New York Court Permits Insurer To Rely On Flood Exclusion Omitted From Disclaimer

It is never a good practice for an insurer to omit applicable exclusions in a disclaimer, but according to a New York Second Department decision issued this week, that mistake is not always fatal.  In Provencal, LLC v. Tower Ins. Co. of New York, the insured’s premises suffered water damage as a result of rain storms and the collapse of a retaining wall.  The insurer disclaimed coverage based on an exclusion for damage caused by water migrating from under the ground.

After the insured filed suit, the insurer relied on an exclusion barring coverage for damage caused by flood and/or surface water.  The insured countered that the policy exclusion did not bar coverage because the insurer failed to specifically identify the exclusion in its disclaimer.  The Second Department disagreed, and held that the exclusion barred coverage despite the fact that it was not identified in the disclaimer.

In reaching that decision, the court reasoned that the line of New York cases addressing an insurer’s obligation to disclaim coverage with specificity was grounded in New York Insurance Law §3420(d)(2), and that statute applies only to accidents arising out of bodily injury or death.  Because the damages in Provencal were property damage, the statute did not apply.

With the statute inapplicable, the court analyzed the disclaimer by analyzing the issue through the prism of estoppel.  Because the insured did not show that it was prejudiced by the insurer’s piecemeal disclaimer, the court held that the insurer was entitled to rely on the exclusion.

All disclaimers should be thorough.  They should all cite every ground upon which they are based.  That is especially true in the context of bodily injury claims.  But the Second Department’s decision in Provencal shows that, at least in the context of property damage claims, not all piecemeal disclaimers are fatal.  Why risk it though?  Insurers should cite all applicable exclusions in their disclaimers.

Thanks to Mike Gauvin for his contribution to this post.  For more information, please email Dennis M. Wade at

Surveillance Video Enough to Burn Insured’s Summary Judgment Motion (NY)

In Morley Maples, Inc. v Dryden Mut. Ins. Co., the Appellate Division, Third Department recently confirmed that the insured bears the burden of overcoming an insurer’s arson defense in a first-party property claim in order to prevail on a motion for summary judgment. Once an insurer shows that its insured may have been responsible for starting the fire that resulted in property damage, the insured must demonstrate that it is free of any culpability. It is not enough to simply attack an insurer’s investigation as insufficient.

While the drops of morning dew were still forming at the start of another Spring day in May 2010, a fire sparked inside a restaurant in the sleepy upstate town of Morley, NY. The restaurant owned by Morley Maples, Inc. became engulfed in flames and burned to the ground.

Morley Maples sought coverage under its multi-peril insurance policy, but after an investigation, the insurer determined that foul play was afoot; the early-morning fire appeared to have been intentionally set. Therefore, the insurer disclaimed coverage and the insured sued for breach of the insurance contract.  The insurer pleaded affirmative defense of arson in its answer.

The Appellate Division, Third Department affirmed the trial court’s decision to deny Morley Maples’ motion for summary judgment finding the insurer’s determination that the fire was caused by arson sufficiently supported by a surveillance video. The footage depicted “an individual sliding along an exterior wall of [the insured’s] building, while appearing to attempt to avoid detection, before entering the building with the use of a key, and later exiting the building moments before smoke appeared in the bar area.” Moreover, the Court found that the insurer raised another question of fact because Morley Maples stood to gain more if the building was burned down than if it simply sold the building.  Therefore, the surveillance video created a triable issue of fact.

The parties will now proceed to trial.  In order to prevail, the insurer must establish arson by clear and convincing evidence – but that heightened standard is not required to defeat a motion for summary judgment, as made clear here.

Thanks to Steve Kaye for his contribution to this post and please write to Mike Bono for more information.


