Insured's Failure to Cooperate with Insurers' Investigation of Reported Jewelry Robbery Voids Coverage

JEWELER'S BLOCK INSURANCE – BROKER'S CANCELLATION CLAUSE – PREMIUM FINANCE AGREEMENT – NEW YORK BANKING LAW § 576 – NON-COOPERATION
D&R Plaza Jewelry v. Those Lead Underwriters at Bellmarine, S.A.
(Sup. Ct., Kings Co., decided 10/16/2008)

There's a lot in here, so be sure to read this decision if you're on the property side of the P&C equation.

Jeweler's (or "jeweller's" if you're across the pond) block insurance is all-risk specialized insurance coverage for jewelers. There are usually certain preconditions or requirements that must be met, such as safes, alarms, surveillance systems, and regular inventories, for the coverage to be available in case of a loss.

D&R Plaza Jewelry in Brooklyn had a jeweler's block insurance policy with the defendants. The policy limit was $500,000, which increased pursuant to policy terms to $1,000,000 for the months November, December and January. Plaintiff used a premium finance company, Standard Funding Corporation, to make the annual premium payment, and the finance agreement listed SJ International Brokers as the insured's agent. The finance agreement also appointed Standard as D&R's attorney-in-fact and authorized Standard to cancel the policy if D&R failed to make the $963.53 monthly payments to Standard as agreed.

Standard did not received D&R's fourth monthly payment and issued a cancellation notice dated December 2, 2005 to D&R but addressed to SJ. The effective date of the cancellation was December 3, 2005. Standard apparently did not send a copy of the cancellation notice to defendants, and D&R alleged that it did not receive the cancellation notice until after its effective date. D&R also alleged that it had issued a check to its broker, SJ, on December 1, 2005, which was sent to Standard and posted to its account on December 9, 2005.

On December 11, 2005, D&R reported to the NYPD's 63rd Precinct that $400,000 to $500,000 of jewelry had been stolen from its store. D&R reported the theft to SJ on December 12. Defendants immediately retained an insurance adjuster, Donald Yick, who contacted David Shimunov, D&R's one-half owner, on December 12 and instructed him to close the store to business and activate the alarm until December 15, 2005, when Yick was to interview Simunov and conduct a post-loss inventory. Yick met with Shimunov and Roman Khaimov, D&R's other one-half owner of plaintiff, on December 15.

According to Yick, during his investigation of the insurance claim he learned that the alarm system had not been activated on December 12, contrary to Yick's instructions. Yick was advised that an employee, Nathan Kataev, was also in the store the evening of the alleged robbery, but was unable to appear at the December 15 meeting because he was preparing for a trip to Russia through the end of January 2006. Yick claimed he requested that he be contacted upon Kataev's return to schedule an interview, but was never contacted by the insured regarding Kataev's return. Khaimov also informed Yick that, along with his father, Ilya Khaimov, he had entered the store between December 12 and 15, worked on the inventory, and Ilya Khaimov had removed merchandise from the premises that was allegedly on consignment from Ilya Khaimov's own jewelry manufacturing company. While Yick viewed a video of the alleged robbery that was recorded on the store's surveillance system and requested a copy of the video from Shimunov, the plaintiff never provided Yick with a copy of the video. At the December 15 meeting, Yick presented Shimunov with a statement regarding the loss for his review and signature and, despite numerous requests for the signed document, Shimunov did not sign the statement until May 29, 2008, for inclusion in plaintiff's opposition to defendants' motion for summary judgment. Yick also requested a formal written claim detailing the alleged loss along with a copy of the physical inventory per the Policy.

In May of 2006, Yick contacted Shimunov and Khaimov through the cell phone numbers provided at the December 15, 2005 meeting and indicated that specific documents were still needed to substantiate plaintiff's claims. Both agreed to appear for an interview. However, neither appeared at the scheduled place and time. Yick claimed in his affidavit in support of the motion that he had made several subsequent attempts to interview Shimunov and Khaimov, left three messages on the voicemail of Shimunov's cell phone, and never received a response from either individual. Yick sent plaintiff's broker, SJ, a written request for a formal claim and documents, including the most recent inventory conducted, on January 16, 2006. When the plaintiff did not respond to Yick's requests, Yick followed up with interviews of SJ's employees and three visit's to SJ's offices to obtain the file on the claim. SJ did not provide Yick with the file and was unwilling to cooperate in the investigation.

John Kim ("Kim") was the certified public accountant hired to assist in the post-loss inventory. According to Kim's affidavit in support of the motion, he sent a letter to D&R and SJ on January 16, 2006 that included a copy of the count sheets from the physical inventory. The letter requested a number of inventory documents, bank statements, invoices and tax returns from the plaintiff. A follow up letter from Kim was addressed to Shimunov at his personal address on February 17, 2006. Kim wrote to SJ on February 28, 2006, March 1, 2006, and May 4, 2006 indicating that he had been unable to reach Shimunov and requested that the letter be forwarded to Shimunov. On May 8, 2006, Lenny Madowicz of SJ wrote to Kim indicating that D&R was gathering the requested documents and they would be provided within 30 days. Kim never received the documents requested from either the plaintiff or SJ.

Plaintiff commenced this action on December 7, 2006, just before the one-year limit to file suit on the policy expired (under New York law, property policies covering other than fire and lightning losses are not required to provide a two-year suit limitations period and may provide for a shorter period). Plaintiff's complaint alleged that it had sustained a theft loss of jewelry in the amount of $1,000,000, the policy limit. Defendants answered and asserted various affirmative defenses, including that the policy had been cancelled before the loss, the insured's breach of the policy's cooperate requirement, its failure to submit a sworn proof of loss, and its misrepresentation and concealment of material facts. Defendants eventually moved for summary judgment on the cancellation, proof of loss, and non-cooperation grounds.

