Georgitsi Realty, LLC v. Penn-Star Ins. Co., 21 N.Y.3d 606 (2013)
Malicious damage covered by a property insurance policy for vandalism can result from acts not specifically directed at the insured property, but requires a state of mind reflecting a conscious and deliberate disregard of the interests of others, akin to that required for punitive damages.
Summary
Georgitsi Realty sued Penn-Star Insurance seeking coverage under a property insurance policy for damage to its building allegedly caused by excavation on an adjacent property. The policy covered vandalism, defined as willful and malicious damage. The Second Circuit certified questions to the New York Court of Appeals regarding whether vandalism can occur when the damage isn’t directly targeted and what mental state is required. The Court of Appeals held that vandalism coverage can extend to damage from acts not directed at the property, but requires a showing of malice equivalent to that required for punitive damages: a conscious and deliberate disregard of the interests of others.
Facts
Georgitsi Realty owned an apartment building. Armory Plaza, Inc. owned the adjacent lot and began excavation for a new building. Georgitsi claimed the excavation caused cracks and settling in its building. Despite violations and stop-work orders from the Department of Buildings and a temporary restraining order from the Supreme Court, Armory continued excavation. Georgitsi filed an insurance claim with Penn-Star under its “named perils” policy, which included vandalism coverage. Penn-Star denied the claim.
Procedural History
Georgitsi sued Penn-Star in Supreme Court. The case was removed to the United States District Court for the Eastern District of New York, which granted summary judgment for Penn-Star. Georgitsi appealed to the Second Circuit Court of Appeals, which certified two questions to the New York Court of Appeals.
Issue(s)
1. Whether, for purposes of construing a property insurance policy covering acts of vandalism, malicious damage can be found to result from an act not directed specifically at the covered property?
2. If so, what state of mind is required?
Holding
1. Yes, malicious damage may be found to result from an act not directed specifically at the covered property, because the term vandalism should not be limited to acts directly aimed at the damaged property.
2. The state of mind required is such a conscious and deliberate disregard of the interests of others that the conduct in question may be called willful or wanton, because this standard aligns with the malice required for punitive damages and prevents the policy from becoming a general property damage coverage.
Court’s Reasoning
The Court of Appeals relied on Cresthill Indus. v Providence Washington Ins. Co. and Louisville & Jefferson County Metro. Sewer Dist. v Travelers Ins. Co., which allowed recovery under vandalism policies even when the acts were not specifically directed at the damaged property. The court reasoned that vandalism, as ordinarily understood, doesn’t require a specific intent to accomplish a particular result. “Where damage naturally and foreseeably results from an act of vandalism, a vandalism clause in an insurance policy should cover it.”
Regarding the required state of mind, the Court adopted the standard used for punitive damages, requiring a “conscious and deliberate disregard of the interests of others that [it] may be called wilful or wanton” (Marinaccio v Town of Clarence, 20 NY3d 506, 511 [2013], quoting Dupree v Giugliano, 20 NY3d 921, 924 [2012]). The Court emphasized that insurance against vandalism should not become general property damage coverage, and insureds desiring broader coverage should obtain and pay for it. The court notes the term vandalism brings to mind “people who smash and loot than business owners who seek their own profit in disregard of the injury they do to the property of others.” However, the court finds no “principled distinction” between the two.