Insurer Found to Have Waived Non-Coverage Grounds Not Asserted in Disclaimer Letter

HOMEOWNERS – "INSURED LOCATION" – BUSINESS PURSUITS EXCLUSION – RENTED PREMISES EXCLUSION
Adames v. Nationwide Mut. Fire Ins. Co.
(2nd Dept., decided 10/7/2008)

Not really sure what happened here. Follow the moving coverage defenses.

Adames slipped on ice and fell in front of Bobrowsky's commercial building. Bobrowsky had both a homeowners policy and a personal umbrella policy with Nationwide. According to the decision, Nationwide denied coverage under both policies, relying upon the definition of "insured location" in the homeowners policy, and the definition of "business property," as well as an exclusion applicable to "occurrence[s] arising out of the business pursuits or business property of an insured," in the umbrella policy.

Adamses sued Bobrowsky and obtained a $152,505.50 default judgment against him. After that judgment remained unsatisfied for more than 30 days, Adames commenced this action against Nationwide pursuant to New York Insurance Law § 3420(a)(2) and moved for summary judgment. In opposing that motion, Nationwide cited two exclusions appearing in the homeowners policy, one relating to injuries "arising out of business pursuits of an insured," and the other relating to injuries "arising out of the rental or holding for rental of any part of any premises by an insured." Kings Supreme denied Adames' motion for summary judgment and she appealed. On appeal, Nationwide again relied exclusively on the business pursuits and rented premises exclusions of Bobrowsky's homeowners policy.

Reminding the litigants that a notice of disclaimer "'must promptly apprise the claimant with a high degree of specificity of the ground or grounds on which the disclaimer is predicated'" (General Acc. Ins. Group v Cirucci, 46 NY2d 862, 864; see Insurance Law § 3420[d]), and '[a]n insurer's justification for denying coverage is strictly limited to the ground stated in the notice of disclaimer' (Shell v Fireman's Fund Ins. Co., 17 AD3d 444, 446; see Pawley Interior Contr., Inc. v Harleysville Ins. Cos., 11 AD3d 595; Prus v Glencott Realty Corp., 10 AD3d 390)", the Second Department reiterated that "an insurer waives any ground for denying coverage that is not specifically asserted in its notice of disclaimer, even if that ground would otherwise have merit[.]"

It appears Nationwide's undoing was in asserting coverage defenses not raised in its original disclaimer and denial letter. In REVERSING and granting summary judgment to Adames, the Second Department ruled:

In its disclaimer letter, Nationwide relied upon the homeowners policy's definition of "insured location," which was not a valid basis for denying coverage, since Adames's accident triggered the policy's liability coverage, which was not limited to any particular location, not its property coverage. Nationwide further relied upon the umbrella policy's definition of, and exclusion relating to, "business property." The provisions of the umbrella policy are not relevant in the instant action, since the judgment Adames seeks to have satisfied does not exceed the liability limit of the homeowners policy, and thus the umbrella policy's excess liability coverage is not triggered. The homeowners policy's exclusions relating to business pursuits and rental property, upon which Nationwide now relies, were not mentioned in Nationwide's disclaimer letter, and thus have been waived. The disclaimer letter cited a different exclusion, which rested on a different definition and appeared in a different insurance policy.

In cases in which Insurance Law § 3420(d) applies -- claims under liability policies for death or bodily injury arising out of an accident occurring in New York State -- the moral of the story is: assert the correct grounds for declining coverage in the declination letter, or potentially be found to have waived those grounds.