Insurance

April 5, 2013

Subrogation Of Property Claims In New York IV: Commercial Litigation In Disguise

by The Law Firm of Grasing & Associates

The last few articles have discussed the basic concepts and rules of subrogation in New York. It is the equitable doctrine that allows an insurer that pays a covered claim to its own insured to stand in the shoes of its insured to recover the money from the person or entity that caused the loss.

Subrogation, once you determine that the insurer can bring the claim, at least in claims involving property loss or damage to businesses, is really an exercise in commercial litigation. Whoever the insured could sue to recover for the loss it suffered, the insurance carrier also could sue; whoever the insured could not sue, the insurer also could not sue.

A good example of this is a subrogation claim I had that involved a theft of a few hundred thousand dollars of merchandise from a clothing warehouse. The thieves, who never were caught, were ingenious. They broke into the warehouse and jerry-rigged a conveyor system so that it brought the clothes right to the loading dock door. Once there, the thieves loaded the clothes into a waiting truck and drove off. The whole operation took approximately 2 hours; not bad for a night’s work.

March 29, 2013

SUBROGATION III – RECOVERING FOR PROPERTY DAMAGE CLAIMS IN NEW YORK

by The Law Firm of Grasing & Associates

The last two articles discussed the rules behind the equitable doctrine of subrogation in New York and how they all boil down to an application of the basic idea of fairness. Someone who damages another’s property should not be able to avoid liability merely because he was lucky enough to harm a business or person who had the foresight to purchase an insurance policy that fully insured, and reimbursed the insured for, the loss. Subrogation, in effect, holds the wrongdoer to account. Even if the insurer has paid the insured for the property loss, the wrongdoer still has to pay the insurer.

Subrogation claims come in all shapes and sizes, at least for commercial insurance policies which protect against property damage and business interruption. Recently, Lloyd’s of London made the news by bringing a subrogation action against a New Hampshire utility to recover the money it paid its insured as a result of a fire. According to news reports, a fire engulfed a block of businesses in Hampton Beach, New Hampshire, in February 2010. One of those stores, Decalomania, was insured by Lloyd’s of London. The water used to put out the fire allegedly damaged Decalomania’s property and, pursuant to the policy of insurance it issued to Decalomania, Lloyd’s of London paid Decalomania $33,000.00 as reimbursement for that property damage. Lloyd’s of London has brought suit against the local electrical utility, Unitil, to recover the $33,000.00 it paid Decalomania. It alleges that the fire started due to a fault in an electrical feeder line owned by Unitil and that Unitil failed to use reasonable care when maintaining the line, which was under its exclusive control.

Whether or not Lloyd’s of London will be successful in recovering, from Unitil, any of the $33,000.00 it paid to Decalomania, will depend on a number of factors. If the subrogation action had been brought in New York, rather than New Hampshire, Unitil first would be able to challenge whether the policy required Lloyd’s of London to pay Decalomania for the loss. If the policy did not provide coverage for Decalomania for the loss, then Lloyd’s of London made a voluntary payment for which it could not maintain a subrogation action. See Fid. & Cas. Co. of N.Y. v. Finch, 3 A.D.2d 141, 145, 159 N.Y.S.2d 391, 396 (3rd Dept. 1957).
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March 22, 2013

SUBROGATION II – The Just Details

by The Law Firm of Grasing & Associates

In our last article, we discussed subrogation, a legal concept that plays a large role in commercial property insurance coverage in New York. It is the equitable doctrine that allows an insurer, once it has paid its insured for a covered loss under its insurance policy, to try to recoup the money it paid from the party that caused the loss.

Once an insurer pays its insured for a covered loss, it stands in the insured’s shoes, at least up to the amount of the payment. If the insured can sue someone for causing the loss, so, too, can the insurer, to try to get its money back. The insurer does not even always have to name itself in the subrogation action. If the insured properly assigns its rights to recover for the loss to the insurer, for example by signing a subrogation receipt, the insurer can name the insured as the only Plaintiff, even though the real party in interest is the insurer. See CPLR 1004.

When the insurer tries to recover its money, it does not do it alone; the insured has a duty under the policy to cooperate with the subrogation action. Basically, the money the insured receives for the loss from the insurer comes with strings attached; the insured has to try to help the insurer get its money back from the party that has caused the loss. Most policies, however, allow the insured to waive subrogation, as long as the agreement to do so is in place before the loss occurs. This means the insured can waive the right of its insurer, which pays it for a covered loss, to recover in subrogation from the party which has caused the loss. A common example is found in a lease, in which the tenant and the landlord each give up the right of its insurer to recover from the other for a covered loss, such as a fire loss, that it might suffer due to the negligence of the other. See Kaf-Kaf, Inc. v. Rodless Decorations, Inc., 90 N.Y.2d 654, 660, 687 N.E.2d 1330, 1332-33 (1997).
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March 15, 2013

SUBROGATION IN NEW YORK: THE BASICS – IF THE SHOE FITS

by The Law Firm of Grasing & Associates

There are many terms, related both to insurance and business, which seem too intimidating for most people even to want to try to understand. Subrogation is one such term. It sounds like an impressively dense legal concept that only can be understood through the use of skilled professionals pouring over thick stacks of documents trying to decipher obtuse language to discern some hidden meaning or obtain some pearl of wisdom. Well, so much for fantasy. It really is a straightforward legal concept that every New York business and insurance adjuster should become familiar with, because it can affect the business’ recovery after a property or casualty loss.

