New Jersey Federal Court Holds That Insurance Coverage Issues Do Not Need To Be Decided Before Appraisal

A federal court recently held that ongoing insurance coverage issues should not prevent an appraisal from going forward as per an appraisal clause in the insurance policy. In DC Plastic Products Corp. v. Westchester Surplus Lines Insurance Co. Case No. 17-13092 (D.N.J. May 19, 2021), the District Court of New Jersey directed the parties to proceed with the appraisal process as set forth in the relevant policy, despite the defendant-insurer’s argument that appraisal is improper under New Jersey law where unresolved coverage issues exist.

Plaintiff DC Plastics Products Corporation (“DC Plastics”) made an insurance claim to its insurance carrier Westchester Surplus Lines Insurance Co. (“Westchester”) after DC Plastics’ premises in Bayonne, New Jersey was damaged as a result of Superstorm Sandy in 2012. Since that time, the parties have disagreed over whether certain additional payments were required under the terms of the policy.  The policy at issue contained an appraisal provision that allowed either party to make a written demand for an appraisal if the parties disagreed on the amount of loss. This provision also specified that if the separate appraisers selected by both sides cannot agree on an umpire, “either may request that selection be made by a judge of a court having jurisdiction.” DC Plastics filed a motion for the court to appoint an umpire.

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Posted in Causation, Causes of Loss, Valuation

Appraisal Process Tolls Contractual Suit Limitation Period Even For Non-Covered Claims

The Eleventh Circuit Court of Appeals recently held that, under Georgia law, an appraisal process tolled a commercial property policy’s two-year contractual suit limitation period even for non-covered claims. In Omni Health Solutions, LLC v. Zurich Am. Ins. Co., No. 19-12406, 2021 WL 2025146 (11th Cir. May 21, 2021) (unpublished), the insured filed a property insurance claim with its insurer, reporting hail damage to the roof of its medical facility in Macon, Georgia, and water intrusion. The policy required the insurer to give notice of its intentions with respect to a claim within 30 days of receiving a sworn proof of loss. Following a protracted appraisal process, the insured sued the insurer in Georgia superior court for breach of contract and bad faith. In its first count, the insured contended that the insured breached its policy obligation by failing to timely make a coverage decision.

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Posted in Bad Faith, Proof of Loss

Florida Court Holds Rust and Corrosion is “Act of Nature”

A Florida court recently held that rust and corrosion of water pipes is an “act of nature,” and, thus, was excluded from coverage under a homeowner’s insurance policy. In Dodge v. People’s Trust Insurance Company, 2021 WL 2217299 (4th DCA Jun. 2, 2021), Florida’s Fourth District Court of Appeals defined “act of nature” as a naturally occurring force that does not require an uncontrollable or unpreventable event.

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Posted in Act of Nature

A Look Inside Florida’s Recent Property Insurance Reform

Two years after implementing meaningful assignment of benefits reform, Florida enacted broader property insurance claim reform. On June 11, 2021, Governor DeSantis sign S.B. 76, which takes effect on July 1, 2021. S.B. 76 focuses on reducing insurance claim litigation by, amongst other things, requiring timely notice of claims, curtailing certain solicitation practices used by roofing contractors, and limiting the circumstances in which attorney’s fees can be awarded to policyholders in property insurance lawsuits.

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Posted in Property Insurance Reform

South Carolina Allows Depreciation of Labor Costs In ACV Calculation

Insurers in South Carolina may now depreciate both labor costs and material costs when determining the “actual cash value” (ACV) owed to policyholders for property damage. In Miriam Butler et al. v. Travelers Home and Marine Insurance Co. et al., Case No. 2020-001285 (S.C. May 12, 2021), the South Carolina Supreme Court held that insurers may depreciate labor costs to determine the ACV of a damaged property when an insurance policy does not define ACV and the “cost to repair or replace the damaged property at issue includes both materials and embedded labor components.” Id.

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Posted in Actual Cash Value

Pennsylvania District Court Holds Materiality Does Not Require Fraud

A District Court in the Eastern District of Pennsylvania recently held that an insured’s submission of invoices altered to inflate replacement costs for water-damaged inventory constituted material misrepresentations. The court granted the insurer’s motion for summary judgment on its claims for declaratory judgment and violation of the Pennsylvania Insurance Fraud Act; however, the court held that the altered invoices fell short of satisfying the elements of common law fraud. 

