March 2024 New York Insurance Coverage Law Update

Third Department Upholds Summary Judgment to Insurer Based on Material Misrepresentation by Insured in Insurance Application

Plaintiff loaned money to his employee to purchase a home, and the loan was secured by a mortgage. When the employee failed to pay the loan and to insure the home, Plaintiff obtained a landlord package policy from Erie and Niagra Insurance Association through Naccarato Insurance, Erie’s alleged agent. Based upon Plaintiff’s (“Erie”) representation that he was about to become the owner due to the pending foreclosure action, Naccarato’s vice president filled out Plaintiff’s insurance application, stating that Plaintiff owned and rented out the property. The Plaintiff signed the application in December 2013. However, Plaintiff did not own the property until he successfully foreclosed and was deeded the property in July 2014. After a fire on the property in September 2014, Plaintiff sought coverage, and Erie disclaimed based upon the insured plaintiff’s material misrepresentations. In support of Erie’s motion for summary judgment, Erie submitted an affidavit from its underwriting manager and manual for the landlord package policy program reflecting that “but for plaintiff’s misrepresentations that he owned the property and that tenants resided therein,” Erie would not have issued the policy. In affirming summary judgment to Erie, the Appellate Division, Third Department, reasoned that “[w]hile materiality is generally a question of fact, an insurer may establish materiality as a matter of law by ‘present[ing] documentation concerning its underwriting practices, such as underwriting manuals, bulletins or rules pertaining to similar risks, to establish that it would not have issued the same policy if correct information had been disclosed in the application.’” The court rejected Plaintiff’s argument that he should not be bound by the application because he did not read it before signing, stressing that as the signer he was bound “whether he chose to read the document or not.” The court also refused to impute Naccarato’s knowledge that Plaintiff did not own the property to Erie because Naccarato “abandoned [any] role as agent and, instead, concealed information to assist plaintiff in obtaining insurance ….”  Finally, the court rejected Plaintiff’s argument that Erie should be estopped from disclaiming because of its untimely disclaimer, reasoning that common law estoppel requires prejudice, and New York’s timely disclaimer statute, Insurance Law § 3420(d), only applies to claims involving a bodily injury or death. [Barese v. Erie & Niagra Ins. Assn., 2024 N.Y. App. Div. LEXIS 1107 (3d Dep’t Feb. 29, 2024).]

First Department Finds Prior Notice Exclusion Precludes Coverage for Recall Under One Policy and Questions of Fact Under Another

The defendant insurers issued insurance policies to the insured for two years, each of which covered “market withdrawal or recall” as an insured event so long as the insured gives notice “as soon as possible, no longer than 30 days” after discovery of the event. However, the policies excluded coverage where the insured “knew or should have known, prior to the inception of the policy” of pre-existing circumstances that “caused or could reasonably have expected to cause” an insured event. The Appellate Division, First Department, found that the exclusion precluded coverage under the second policy for the insured’s recall of its enFlow product because, among other things, the insured decided to suspend enFlow use before that policy was issued. However, the court found questions of fact as to whether the insured gave timely notice under the first policy. [Vyaire Holding Co. v. Westchester Surplus Lines Ins. Co., 2024 N.Y. App. Div. LEXIS 868 (1st Dep’t Feb. 15, 2024).]