Designation of Risk on Declarations Page Controls

BUILDERS RISK POLICY – FIRE LOSS – OCCUPANCY PERCENTAGE – NOTATION ON DECLARATIONS PAGE – SCRIVENER'S ERROR – REFORMATION
Markotsis v. Zurich Ins. Co.
(Sup.Ct., Nassau Co., decided 4/15/2008)

Plaintiffs loaned Sirgany $330,000 to renovate a 10-unit apartment building. Sirgany obtained a builders risk policy from Zurich for the period May 2005-2006. On the policy's declarations, the box for "commercial structure" was checked, rather than the one for "1-12 Family dwelling". Consistent with the nature and purpose of builders risk coverage, the policy contained a condition that terminated coverage at certain percentages of occupancy: 50% if the property was a "multiple dwelling"; 75% if the property was a "commercial structure". Plaintiffs were listed as additional insureds.

In April, 2006, the building was destroyed by fire. During its investigation, Zurich learned that 60% (6 of 10) of the building's units had been leased, although the insured's public adjuster advised that was not the case. Zurich reserved its rights to deny coverage based on the policy's occupancy condition and continued its investigation. The insured reportedly lost the building in foreclosure in September 2006, the plaintiffs taking a deficiency judgment in excess of the $330,000 debt. Plaintiffs then commenced this action against Zurich in March 2007 for payment of the fire loss under the policy.

The court found that plaintiffs had demonstrated their entitlement to summary judgment by submitting: (1) the executed declarations page which unambiguously depicts the property as a "commercial structure"; (2) portions of the "Builders' Risk Coverage Form" section of the policy, which expressly incorporated into that section "the information contained in the Declarations" page; and (3) "Section E Additional Conditions" which provides that coverage would terminate in connection with a "commercial structure" - undefined in the policy - only "when 75% or more of the square footage space is leased or rented to others".

The court rejected Zurich's argument that the policy's actual coverage terms and provisions superseded the notation on the declarations page, and also rejected Zurich's contention that the "commercial structure" notation was just the "errant check mark" or "scrivener's error" of an underwriter. Notably, Zurich submitted no affidavit from an underwriter to that effect. Based on the lack of any proof that the "commercial structure" notation was a mutual mistake, the court denied Zurich's request for an equitable reformation (re-writing) of the policy. However, given that plaintiffs had not submitted proof of the building's actual occupancy percentage, the court limited its award of summary judgment to the plaintiffs and ordered that discovery proceed.