Premium Audit Charge May Undermine Prior Coverage Denial

CGL – INSURED PREMISES – PREMIUM AUDIT – ESTOPPEL
Moncrief v. DiChiaro
(2nd Dept., decided 6/24/2008)

Interesting case.

Purchase Land Development Corp. (PLDC) moved to renew its opposition to the previously successful motion for summary judgment of its CGL insurer, Sirius America Insurance Company, declaring that Sirius was not obligated to defend and indemnify PLDC in an underlying personal injury action. Westchester Supreme granted that renewal motion and reversed its earlier award of summary judgment to Sirius. Sirius appealed.

Sirius insured Location "A" under its CGL policy with PLDC. The underlying accident occurred in an unfinished home PLDC was constructing at Location "B". PLDC contended that 4-6 months before the accident, it had instructed its insurance broker to have Sirius add Location "B" to the policy. The broker apparently did not make that request until after the accident date.

In AFFIRMING the order appealed from, the Second Department agreed with the lower court that PLDC had raised a question of fact on coverage by submitting deposition testimony of a vice president of PLDC's insurance broker, that after the policy expired, Sirius audited the policy and thereafter charged PLDC "a premium for all the work associated with [the subject premises]" for the policy period, which included the accident date. Although the broker's VP conceded that the audit may not have specifically listed Location "B" as the property covered under the policy during the policy period, he explained that the coverage was related to PLDC's construction of a home, and during the policy period, the only home owned by and being built by PLDC was located at Location "B".

Based on this testimony, the Second Department concluded: "As such, Sansotta's deposition testimony also raised a question of fact as to whether Sirius may be estopped from denying coverage after it accepted premium payments from PLDC following the audit (citations omitted)."

Another example of what happens when the underwriting and claims departments are out of sync. Moral of the story: Probably not a good idea retroactively to assess and collect premium for risks for which the claims department has already denied liability coverage.