Insurer not Responsible For Coverage Where Insured Breached Policy Provision Requiring It To Set Damaged Property Aside For Examination
April, 2007
A New York Appellate Court recently held that where an Insured failed to set aside its physically damaged property for inspection by its Insurer, as required by the policy, the Insured breached its policy and the Insurer was not responsible for coverage. The case was originally brought in the Supreme Court of New York County and was heard on appeal by the Appellate Division, First Department. See Seaport Park Condominium v. Greater New York Mutual Ins. Co., 828 N.Y.S.2d 381 (1st Dep’t 2007).
On January 12, 2004, the pipes in a rooftop cooling tower burst at Plaintiff’s seven-story condominium apartment building at 117 Beekman Street in Manhattan. The pipes were alleged to have burst due to freezing temperatures. On or about May 6, 2004, Plaintiff notified its insurer, Greater New York Mutual Insurance Co. (hereinafter “Defendant”), of the incident and requested coverage for the damage under its first-party property insurance policy.
Upon being notified of the loss, Defendant retained an HVAC expert to perform a root cause analysis. The expert visited the site on May 24 and June 1, 2004. On the latter occasion, the expert was joined at the site by the following individuals: a representative of the managing agent of the building; Plaintiff’s attorney; several representatives of Matco Service Corp., the company chosen by Plaintiff to repair the cooling tower; and, Defendant’s retained adjuster. After inspecting the tower for about an hour, the expert reported that while he believed there were burst pipes within the cooling tower, he was unable to render a final report until he examined the system more thoroughly. This examination would determine if the loss was covered under the policy. According to an affidavit from Plaintiff’s attorney, all parties present at the meeting agreed that Matco would remove the damaged tower and install a new one. Matco was also instructed to store the damaged tower in a safe place, “advising all parties as to where it would be located and make arrangements for its further inspection.” Seaport Park Condominium v. Greater New York Mut. Ins. Co., 828 N.Y.S.2d at 382. However, Matco destroyed the tower.
Defendant subsequently denied coverage based on the following policy provisions:
3. Duties In The Event Of Loss Or Damage
a. You must see that the following are done in the event of loss or damage to Covered Property:
* * *
(4) If feasible, set the damaged property aside and in the best possible order for examination.
* * *
(6) As often as may be reasonably required, permit us to inspect the property proving the loss or damage and examine your books and records (emphasis added by Court).
Id. Plaintiff filed suit. Defendant moved for summary judgment based on Plaintiff’s breach of a policy condition in failing to preserve the damaged property for examination. Plaintiff’s argument against summary judgment was that an issue of fact existed as to whether the Defendant required an additional inspection of the cooling tower. The trial court denied the motion and noted that Defendant failed to offer any document or affidavit from the expert indicating the need for further examination.
The Appellate Court found that the fact that all parties agreed to a further inspection of the tower “reflects a tacit acknowledgment that a further inspection was reasonably required.” Id. at 383. The Court also held that a document or affidavit from Defendant’s expert indicating the need for further inspection was unnecessary because that requirement “ignores plaintiff’s admission that all the parties agreed on June 1, 2004 to permit GNY a final inspection of the cooling tower to complete its investigation.” Id. at 384. Finally, the Court cited the well-established rule that “a court is not free to make or vary the contract of insurance to accomplish its notions of abstract justice or moral obligation.” Id. As such the Court held that the failure to preserve the cooling tower is not a “mere technicality,” but rather, it is a condition precedent to coverage.
The condition at issue here, i.e., the obligation to preserve the damaged cooling tower, is clear and unambiguous and stated in unmistakable language. Thus, it constitutes an express condition precedent that must be literally complied with before plaintiff may recover.
Id. Thus, because Matco destroyed the tower, Defendant was unable to further inspect it and Plaintiff was deemed to have breached the policy. Therefore, the Appellate Court reversed the trial court’s denial of Defendant’s motion for summary judgment and dismissed the complaint against the Insurer.
Learning Point: Courts do not view the Insured’s duties under the policy in the event of loss as mere technicalities; rather, these duties are considered conditions precedent to coverage under the policy. Insureds that fail to abide by these conditions will be deemed to have breached the policy and will be denied coverage.
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