offered to sue their homeowners’ insurer, Executive Risk Indemnity, which declined, and the owners filed a declaratory judgment action. The United States District Court for the Southern District of New York upheld the insurer’s denial of liability, agreeing that the claim was not for covered “property damage.” Although the apartment was damaged by the sprinkler failure, the court held that Zale did not seek to hold the owners liable for that property damage. Instead, Zales’ complaint rested exclusively on unjust enrichment, alleging that the owners were responsible for the cost of additional labor and materials necessary after the sprinkler failed. The court also found that even if Zale were to claim property damage, the “property damage to the property of any covered person” exclusion 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 holds that the policy’s limitation on damage to property used for business purposes to be construed in favor of the insured

After personal property was stolen from the insured’s home, he filed a loss claim 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 on property “used at any time or in any manner for any purpose of ‘business.’” The insured filed a coverage action to recover his loss complete and the trial court granted summary judgment for 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 clear whether the phrase “at any time” meant at any time during the policy period or, as the insurer suggested, covered widely used at any time during the life of the insured, including the distant past. The court concluded that the policy language is reasonably susceptible to an interpretation that would not apply the limitation to the subject property, which was unique property created by the insured decades ago 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).]

The Second Department dismisses the claim for punitive damages based on bad faith

After being struck by a vehicle, the insured made a claim under the uninsured motorist provisions of her auto policy with New York Central Mutual Fire Insurance Company and subsequently sued the insurer for punitive damages based on the insurer’s alleged bad faith in breach of 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 comply with a contract of insurance 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 settle. And, even assuming that the insured has stated a cause of action for refusing to settle the independent tort of bad faith, the insured has not alleged a cognizable tort claim, which requires conduct that is both (i) “morally reprehensible and of such unjust dishonesty as to imply a criminal indifference to civil obligations” and (ii) “part of a pattern directed at the public at large”. [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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