Subrogation is an equitable doctrine that allows an insurer, which has paid its insured for a covered loss, to stand in the shoes of its insured to try to recover the money it paid, from the party that caused the loss in the first place. See Kaf-Kaf, Inc. v. Rodless Decorations, Inc., 90 N.Y.2d 654, 660, 687 N.E.2d 1330, 1332-33 (1997).

The easiest way to think of subrogation is in terms of an insurance policy that provides coverage for property damage. Just about every New York business has one. For the most part, every insurance policy protects the insured, to one degree or another, from responsibility, or liability, for its own negligence. Homeowners’ policies, and many business owners’ policies, also known as “BOP” policies, often also provide property coverage. That is, the policies require that the insurer pay the insured for the loss or damage to the insured’s real or personal property when the loss or damage results from a cause of loss covered under the policy. When the insured makes a claim to recover under its own policy for damage caused to its own property, called a first-party property claim, the insurer will evaluate, or adjust, the claim. If the damage was caused by a covered cause of loss, the insurer will pay the insured either the value of the property at the time of the loss, including depreciation, or the cost to repair or replace the property if the repair or replacement is done within a certain amount of time after the loss.

Once the insurer pays the insured’s first-party property claim, the insurer can try to recover the money it paid to its insured, from the person or entity that caused the damage in the first place. This is subrogation. By paying the insured’s claim, the insurer becomes subrogated to the insured’s right to recover from the party that caused the damage, to the full amount it paid the insured under the policy. The insurer can sue in the insured’s name, even when trying to recover the insured’s uninsured loss, when the insured assigns all its rights to recovery to the insurer, which it often does in a subrogation receipt. See CPLR 1004, and CNA Ins. Co. v. Carl R. Cacioppo Elec. Contractors, Inc., 206 A.D.2d 399, 400, 616 N.Y.S.2d 187 (2nd Dept. 1994).
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February 26, 2013

Collapse Coverage In New York II – Huff & Puff & Blow Your House Down

by The Law Firm of Grasing & Associates

Collapse coverage for first-party property claims in New York is important because of the large building damages involved and the various policy exclusions that help determine whether the policy affords coverage for the claimed loss. As with any other complex problem, however, you should start with the basics: the definition of collapse.

In our last article on the subject, we discussed what constitutes a collapse in New York. Some courts have concluded that a collapse occurs when the structural integrity of a building is substantially impaired. Royal Indem. Co. v. Grunberg, 155 A.D.2d 187, 553 N.Y.S.2d 527(3rd Dept. 1990). Others require that a collapse include an element of suddenness, a falling in, and total or near total destruction. See Graffeo v. U.S. Fid. & Guar. Co., 20 A.D.2d 643, 246 N.Y.S.2d 258 (2nd Dept. 1964), motion for leave to appeal denied, 14 N.Y.2d 685, 198 N.E.2d 911 (1964).

It’s also important to know the reasoning behind the rules in order to understand how they apply to any given claim. In this article we are going to discuss the reasoning behind the substantial impairment rule, set out in Royal Indem. Co. v. Grunberg, supra. A close examination of the facts of that case expose the reasons why the rule has been implemented in so many jurisdictions.

In Royal v Grunberg, supra, the insureds were homeowners who purchased land on which to build their house. It was a modular home, in which the pre-fabricated sections are transported to the site and, as they are placed on the foundation, joined together into a finished home. The land on which it was built was hilly and overlooked a ravine; it must have had a gorgeous view.

During the course of construction, however, the Insureds noticed serious problems. One wall of the house, which faced the east, or the downslope of the hill, as well as a deck, were seven inches out of plumb. Certain windows and doors wouldn’t open or close. A large number of cracks developed throughout the house, including a four inch deep crack that ran along the entire basement floor. The foundation wall on the east, or downslope, side of the house, bowed outward; and the house itself tilted in the same direction. The house, in other words, looked like it was leaning downhill. It did not, however, fall down or fall in; its walls still stood; and it was not reduced to rubble. It still was a house, not a pile of debris. The Insureds repaired the damage and made a claim to recover under their policy of homeowner’s insurance for the cost of the repairs. The carrier disclaimed coverage and commenced a declaratory judgement action seeking a declaration that the Insureds’ claim was not covered by the policy.

The main issue in the case was whether the house had collapsed, even though it had never fallen down.
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February 19, 2013

Collapse Coverage in New York – Does a Building Have to Fall Down to Be Covered?

by The Law Firm of Grasing & Associates

Everyone might think they know what a collapse is. Everyone probably says they know a collapse when they see it. Most New York businesses and homeowners have policies of property insurance to protect them and their property from major, and sometimes minor, damage. But has anyone ever really taken the time to figure out whether a collapse is actually covered under their policy of property insurance? Even if the policy states that it provides additional coverage for collapse, whether or not the policyholder will be able to recover depends, in large part, on the definition of collapse.