Liberal Use Of “Any” Insured In Policy Defeats Exclusion (PA)

In a recent Pennsylvania Supreme Court decision, the Court highlighted the ambiguity inherent in the use of definite and indefinite articles when associated with the term “insured”. In Mutual Benefit Ins. Co. v. Politsopoulos, et al., a restaurant leased space from property owners. An employee of the restaurant was injured when she fell on an outside set of stairs, and sued the property owners. The property owners, additional insureds under the restaurant’s insurance policy, sought defense and indemnity under the policy. The insurance carrier disclaimed coverage under the employer liability exclusion. The policy in this case included a “Separation of Insureds” clause which provided, subject to exceptions, that the policy applied separately to each insured against whom a claim had been made. At issue in this case is that the employee in the underlying action was not an employee of the property owners thus, the issue turned on the phrase “the insured”.

The Court found that the policy’s varying use of the definite “the insured” with the indefinite “any insured” created ambiguity in the exclusionary language. Because of the interchangeable use of the definite and indefinite throughout the policy, the Court found that as applicable to the exclusion, the term “the insured” could reasonably be taken as signifying the particular insured against whom the claim is asserted, thus, the employee exclusion did not exclude coverage for a non-employee of an additional insured.  Added attention to detail in the underwriting process could have avoided this scenario for the insurer.  Please email Brian Gibbons with any questions. Thanks to Tiffany Davis for her contribution.

Third Circuit Issues Precedential Decision on First-Party Coverage for Debris Removal from Land.

In the case of Torre v. Liberty Mutual, et al., the Torres suffered post Superstorm Sandy damage at their home in Mantoloking, NJ. The Torres sought first-party coverage for their removal of storm-generated debris from their land under their Standard Flood Insurance Policy. Liberty denied the claim. The basis for Liberty’s disclaimer was that the SFIP coverage only attached for the “removal of non-owned debris that is on or in insured property” and debris on the land outside of the house was not “on or in” “insured property.” In other words, Liberty took the position that only the house was “insured property” and not the land on which the house was located.

The Third Circuit has now endorsed Liberty’s understanding. In its precedential decision, the Court held that the “term “insured property” clearly and unambiguously means property that is insured under the SFIP, that land is not insured under the SFIP, and that the SFIP thus does not cover costs the Torres incurred in removing debris not owned by them from their land outside their home.”

As this is the first US decision on the scope of debris removal from land under a SFIP policy, we expect the case to be frequently cited in the future. It is obviously of great benefit to insurers as it significantly limits the scope of potential first-party damages that a policy might be exposed to.

If you have any questions about this post, please e-mail Bob.

Coverage ‘til the Cows Come Home…Or Not: PA Supreme Court Declines to Extend “Multiple Trigger” Theory of Liability to Cases Involving Property Damage (PA)

Although there’s been more than a bit of turmoil over the last few months, Pennsylvania’s Supreme Court has been busy over the past month issuing significant precedential decisions (see, e.g. the Tincher decision). The run continues with Pennsylvania Nat. Mut. Cas. Ins. Co. v. St. John in which the Supreme Court ruled on whether the “continuous or multiple trigger” is exclusive to asbestos cases or also applies to other types of cases. Under the “multiple trigger” theory of liability, insurance coverage is triggered under any policy in effect from the moment of initial exposure to the dangerous condition until the date of manifestation of the actual injury.

In Pennsylvania Nat. Mut. Cas. Ins. Co. v. St. John, the appellants owned a dairy farm and hired a plumber to install a new plumbing system. The work was completed in July 2003. The plumbing system, however, was defectively installed. Consequently, the appellant’s cows were exposed to contaminated drinking water, and, as a result, suffered from, among other things, reduced milk production, salmonella poisoning, and birth defects. Although the appellants sought help from veterinarians and nutritionists, the appellants did not learn that the cow’s health problems were caused by a defect in the plumbing system until March 2006.

The appellants subsequently sued the plumber for negligent installation of the plumbing system in 2007 and were awarded $3.5 million in damages. The plumber had four relevant commercial general liability (“CGL”) policies with effective dates beginning on July 1, 2003 and continuing until July 1, 2006. The plumber’s insurer, however, only agreed to pay $1.2 million of the verdict, which was the liability limit under the plumber’s 2003/2004 CGL policy. More specifically, the insurer only agreed to pay under the policy during which the appellant’s injuries first manifested. The plumber, however, argued that because the diseases in the cows were “gradual and progressive” from 2004 to 2006, there were multiple occurrences, triggering all four of the plumber’s CGL policies.

