New York Law Review

Tag: homeowner’s insurance

  • Dean v. Tower Insurance Co., 19 N.Y.3d 704 (2012): Interpreting ‘Residence Premises’ in Homeowners Insurance Policies

    Dean v. Tower Insurance Co. of N.Y., 19 N.Y.3d 704 (2012)

    When the term “residence premises” in a homeowners insurance policy is undefined and ambiguous, particularly in situations where the insured has purchased the policy but has not yet fully moved into the property due to necessary repairs, the policy should be interpreted in favor of the insured’s reasonable expectations.

    Summary

    Douglas and Joanna Dean purchased a homeowners’ insurance policy from Tower Insurance for a house they bought in Irvington. Due to extensive termite damage discovered after the closing, they couldn’t immediately move in and began renovations. A fire destroyed the house after renovations were substantially complete. Tower denied coverage, claiming the house was unoccupied and thus not a “residence premises” as defined by the policy. The New York Court of Appeals held that the term “residence premises” was ambiguous under the circumstances, precluding summary judgment for the insurer, and that it was an issue of fact as to whether the insured’s actions were sufficient to satisfy the requirements of the insurance policy.

    Facts

    The Deans contracted to buy a house in February 2005, with a closing initially set for March 31, 2005. They obtained a homeowners’ insurance policy from Tower Insurance effective that date. The closing was delayed until May 20, 2005. After closing, extensive termite damage was discovered, prompting significant renovations. The policy was renewed in March 2006. A fire completely destroyed the house on May 15, 2006, after renovations were substantially completed. Douglas Dean spent a considerable amount of time at the property doing repairs, eating meals, and occasionally sleeping there.

    Procedural History

    The Deans sued Tower for breach of contract after Tower denied coverage. The Supreme Court granted Tower’s summary judgment motion, dismissing the complaint. The Appellate Division modified the order, finding that Tower failed to meet its initial burden for summary judgment. The Appellate Division certified a question to the Court of Appeals, which affirmed the Appellate Division’s order.

    Issue(s)

    Whether the term “residence premises” in the insurance contract is ambiguous when the insured purchased a homeowners’ policy in advance of a closing but was unable to move in immediately due to the need for major repairs?

    Holding

    Yes, because the term “reside” is not defined in the contract, making “residence premises” ambiguous, and because there were issues of fact as to whether the insured’s actions were sufficient to satisfy the policy requirements.

    Court’s Reasoning

    The court reasoned that insurance contracts must be interpreted according to common speech and the reasonable expectations of an average insured. Any ambiguities in an insurance policy are construed against the insurer. The court noted that the standard for determining residency requires more than temporary presence, including some degree of permanence and intent to remain. The court emphasized that Douglas Dean’s daily presence at the house for repairs, coupled with his intent to move in with his family, created a question of fact. Because the term “reside” was undefined, the average insured could reasonably expect that occupancy, as demonstrated by Dean’s repair work and presence, would satisfy the policy’s requirements. Referencing Insurance Law § 3404, the court noted the standard fire policy speaks in terms of occupancy, further suggesting that occupancy could be a reasonable expectation for coverage. The court also quoted Page v Nationwide Mut. Fire Ins. Co., stating that a householder need not have conventional furniture to occupy a house; presence for sleeping, eating, and working can constitute occupancy. This reasoning emphasizes that the factual circumstances surrounding the insured’s use of the property created ambiguity, thus preventing summary judgment for the insurer.

  • Cragg v. Allstate Indemnity Corp., 16 N.Y.3d 118 (2011): Interpreting “Benefit” in Homeowner’s Insurance Exclusions

    Cragg v. Allstate Indemnity Corp., 16 N.Y.3d 118 (2011)

    When interpreting exclusionary clauses in insurance contracts, courts must narrowly construe them in favor of the insured, and the insurer bears the burden of proving the exclusion applies unambiguously.

    Summary

    Eric Cragg, father of the deceased Kayla, sued Allstate after Kayla drowned in her grandparents’ pool. Allstate denied coverage based on a policy exclusion for bodily injury to an insured where any policy benefit would accrue to an insured. Cragg, as administrator of Kayla’s estate, sought to recover for wrongful death. The New York Court of Appeals reversed the lower court’s decision, holding that Allstate’s policy exclusion was ambiguous and did not clearly bar coverage for the non-insured father’s wrongful death claim. The court emphasized that insurance contracts should be interpreted according to common speech and the reasonable expectations of the average insured, construing ambiguities against the insurer.

    Facts

    Kayla, a three-year-old, lived with her mother, Marina Ward, at her grandparents’, Gregory and Katherine Klein, home. The Kleins had a homeowner’s insurance policy with Allstate. Kayla drowned in the Kleins’ swimming pool. Eric Cragg, Kayla’s father, maintained a separate residence and was not an insured under the policy. Allstate denied coverage based on a policy exclusion that disallows coverage for bodily injury to an insured person whenever any benefit of the coverage would accrue directly or indirectly to an insured person.

