The Appellate Division of the Supreme Court of New York has provided some clarity to New York businesses and their insurers dealing with loss resulting from fraudulent entrustment. In Crown Jewels Estate Jewelry, Inc. v. Underwriters At Interest At Lloyd’s London, Case No. 2020-04312 (N.Y. App. Div. May 13, 2021), the court held that coverage under a dishonest entrustment exclusion was properly denied where an individual fraudulently convinced a high end jewelry store to let him borrow five pieces of jewelry. In a Scorsese-like plot, Paul Castellana, the plaintiff, emailed Crown Jewels Estate Jewelry, a high-end jeweler, saying he worked for Sony Pictures International and asked to borrow jewelry for a video he said he was shooting with Jennifer Lopez. After…
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Elaborate Jewelry Heist Results in No Coverage for Jewelry Store’s Loss Under Dishonest Entrustment Exclusion
Posted in Exclusions, Fraud
“Context Matters” – Tenth Circuit Holds Mudslide Not an Explosion Under Property Policy
On August 29, 2016, the U.S. Court of Appeals for the Tenth Circuit affirmed a Colorado district court ruling that the sudden obliteration of a building in a 2013 mudslide did not constitute an “explosion” under a commercial property policy. Accordingly, coverage for the loss was barred under the policy’s “Water Exclusion Endorsement,” which excluded coverage for, among other perils, “[m]udslide or mudflow.” Although the exclusion contained an exception for resulting losses caused by “fire explosion, or sprinkler leakage,” the Tenth Circuit held that the destruction of the building did not constitute an explosion as used in the exception to the exclusion. In construing the meaning of “explosion” as used in the water exclusion, the court emphasized that “context matters,”…
Workmanship and Earth Movement Exclusions Preclude Coverage for Collapse As a Matter of Law
A U.S. federal district court recently granted Peerless Insurance’s summary judgment motion, concluding that, as a matter of law, under Virginia law, a property policy insuring a building under renovation would not provide coverage for a collapsed basement wall due to a subcontractor’s lack of shoring,. Taja Investments LLC v. Peerless Ins. Co. a/k/a Liberty Mutual Ins. Co., Civ. No. 1:15-cv-01647, 2016 U.S. Dist. LEXIS 95760 (E. D. VA, July 21, 2016). The plaintiff insured, Taja Investments, was a construction company, which was excavating a 4-5 foot crawlspace under a building to create a space with a 9 foot depth in order to allow for additional living areas. The insured’s claim arose out of the collapse of one of the basement…
Is a Rock a Landslide? Montana Supreme Court Says Yes
In a recent decision, the Montana Supreme Court upheld application of an Earth Movement exclusion to bar coverage for damage to a home when a single large boulder rolled down a hill and smashed into it. In doing so, the court gave the words of the exclusion their plain and ordinary meaning, refusing to give them a strained interpretation in order to find an ambiguity. Russell Parker owned a vacation home near Sheridan, Montana. In March 2014, a large boulder fell from a hillside about 440 feet uphill from the cabin and smashed into the structure. Parker had insurance with Safeco and he submitted a claim. Safeco hired an engineer who traced the path of the boulder back to its…
Utah Court: Seepage Over A Months-Long Period Is Excluded As Moral Hazard
Two weeks ago in Wheeler v. Allstate Ins. Co., 2015 WL 5714392, 2015 U.S. Dist. LEXIS 131736 (C.D.Utah, Sep. 29, 2015), a Utah court barred coverage for a mold loss caused when a vacant log cabin suffered a long-term water leak. The policy excluded “seepage or leakage over a period of weeks, months or years,” and the judge held that that language embodied the concept that such a loss was a moral hazard – a preventable risk best assumed by the policyholder rather than by his or her homeowners insurer. The insured owned a seasonal cabin in Duck Creek that was not used during the winter months, and his practice was to leave both the water and the heat turned…
Posted in Ambiguity, Exclusions, Inherent Vice and Latent Defect, Mold, Moral Hazard, Seepage or Leakage, Water, Wear and Tear
Under Illinois Law, Mine Subsidence Held to Be a Type of Excluded Earth Movement
