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New York Court Permits Insurer To Rely On Flood Exclusion Omitted From Disclaimer

April 8, 2016

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It is never a good practice for an insurer to omit applicable exclusions in a disclaimer, but according to a New York Second Department decision issued this week, that mistake is not always fatal.  In <em><a href="http://blog.wcmlaw.com/wp-content/uploads/2016/04/Provencal-LLC-v.-Tower-Ins.-Co.-of-New-York.pdf" rel="">Provencal, LLC v. Tower Ins. Co. of New York</a>, </em>the insured’s premises suffered water damage as a result of rain storms and the collapse of a retaining wall.  The insurer disclaimed coverage based on an exclusion for damage caused by water migrating from under the ground.
After the insured filed suit, the insurer relied on an exclusion barring coverage for damage caused by flood and/or surface water.  The insured countered that the policy exclusion did not bar coverage because the insurer failed to specifically identify the exclusion in its disclaimer.  The Second Department disagreed, and held that the exclusion barred coverage despite the fact that it was not identified in the disclaimer.
In reaching that decision, the court reasoned that the line of New York cases addressing an insurer’s obligation to disclaim coverage with specificity was grounded in New York Insurance Law §3420(d)(2), and that statute applies only to accidents arising out of bodily injury or death.  Because the damages in <em>Provencal</em> were property damage, the statute did not apply.
With the statute inapplicable, the court analyzed the disclaimer by analyzing the issue through the prism of estoppel.  Because the insured did not show that it was prejudiced by the insurer’s piecemeal disclaimer, the court held that the insurer was entitled to rely on the exclusion.
All disclaimers should be thorough.  They should all cite every ground upon which they are based.  That is especially true in the context of bodily injury claims.  But the Second Department’s decision in <em>Provencal </em>shows that, at least in the context of property damage claims, not all piecemeal disclaimers are fatal.  Why risk it though?  Insurers should cite all applicable exclusions in their disclaimers.
Thanks to Mike Gauvin for his contribution to this post.  For more information, please email Dennis M. Wade at <a href="mailto:dwade@wcmlaw.com"><u>dwade@wcmlaw.com</u></a>.

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