    Procedural History

    Cragg, as administrator of Kayla’s estate, sued Ward and the Kleins for wrongful death and conscious pain and suffering. Ward defaulted. Cragg then filed a declaratory judgment action against Allstate, seeking a declaration that Allstate was required to defend and indemnify its insureds. The Supreme Court granted Allstate’s summary judgment motion. The Appellate Division affirmed. The New York Court of Appeals granted leave to appeal.

    Issue(s)

    Whether Allstate’s homeowner’s insurance policy exclusion for bodily injury to an insured, where any benefit of the coverage would accrue to an insured, unambiguously bars coverage for a wrongful death claim brought by a non-insured parent for the death of their insured child.

    Holding

    No, because the language of the exclusion is ambiguous and can be reasonably interpreted to mean that “benefit” refers to proceeds paid under the policy, not merely the provision of defense and indemnification, and thus does not clearly bar payment to a noninsured plaintiff on a wrongful death claim.

    Court’s Reasoning

    The court found the policy exclusion ambiguous, stating, “The language of the policy exclusion — excluding coverage ‘whenever any benefit of this coverage would accrue directly or indirectly to an insured’ — is ambiguous.” Allstate argued that ‘benefit’ included coverage itself. However, the court reasoned that this interpretation would render the second part of the exclusion meaningless, as the right to defense and indemnification universally accrues to an insured. The court stated, “However, the second part of the exclusion must somehow modify the first part of the clause in order to have any meaning. In this context, a benefit must mean something other than coverage itself and is more naturally read to mean proceeds paid under the policy.”

    The court noted that insurance contracts should be interpreted according to common speech and the reasonable expectations of the average insured. Ambiguities in exclusionary clauses must be construed in favor of the insured. The court quoted, ” ‘exclusions or exceptions from policy coverage . . . are not to be extended by interpretation or implication, but are to be accorded a strict and narrow construction…’ “

    The court acknowledged policy reasons for excluding coverage in similar cases, such as avoiding collusion, but emphasized that Allstate failed to meet its burden of proving the exclusion applied unambiguously. Referencing Day v Allstate Indem. Co., the court agreed that Allstate failed to demonstrate that ‘benefit’ unambiguously includes the contractual right to receive a defense or indemnification. Thus, the exclusion did not bar coverage for the noninsured plaintiff’s wrongful death claim.

  • Slayko v. Security Mutual Insurance Co., 98 N.Y.2d 289 (2002): Enforceability of Criminal Activity Exclusion in Insurance Policies

    Slayko v. Security Mutual Insurance Co., 98 N.Y.2d 289 (2002)

    A criminal activity exclusion in a homeowner’s insurance policy is enforceable unless a strong public policy requires coverage, especially when the insured is convicted of a crime arising directly from the act causing liability.

    Summary

    Ryan Slayko sued Joseph France for injuries sustained when France recklessly fired a shotgun, resulting in a felony assault conviction for France. Security Mutual, France’s homeowner’s insurer, disclaimed coverage based on intentional act and criminal activity exclusions. The New York Court of Appeals held that while the intentional act exclusion didn’t apply, the criminal activity exclusion was enforceable. The Court reasoned that absent a strong public policy dictating otherwise, insurers can exclude coverage for criminal acts, especially where the insured is convicted of a felony directly related to the injury.

    Facts

    Ryan Slayko and Joseph France were drinking and smoking marijuana at France’s cabin. France pointed a shotgun at Slayko, believing it was unloaded, and pulled the trigger. The gun didn’t fire. After Slayko warned France about gun safety, France pumped the gun and pulled the trigger again, this time injuring Slayko. France pleaded guilty to second-degree assault. Slayko then sued France for negligence.

    Procedural History

    Slayko sued Security Mutual, seeking a declaration that the insurer had a duty to defend and indemnify France. Supreme Court granted summary judgment to Slayko. The Appellate Division affirmed, finding the criminal activity exclusion unenforceable as against public policy. Security Mutual appealed to the New York Court of Appeals.

    Issue(s)

    1. Whether the intentional act exclusion in the homeowner’s insurance policy applies to France’s conduct.
    2. Whether the criminal activity exclusion in the homeowner’s insurance policy is unenforceable as against public policy.

    Holding

    1. No, because France did not intend to injure Slayko, and the act was not inherently harmful.
    2. Yes, because no strong public policy requires coverage for liability arising from criminal acts, especially when the insured is convicted of a crime directly related to the injury.

    Court’s Reasoning

    The Court of Appeals first addressed the intentional act exclusion. It distinguished this case from cases where the harm is inherent in the act, such as child molestation (citing Allstate Ins. Co. v. Mugavero). Because the gun could have been unloaded, the Court found France’s conduct, though reckless, not inherently harmful. Therefore, the intentional act exclusion did not apply.

    Turning to the criminal activity exclusion, the Court noted that it facially applied because France’s liability stemmed directly from an act for which he was convicted. The Court rejected the argument that the exclusion was too broad, reasoning that it left coverage for noncriminal acts of negligence intact. The Court highlighted that the exclusion was part of a “New York Amendatory Endorsement” created after Allstate Ins. Co. v. Zuk, which suggested an intent to broaden the scope of criminal activity exclusions.