Ever since Mattis v. State Farm Fire & Cas. Co., 118 Ill.App.3d 612, 73 Ill.Dec. 907, 454 N.E.2d 1156 (1983), Illinois courts have held that an earth movement exclusion contained in a first-party policy applies only to earth movement due to natural causes. At the beginning of this month, however, a federal court in Missouri construing Illinois Law found otherwise with respect to mine subsidence. In Hutchinson v. Pacific Indem. Co., 2015 WL 5139183, 2015 U.S. Dist. LEXIS 112239 (E.D.Mo., Sep. 1, 2015), the court held that an earth movement exclusion was unambiguous and clearly barred coverage for such a loss. The policyholders owned a home in Alton, Illinois that was totally destroyed by “a mine subsidence event” on May…
Posted in Ambiguity, Earth Movement, Exclusions, Subsidence
Colorado Court Conducts a Clinic on Explosions
Earlier this month in Paros Properties v. Colorado Cas. Ins. Co., 2015 WL 5139293, U.S. Dist. LEXIS 116939 (D.Colo., Sep. 2, 2015), a federal court in Colorado addressed what constitutes an explosion. After a mudslide knocked down part of its building, the insured contended that the structure had sustained a “violent breaking apart” and therefore an explosion, but the judge held otherwise. In her opinion, the term “explosion” required that a force from within the object cause it to expand violently and burst apart in all directions. The insured owned a commercial building in Boulder, a city which experienced unprecedented rainfall in September of 2013. On September 12th, “a violent flow of water, mud, rocks, trees, and other debris traveled…
Posted in Collapse, Exclusions, Explosion, Mudslide, Water
Eleventh Circuit: Inventory Computation Exclusion Bars Alabama Employee Theft Claim
In February, we reported on an Alabama federal court decision that barred an insured from recovering for employee theft where the only evidence of shortage was a comparison between computer records and a physical inventory conducted after the malefactor had been discharged. On August 6th, a unanimous panel of the Eleventh Circuit affirmed in W.L. Petrey Wholesale Co. v. Great Amer. Ins. Co., 2015 U.S. App. LEXIS 13738, 2015 WL 4646599 (11th Cir., Aug. 6, 2015). The judges held that the policy’s inventory computation exclusion was unambiguous and that inventory computation evidence was only admissible to prove the amount of loss after the existence of loss had been shown by other means. As we noted earlier this year, the insured…
Posted in Conditions, Exclusions, Theft or Dishonesty
Sixth Circuit: A Michigan Collapse Extension Overrides Exclusions for Cracking and Defective Design
In Joy Tabernacle — The New Testament Church v. State Farm Fire & Cas. Co., 2015 WL 3824733, 2015 U.S. App. LEXIS 10707 (6th Cir., Jun. 22, 2015), a unanimous panel of the federal Court of Appeals recently held that a collapse extension of coverage negates a policy’s exclusions for cracking and faulty workmanship and design because more specific provisions of a contract of insurance are controlling over general ones. The court noted that any collapse necessarily entails “the cracking of beams and walls” and that giving effect to the exclusion under those circumstances would render the extension nugatory. In addition, the defective design exclusion was ineffective because the collapse extension specifically recited that collapse caused at least in part…
Posted in Collapse, Exclusions, Faulty Workmanship or Design, Hidden Decay, Settling or Cracking
Tennessee Court Weighs in on Whether Arson is a Species of Vandalism and Malicious Mischief
Last month in what was a case of first impression in Tennessee, a unanimous panel of the state’s intermediate level appellate court joined those jurisdictions that have concluded that arson does not constitute a type of vandalism and malicious mischief. As is typically the case, the issue arose after a fire destroyed a vacant building and the carrier denied liability because the policy excluded loss by vandalism and malicious mischief during vacancy. Southern Trust Ins. Co. v. Phillips, 2015 WL 3612989, 2015 Tenn. App. LEXIS 457 (Tenn.Ct.App., Jun. 10, 2015) contains a helpful canvas of state law on both sides of the question, but the holding itself is obviously far less useful for insurers. The insured owned a home in…
Posted in Arson, Arson and Fraud, Exclusions, Fire, Vacant or Unoccupied, Vandalism