There have been a number of major collapses in the news recently. There have been crane collapses in New York City. The blizzard of February 8-February 9, 2013, aka winter storm Nemo, dumped more than two and one half feet of snow on many parts of eastern Long Island. As a result, the roof of a local bowling alley in Smithtown, New York collapsed, and the nearby Smithhaven Mall was evacuated because authorities feared the roof would collapse when large amounts of water gushed through the ceiling of multiple stores within it.

The two recent incidents on Long Island point out the key aspects of what constitutes a collapse under New York law and whether a policy of property insurance will provide coverage for it when it occurs. To be clear, we are talking about a specific type of claim: A first party property claim. This is one in which the policyholder, which is normally the business owner or the homeowner, makes a claim to recover for what they allege is damage that occurred as a result of a loss for which the policy provides coverage; i.e., they try to recover under their own policy of insurance.

Under New York law, there are two definitions of collapse. The first is the significant impairment of the structural integrity of a building or part of a building. This means that a building or part of a building does not have to fall down, fall in, or be nearly destroyed in order to collapse; it can just be in imminent danger of doing so. See Royal Indem. Co. v. Grunberg, 155 A.D.2d 187, 553 N.Y.S.2d 527(3rd Dept. 1990). This seems to be the view of the majority of courts and jurisdictions across the country.

The second definition requires that a collapse include an element of suddenness, a falling in, and total or near total destruction; and it excludes sinking, bulging, or cracking. See Graffeo v. U.S. Fid. & Guar. Co., 20 A.D.2d 643, 246 N.Y.S.2d 258 (2nd Dept. 1964), motion for leave to appeal denied, 14 N.Y.2d 685, 198 N.E.2d 911 (1964). A policy of property insurance, however, can specifically exclude coverage for imminent collapse; it depends on the precise policy language. See Rector St. Food Enterprises, Ltd. v. Fire & Cas. Ins. Co. of Connecticut, 35 A.D.3d 177, 827 N.Y.S.2d 18 (1st Dept. 2006).
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June 29, 2012

What a New York Business Should Know About Recovering for Damage to its Property (III)

by The Law Firm of Grasing & Associates

We have been discussing how much a New York business can recover from someone who damages its property. If the property is damaged, but not destroyed, the business normally can recover either the loss in market value caused by the damage, or the cost of repairs, whichever is less. See Fisher v. Qualico Contracting Corp., 98 N.Y.2d 534, 539 (2002). See Gass v. Agate Ice Cream, 264 N.Y. 141, 143-44 (1934). If the property is totally destroyed, it can recover the reasonable market value of the property just before it was destroyed. See Gass v. Agate Ice Cream, 264 N.Y. 141, 143-44 (1934). If the destroyed property is a business’ sales inventory, the business normally can recover the wholesale cost of the merchandise, because that is what it would cost to replace the merchandise, and any damages actually sustained by reason of the absence of the articles while they are being replaced. See Dubiner’s Bootery, Inc. v. Gen. Outdoor Adver. Co., 10 A.D.2d 923 (1st Dept. 1960). These rules seem intrinsically fair because each will put the business back to where it was before the loss.

A business also can try to recover for damage to its property by making a claim under the property coverage of its business owner’s insurance policy. If the policy covers the type of property that was damaged, the damage was caused by something the policy insures against, and the insured otherwise has lived up to its obligations under the policy, the business owner should be able to recover for the damage to its property. The amount the business can recover depends on the language of the policy. It might be able to recover only the actual cash value of the property. One way to determine that is replacement cost minus depreciation. It might be able to recover the replacement cost of the property, without deduction for depreciation. For the destruction of sales inventory, it might be able to recover the sales price of that inventory, if it has purchased the proper coverage. Sometimes, an insurance policy, depending on how it is written, might reimburse the business for its lost income. Even then, however, the business should be aware that it cannot recover both the retail selling price of the damaged inventory and the income it would have earned by selling that same merchandise.

This is illustrated by J & R Electronics Inc. v. One Beacon Ins. Co., 35 A.D.3d 169 (1st Dept. 2006). The case involved J&R Electronics, an electronics retailer in Manhattan that was badly damaged as a result of the terrorist attacks in New York City on September 11, 2001. As a result, it made a claim to recover, under its policy of property insurance with One Beacon Insurance Company, for, among other things, the damage to its merchandise, and for its loss of business income. Pursuant to the terms of the policy, One Beacon paid J&R the selling price minus unincurred expenses for the damaged merchandise. That basically means that J&R was paid the selling price minus the money it normally would have spent in order to sell the merchandise. When One Beacon paid J&R’s claim for loss of business income, it subtracted the amount it paid J&R for the sales price of the damaged merchandise. J&R objected to this, claimed the sales price should not be subtracted from its lost income, and sued. The appellate court held that J&R could not recover both the selling price of the merchandise and the lost income based on its failure to sell that same merchandise; to do so would have been to give J&R a double recovery.