The Pennsylvania Supreme Court, however, was unsympathetic to the appellants, and declined to extend the “multiple trigger” theory of liability beyond asbestos to cases involving property damage, and instead, adhered to the rule of “first manifestation.” Under the “first manifestation” rule, coverage is triggered when the property damage becomes “reasonably apparent.” The court explicitly held that the “first manifestation” rule was the “appropriate test for determining when an occurrence happens pursuant to a policy of commercial general liability insurance.”

Obviously, and especially since the plaintiffs’ bar has been attempting to expand the scope of the “continuous trigger” theory (particularly in the construction defect context), this is a particularly significant decision. Asbestos claims remain “special” but all other types of claims are subject to the first manifestation rule. The number of potentially triggered policies decreases accordingly.

Special thanks to Erin Connolly for her contributions to this post. For more information, please contact Bob Cosgrove at

Not All Construction Defects Trigger CGL Coverage – – Even In California

Do construction defects incorporated into a structure constitute property damage within the ambit of a CGL policy?  Good question – – and one that has plagued the insurance industry and courts across the country.  In Regional Steel Corporation v. Liberty Surplus Insurance Corporation, a California Appellate Court ruled that the costs of removing and replacing defective work or material is an economic/commercial loss – – and not physical injury to property.

In Regional, a subcontractor supplied steel hooks later determined by the building inspector to be inappropriate for intended use.  That discovery led to repair costs of over $500,000.  Ultimately, in the context of the underlying action, Regional tendered its defense to Liberty which disclaimed on the basis that the defect in steel work did not constitute “physical injury to tangible property.”

To rule in Liberty’s favor, the Appellate Court had to grapple with precedent involving defective components that caused damage to a larger structure or to the product itself.  In one case, for example, wood chips in almonds ruined the end product – – breakfast cereal; in another, asbestos tiles incorporated into a larger structure compelled remediation because of the potential hazard.  But as the Court found in Regional: “The risk of replacing and repairing defective product or poor workmanship has generally been considered a commercial risk which is not passed on to the liability carrier.”

Regional is worth careful study.  It supports the view that expenses associated with repairs/remediation resulting from a defective product or poor workmanship – – without pleading and proof of collateral harm – – may not be covered under a CGL Policy.

For more information, please email Dennis Wade at


Concealing Free Repairs to Yacht Leads to Fraud Claim (NJ)

The Superior Court of New Jersey recently addressed the issue of whether an insured is required to reimburse its insurer where the damaged property is ultimately repaired at no cost to the insured.   Likely impacting the outcome was the fact that the property at issue was a yacht – and that the insured inaccurrately denied that such repairs had been made.

In AIG Casualty Company of New York, Inc. v. Donna Walsh the Walshes insured a yacht under an all risk policy, and in August of 2009, discovered that the port engine was damaged and would require repairs of $23,975.  AIG issued a check for $15,975 for the amount of repairs minus the policy deductible. In September of 2009, however, Hinckley, the yacht company, informed the Walshes that the engine manufacturer would replace the engine free of charge, and the company eventually did.

When AIG learned that the Walshes had not sustained any loss with respect to the engine repair it demanded the return of the $15,975, and the Walshes continuously refused. In December of 2010, AIG sued for reimbursement and was later awarded summary judgment.

The decision was affirmed on appeal, and the Court also held that AIG was entitled to summary judgment for its claim under the Fraud Prevention Act. The Court rejected the Walshes’ argument that they did not receive another payment for their loss so they were entitled to keep the payment received from AIG. The court held that the free repair by the engine manufacturer was, in essence, a payment and therefore AIG was entitled to reimbursement.  Further, the fact that the Walshes concealed the fact that the engined had later been repaired entitled AIG to the award under the Fraud Prevention Act.

Thanks to Thalia Staikos for her contribution to this post.  Please write to Mike Bono for more information.