Not a Named Insured? Not Entitled to Coverage.

CGL – NAMED INSURED STATUS – REFORMATION – MUTUAL MISTAKE
South Hylan, LLC v CNA Ins. Co.
(2nd Dept., decided 11/1/2011) 

A person or entity can be entitled to coverage under a liability policy in one of three ways: (1) as a named insured; (2) as an additional insured; or (3) as an omnibus insured, qualifying as an insured by virtue of a provision in the "Who is an Insured" or other omnibus insured clause of the policy.

Plaintiffs sought defense and indemnification coverage from National Fire Insurance Company of Hartford (NFICH) for an underlying personal injury action.  NFICH declined based on the fact that plaintiffs were not named insureds on the policy under which they sought coverage (and presumably were not additional insureds or omnibus insureds either).  Plaintiffs commenced this declaratory judgment action and, among other things, sought to reform (re-write) the policy to add themselves as named insureds based on the parties' alleged mutual mistake in procuring and issuing the policy.  Supreme Court, Richmond County (Ajello, J.H.O.), denied NFICH's motion and granted plaintiffs' cross motion for summary judgment and NFICH appealed.

In REVERSING the lower court's order, the Appellate Division, Second Department, found that NFICH had demonstrated its prima facie entitlement to summary judgment by establishing that plaintiffs were not named insureds in the subject insurance policy.  The appellate court also found that plaintiffs had failed in opposition to NFICH's motion to raise a triable issue of fact as to whether reformation of the subject insurance policy was appropriate because a mutual mistake had been made as to the identity of the actual insureds.

You know what a claim like this one means, don't you?  A companion agent E&O claim.  Looks like that action is heading to trial next month. 

Read Your Policy or Be Deemed to Have Presumptive Knowledge of Its Terms

COMMERCIAL PROPERTY – COVERED LOCATION – PRESUMPTIVE KNOWLEDGE OF POLICY TERMS
Gui's Lumber & Home Ctr., Inc. v. Pennsylvania Lumbermens Mut. Ins. Co.
(4th Dept., decided 10/3/2008)

With the assistance of its agent, Gui's Lumber & Home Center procured a commercial insurance policy from Pennsylvania Lumbermens Mutual for what it thought covered its several buildings. One of those buildings collapsed during a snowstorm, and PLM denied covered based on that building not being listed on the policy as a covered location. Gui's sued PLM and its agent.

In AFFIRMING Niagara Supreme grant of summary judgment to both defendants, the Fourth Department held:

[T]he action against Ulrich is barred by plaintiff's receipt of the PLM policy, which was procured for plaintiff by Ulrich from PLM prior to the collapse of the building. The express terms of that policy provide that PLM did not insure the collapsed building at the time of the loss, and "[p]laintiff is charged with conclusive presumptive knowledge of the terms and limits of [the policy], thus defeating [its action for negligence against Ulrich] as a matter of law" (Hoffend & Sons, Inc. v Rose & Kiernan, Inc., 19 AD3d 1056, 1057-1058, affd on other grounds 7 NY3d 152 [internal quotation marks omitted]).

We likewise conclude that plaintiff's receipt of the PLM policy bars the action against PLM, inasmuch as "[p]laintiff had conclusive presumptive knowledge of the terms of the policy prior to the loss and took no action to close the gap in coverage" (Nicholas J. Masterpol, Inc. v Travelers Ins. Cos., 273 AD2d 817, 818). Plaintiff's contention that the PLM policy should be reformed to provide coverage for the collapsed building is raised for the first time on appeal and is therefore not properly before us (see Ciesinski v Town of Aurora, 202 AD2d 984, 985).

Reformation is often used to correct bilateral mistakes in writing coverage, but in this case it appears the insured did not raise that issue in the motion court.

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.