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Posted in Bad Faith

Elaborate Jewelry Heist Results in No Coverage for Jewelry Store’s Loss Under Dishonest Entrustment Exclusion

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 Crown Jewels agreed to lend Castellana five pieces of jewelry worth $2.09 million, it received a certificate of insurance. A reference also confirmed Castellana had a legitimate industry reputation. An associate of Castellana picked up the jewels from Crown Jewels and vanished.  

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Posted in Exclusions, Fraud

Southern District of New York Holds Contamination Exclusion is Ambiguous as Applied to Covid-19 Business Losses

The Southern District of New York recently held that a contamination exclusion was ambiguous in the context of Covid-19-related business interruption losses. Accordingly, the court held that the issue was inappropriate to decide at the summary judgment stage and denied both parties’ cross-motions for summary judgment.   

In Thor Equities LLC v. Factory Mut. Ins. Co., No. 1:20-cv-03380 (S.D.N.Y. Mar. 31, 2021), an insured commercial property owner sought business interruption coverage under its property insurance policy. The parties filed cross-motions for summary judgment, asking the court to determine the applicability of two exclusions, one of which was a contamination exclusion. The exclusion excluded “contamination, and any cost due to contamination including the inability to use or occupy property or any cost of making property safe or suitable for use or occupancy.” The policy defined “contamination” as “any condition of property due to the actual or suspected presence of any foreign substance, impurity, pollutant, hazardous material, poison, toxin, pathogen or pathogenic organism, bacteria, virus, disease causing or illness causing agent, fungus, mold or mildew.” The parties agreed that the inclusion of “virus” in the definition of “contamination” applied to Covid-19.

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Posted in Contamination

The Supreme Court of Texas Finds that a Reasonable Payment of an Insurance Claim Does Not Satisfy the Texas Prompt Payment of Claims Act

In Hinojos v. State Farm Lloyds, the Supreme Court of Texas addressed liability under the Texas Prompt Payment of Claims Act (the “TPPCA”) when an insurer timely pays only part of a claim.[1] As demonstrated in Hinojos, disputes as to TPPCA liability typically arise in the context of appraisal and the payment of an award.  

In a fairly short opinion, the Court held that timely payments less than the full amount of the ultimate insurance claim do not satisfy an insurer’s duties under the TPPCA. However, the Court also reiterated that payment of an appraisal award outside the TPPCA’s deadlines does not satisfy a policyholder’s burden to prove an actual TPPCA violation.  

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Posted in Causes of Loss

A Consequential Ruling: Florida Supreme Court Rejects Recovery of Consequential Damages in First-Party Breach of Contract Actions

In first-party breach of insurance contract actions, the parties oftentimes dispute whether the policyholder may seek damages that are not explicitly provided for in the policy, with the policyholder arguing such indirect damages flow from the alleged breach of contract. By doing so, policyholders blur the lines between breach of contract actions and bad faith actions. The Florida Supreme Court recently considered this issue in Citizens Property Insurance Corp. v. Manor House, LLC,[1]  and held that “extra-contractual, consequential damages are not available in a first-party breach of insurance contract action because the contractual amount due to the insured is the amount owed pursuant to the express terms and conditions of the insurance policy.”

Manor House arose from a Hurricane Frances insurance claim filed by an owner of apartment buildings. Citizens issued payments totaling approximately $1.9 million. Approximately nineteen months after the loss, Manor House’s public adjuster asked Citizens to reopen the claim. After reopening the claim, Citizens made additional payments and continued its adjustment. Several months after reopening the claim, Citizens’ field adjuster informally estimated the actual cash value of the loss at approximately $5.5 million and the replacement cost value at $6.4 million.

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Posted in Hurricane
About The Property Insurance Law Observer
For more than four decades, Cozen O’Connor has represented all types of property insurers in jurisdictions throughout the United States, and it is dedicated to keeping its clients abreast of developments that impact the insurance industry. The Property Insurance Law Observer will survey court decisions, enacted or proposed legislation, and regulatory activities from all 50 states. We will also include commentary on current issues and developing trends of interest to first-party insurers.
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