    The Court addressed public policy arguments, stating that while accident victims should generally have recourse to financially responsible defendants, this principle is strongest in the context of automobile insurance, where coverage is often mandated by law. The Court emphasized the principle that “no one shall be permitted to take advantage of his own wrong” (citing Messersmith v. American Fid. Co.). Furthermore, the Court cited Insurance Law § 3425(c)(2)(B), which permits insurers to cancel policies if the insured is convicted of a crime that increases the hazard insured against, indicating a legislative policy of facilitating insurers’ efforts to remove criminals from the general risk pool.

    The Court distinguished Royal Indem. Co. v. Providence Washington Ins. Co., where a truck liability exclusion was struck down because it conflicted with the mandatory coverage required by Vehicle and Traffic Law § 388. No similar statute mandated coverage in this case.

    Finally, the Court rejected the “reasonable expectations” doctrine adopted by some other jurisdictions, finding the effect of the exclusion neither surprising nor unfair. The Court noted that most jurisdictions have upheld similar criminal activity exclusions. Ultimately, the Court concluded that the criminal activity exclusion was enforceable, reversing the Appellate Division’s order.

  • Cone v. Nationwide Mut. Fire Ins. Co., 75 N.Y.2d 747 (1989): Interpreting “Arising Out Of” in Motor Vehicle Exclusion Clauses

    Cone v. Nationwide Mut. Fire Ins. Co., 75 N.Y.2d 747 (1989)

    The phrase “arising out of” in a motor vehicle exclusion clause of a homeowner’s insurance policy is interpreted broadly to exclude coverage for damages that originate from, are incident to, or have a connection with the use of a motor vehicle, even if the claim is based on negligent entrustment.

    Summary

    This case addresses whether a homeowner’s insurance policy covers a claim of negligent entrustment when the policy excludes coverage for damages “arising out of” the use of a motor vehicle. The plaintiff, Cone, sought coverage after being sued for negligently allowing his son to operate an all-terrain vehicle (ATV) on a public highway, resulting in an accident. The court held that the exclusion clause applied, as the damages arose out of the use of the motor vehicle, regardless of the negligence claim. This decision clarifies the scope of the “arising out of” language in such exclusions and limits the insurer’s obligation in negligent entrustment scenarios.

    Facts

    Plaintiff Cone owned a homeowner’s insurance policy with Nationwide Mutual Fire Insurance Company. Cone’s 14-year-old son operated an all-terrain vehicle (ATV) on a public highway. An accident occurred involving the ATV. A lawsuit was filed against Cone, alleging he negligently allowed his son to operate the ATV, leading to the accident and resulting damages.

    Procedural History

    The lower courts ruled in favor of Cone, finding that the insurance policy covered the claim. Nationwide appealed, arguing that the motor vehicle exclusion clause applied. The New York Court of Appeals reversed the lower court’s decision, holding that the exclusion clause precluded coverage.

    Issue(s)

    Whether a homeowner’s insurance policy, containing an exclusion for damages “arising out of the ownership, maintenance or use of a motor vehicle,” covers a claim against the homeowner for negligently entrusting the motor vehicle to another person.

    Holding

    No, because the damages stemmed from the use of the motor vehicle, triggering the exclusion clause, regardless of the negligence claim against the homeowner for entrusting the vehicle.

    Court’s Reasoning

    The Court of Appeals focused on the policy language, specifically the phrase “arising out of.” The court reasoned that this phrase is broad and encompasses damages that originate from, are incident to, or have a connection with the use of a motor vehicle. The court distinguished its prior decision in Lalomia v. Bankers & Shippers Ins. Co., noting that the exclusion clause in Lalomia was narrower, referring to damages “directly related to the ‘ownership, maintenance, operation’” and use of a vehicle. The court emphasized that insurers introduced the “arising out of” language to broaden the scope of the exclusion, as explained in Fillmore v. Iowa Natl. Mut. Ins. Co. The dissent argued that the majority’s conclusion lacked a sound basis and contradicted the plain language of the policy. Judge Kaye, in dissent, stated that the terms of the policy exclusion plainly precluded coverage. The dissent also noted the overwhelming weight of authority construing such standard policy exclusions as applicable to claimed negligent entrustment. The dissent further argued that if Lalomia was deemed indistinguishable, it should be overruled, not extended. The majority, however, found that the “arising out of” language clearly applied to the facts of the case, excluding coverage for the homeowner’s alleged negligence in allowing his son to operate the ATV. The court effectively sided with a broader interpretation of policy exclusions to limit insurer liability in cases with a nexus to motor vehicle use. The court referenced Aetna Cas. & Sur. Co. v Liberty Mut. Ins. Co., quoting Appleman, Insurance Law & Practice stating that ” ‘ordinarily understood to mean originating from, incident to, or having connection with the use of the vehicle.’ “