In denying defendants' motion based on their pre-loss policy cancellation ground, Kings County Supreme Court Justice Carolyn Demarest found that defendants had not established that the policy was properly cancelled before December 11, 2005 because: (1) Standard had not sent a copy of its cancellation notice to defendants, as required by the policy's "Broker's Cancellation Clause"; and (2) Standard had not complied with the cancellation notice requirements of New York Banking Law §576, which requires a premium finance agency to provide not less then ten days written notice (13 days if mailed) to an insured of the intent to cancel the policy.

On defendants' proof of loss defense, Justice Demarest held:

Although defendants' agent, Yick, provided an affidavit averring that he personally gave Shimunov a copy of a printed statement regarding the loss and requested that Shimunov complete and return the document, defendants have not demonstrated that they provided blank proof of loss forms as required under Insurance Law § 3407 [a] (Ingarra v General Accident/PG Ins. Co., 273 AD2d 766, 767 [3d Dept 2000]; Medical Facilities, Inc. v Pryke, 172 AD2d 338 [1st Dept 1991] (holding that insurer failed to meet the requirement of Insurance Law § 172 (now § 3407) by providing insured with proof of loss forms filled in with amounts instead of blank forms as required by statute)). Plaintiff's failure to provide a proof of loss statement within 60 days of the alleged loss does not, therefore, require dismissal of plaintiff's action.

The court did, however, grant summary judgment to the defendant insurers based on their non-cooperation defense:

Paragraph A, E and J of the conditions precedent of the Policy required the plaintiff to provide the defendants with records and various documentation as well as to submit to an examination under oath in the event of a loss as follows: A. The Assured shall keep detailed records of all sales, purchases and other transaction, and that such records shall be available for inspection by the Underwriters or their representative in case of a claim being made under this Policy. (Emphasis added) E. The Assured shall in case of loss or damage and as a condition precedent to any right of indemnification in respect thereof give to the Underwriters, via the negotiating brokers, such information and evidence as to the property lost or damaged and the circumstances of the loss or damage as the Underwriters may reasonably require and as may be in the Assured's power. (Emphasis added) J. The Assured shall in the event of loss or damage and as per Underwriters' request submit to an examination under oath by any persons authorized by the Underwriters relative to any and all matters concerning the claim and subscribe to the same; and shall produce for examination all books of accounts, bills, invoices and other vouchers or certified copies thereof if originals be lost, at such reasonable time and place as may be designated by Underwriters or its representatives and shall permit extracts and copies thereof to be made. (Emphasis added) The defendants undertook diligent efforts that were reasonably calculated to bring about plaintiff's cooperation with regard to Paragraphs A, E and J by sending letters to the plaintiff at the personal address of Shimunov, sending letters and faxes to the plaintiff's broker, setting up interviews with Shimunov and Khaimov, leaving phone messages on the personal phone number of Shimunov, and making multiple appearances at the office of the plaintiff's broker to review the claim file. As noted above, defendants' attempts were futile. The pattern of noncooperation and unexplained delay, which continued for over two years, was clearly persistent and unreasonable.

Although Shimunov states in his amended affidavit that he was at all times willing to appear for an examination under oath, he did not dispute Yick's statement that he did not appear for an interview as scheduled in May 2006 or deny receiving Kim's February 17, 2006 letter request for documentation. The only explanation offered for the delay is David Shimunov's reference to his prior attorney's suspension on October 10, 2006, prior to commencement of suit, and his "ex-partner[ s]" attempt to intervene in this action by separate counsel, neither of which would have logically influenced his ability to co-operate with defendants' investigation prior thereto. Mr. Shimunov also makes reference to his conviction for possession of counterfeit funds as having created a depression for which he has been taking medication. This court does not find such excuses sufficient to justify plaintiff's failure to provide defendants with the documentation as required under the Policy. Despite defendants' numerous attempts addressed to both Mr. Shimunov and Mr. Khaimov, to obtain documentation regarding the inventory at the time of the alleged robbery, the documentation was still not provided as of March 26, 2008, the day this motion was filed. It is noted that neither Mr. Khaimov, a fifty percent owner of plaintiff, nor the broker S.J., has provided any explanation for their failure to co-operate with the investigation. It was plaintiff's burden under the Policy to support its claim in a timely fashion so as to afford defendants the opportunity to verify both the fact of the loss and its value. It did not meet such burden.

At times, insureds are given a second chance, but "[t]he delay and avoidance here has precluded any possibility of obtaining anything but stale information" (Levy v Chubb Ins., 240 AD2d 336, 338 [1st Dept 1997]). Plaintiff's non-co-operation is held to be wilful as the defendant demonstrated that the plaintiff's failure to co-operate was persistent (see Levy v Chubb Ins., 240 AD2d at 337). Plaintiff's continued failure to provide the defendants with the requested inventory records, purchase records, list of the property allegedly lost, information as to Kataev's availability for an interview, and Shimunov and Khaimov's failure to appear for an interview without a valid explanation or excuse constituted a material breach of the Policy which precludes plaintiff's recovery (see Cabe, 153 AD2d at 653; Pizzirusso, 143 AD2d at 340; Bulzomi, 92 AD2d at 878; 232 B'way Corp., 206 AD2d at 419). The belated attempt by Shimunov to provide the requested documentation cannot cure the actual prejudice to defendants caused by the extended delay and the ultimate failure to co-operate by providing access to witnesses with relevant knowledge.