Thursday, August 21, 2008

8-Month Delay in Notifying Insurer of Property Loss Found Unreasonable as a Matter of Law

Masonville Lodge, Inc. v. Nova Casualty Co.

(Sup. Ct., Delaware Co., decided 8/11/2008)

My partner, Scott Storm, obtained this favorable result on motion for Nova Casualty Company. The decision is not yet published.

Plaintiff operated a motel known as the Mason Inn located at 1384 Route 206, in Masonville, New York. Plaintiff claimed that on December 7, 2004, the property was flooded and raw sewage leaked into the basement of the building due to a broken pipe.

On October 28,2004, plaintiff had applied for a policy of commercial insurance through defendant, North Star Insurance Services, Inc., an insurance broker. The broker then contacted R. Marcil Associates, Inc., an agent for Nova, who forwarded the necessary application and other information to Nova. A policy was issued by Nova effective November 1, 2004.

Nova did not receive notice of the loss until approximately eight months later, on August 18, 2005. By then, most of the flood damaged building materials had been removed and discarded. After the flood, plaintiff had not only stopped the leak and cleaned up the water or sewage, but had also removed and discarded carpets, dry wall and ceiling tiles.

Nova disclaimed coverage based on various grounds, including the insured's breach of the policy's "prompt" notice condition, and breach of the policy condition requiring the insured to preserve the damaged property for Nova's inspection. The insured sued Nova, the agent, and its broker, and following discovery, Nova and the agent moved for summary judgment.

In granting Nova's motion for summary judgment, Delaware County Acting Supreme Court Justice Eugene Peckham upheld both of Nova policy defenses, finding the insured's claim that it did not know who the insurance company was in order to give notice to be not credible. The court found that the insured's notice to its own broker did not constitute notice to Nova or its agent, and held:
It is also clear that notice of loss to the insurance company eight months after the occurrence does not comply with the prompt notice requirement of the policy. Notice as little as 22 days after the event causing the loss has been held to be unreasonable delay as a matter of law. * * *

The reason why an opportunity for inspection is important to the insurer is demonstrated by this case. Patrick Vakharia and other people on the scene shortly after the flood have given differing explanations of the cause of the flood: broken pipes, loose pipes, sump pumps turned off, springs on the hill behind the property causing water in the basement or a leaking toilet (Freitag Affidavit, Paragraphs 13-15 and Exhibits H, M, T. and G, pp. 69-73). If the water in the basement was caused by water run off or seepage or sewer backup it is not covered under the policy. (Freitag, pp. 7-8 and Exhibit B, p. 12, paragraph 6). Without the opportunity to inspect the property at the time of the flood the insurance company cannot determine the cause for itself to decide if the cause is a covered peril, or to defend itself.
In upholding Nova's denial based on the insured's failure to preserve the damaged property for Nova's inspection, the court held:
Compliance by plaintiff with the requirement to preserve the damaged property for inspection by the insurer is a condition precedent to recovery on the claim. When it is not done, the complaint must be dismissed. Seaport Park v Greater N.Y. Mut. Ins. Co., 39 AD3d 51 (1st Dept. 2007); Sulner v G.A. Ins. Co., 224 AD2d 205 (1st Dept. 1996); Argo Corp. v Greater NY Ins. , supra.
The court also granted the agent's motion for summary judgment, finding that there was not contract or legal relationship between the plaintiff and Nova's agent.

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