NY insurance coverage disputes: malicious vandalism
Insurance companies and their customers often disagree about whether particular losses should be covered by insurance policies. Insurance coverage disputes may be resolved informally, in negotiation, in mediation or arbitration, or even in court if necessary.
Insurance policy interpretation
An insurance coverage dispute may come down to interpretation of specific words or phrases in a policy, or how a policy provision should apply in a particular situation. How a policy term is defined or applied can determine whether or not a specific loss is covered, resulting in either financial loss to the insured or a payout by the insurer.
New York’s highest court recently looked at the terms of a property insurance policy to help resolve an insurance coverage dispute between the insurance company and its insured, an apartment building owner whose building had allegedly become damaged and unstable because of underground excavation of an adjoining lot.
In the October 2013 decision of Georgitsi Realty, LLC v. Penn-Star Insurance Company, the issue was whether this property damage should be paid for by the insurer under a policy provision covering property loss from “vandalism.” The dispute ended up in federal court in New York and the federal appellate court asked the Court of Appeals of New York to answer two questions of New York law to help solve the coverage dispute.
First, can vandalism be covered by a property insurance policy even when the “malicious damage” was caused by an action “not directed specifically at the damaged property”? The court answered in the affirmative after looking at two similar previous insurance coverage cases:
- Damage to property was covered as vandalism in a New York case when people allegedly disconnected water pipes to steal bathroom fixtures on an upper floor of a warehouse, causing water damage to property stored by a party leasing space on a lower floor.
- Damage to a sewage treatment plant was covered as vandalism in a case out of federal court in Kentucky wherein a party who contracted to store toxic waste allegedly put it instead into a sewer, damaging a downstream sewage plant.
In these cases, the perpetrators did not specifically target the property owners who were harmed, but the courts found the damage covered as vandalism anyway. The Court of Appeals reasoned in Georgitsi Realty that damage that “naturally and foreseeably” flows from an act of vandalism should be covered by a vandalism clause in a policy.
State of mind
Second, what state of mind must the vandal have in order for the act to be covered under the policy? The policy under consideration defined vandalism as “malicious” damage. The court found that for purposes of property damage amounting to malicious vandalism the perpetrator must commit the act with “a conscious and deliberate disregard of the interests of others” amounting to “willful or wanton” disregard.
Legal counsel important
This is an interesting example of how complex and important insurance policy interpretation can be, even of terms that seem simple at first glance, but when applied to real-life situations can become much less so.
An insurance company, agency, agent, adjuster or anyone else involved in the defense, payment or settlement of insurance claims should have the advice of an experienced insurance defense lawyer for guidance and representation in matters of insurance policy interpretation and coverage disputes.