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Insurance Coverage Newsletter April 2014
NEW YORK                                                            
Professional Liability - Conduct Exclusion
SEC Administrative Order Does Not Establish Insured's Guilt Under Dishonest Acts Exclusion   J.P. Morgan Sec. Inc. v Vigilant Ins. Co., 2014 N.Y. Misc. LEXIS 796 (N.Y. Sup. Ct. Feb. 28, 2014)   The court finds that an SEC Administrative Order entered after a settlement does not implicate the policy's Dishonest Acts Exclusion as the settlement was not a final adjudication or judgment that establishes insured's guilt.   The insured sought coverage under professional liability policies in connection with a settlement that was reached with the SEC relating to alleged violations of federal securities law.  The insured brought the present declaratory judgment action following the insurer's denial of coverage on the grounds that the loss included disgorgement payments are not insurable as a matter of law and were otherwise barred by the Dishonest Acts Exclusion.  The insured argued the that the Dishonest Acts Exclusion did not apply because the Administrative Orders were settlements, not judgments or other final adjudications of the underlying claims, and therefore did not establish the insured's guilt as required for the exclusion to apply.  In response, the insurers argued that the exclusion does not require a finding of guilt from an actual trial since "the Administrative Orders constitute final adjudications of [the insured's] dishonest conduct.   Read the full summary...
Property Coverage - Contractual Suit Limitation
New York's Highest Court Recognizes Contractual Suit Limitations are Generally Enforceable, but Finds Application Unreasonable Where Policy also Required Policyholder to Replace Damaged Property, and Reasonable Replacement Time Exceeded Suit Limitation Period   Executive Plaza, LLC v. Peerless Ins. Co., 2014 N.Y. LEXIS 165 (N.Y. Feb. 13, 2014)   The New York Court of Appeals ruled that a contractual suit limitation provision that required the policyholder to replace the damaged property within two years was unreasonable and unenforceable where the damaged property could not reasonably be replaced within the policy suit limitation period.   The insured owned a commercial property that was severely damaged by fire.  The policy provided a choice between the payment of the "actual cash value" or "replacement cost."  The policy provided the insured "will not pay on a replacement cost basis for any loss or damage: '(i) Until the lost or damaged property is actually repaired or replaced; and '(ii) Unless the repairs or replacement are made as soon as reasonably possible after the loss or damage."  The limitation provision stated "No one may bring a legal action against us under this insurance unless: . . . : b. The action is brought within 2 years after the date on which the direct physical loss or damage occurred."   Read the full summary...
NEW JERSEY
Property Coverage - Reasonable Expectations
Court Upholds Insurer's Declination of Coverage for Loss Caused by Discharge Occurring Off the "Described Location"; Rejects Policyholder's Argument that Undefined Term Frustrated Reasonable Expectation of Coverage for Water Damage to Condo Unit   Lubik v. Harleysville Ins. Co., 2014 N.J. Super. Unpub. LEXIS 385 (App. Div. Feb. 27, 2014)   The New Jersey Appellate Division upheld an insurer's declination of coverage despite the policyholder's argument that the undefined term "Described Location" was ambiguous as applied to the condominium complex where the loss occurred.  The policyholder owned a single unit in an 800-unit condominium complex.  The policyholder's unit sustained $60,000 in damages when water leaked into it from a neighboring unit. The policyholder sought coverage under a "perils insured against" policy which covered specified damage for the property. According to the policy, coverage did not include loss caused by accidental discharge or overflow that occurred off the "Described Location," but the policy did not define this term.    Read the full summary... 
 
Coverage Modification - Required Notice
Deleting Vehicle from Coverage Not Equivalent to a Policy Cancellation   Russo v. Chubb Ins. Co. of N.J., 2014 N.J. Super. Unpub. LEXIS 763 (App. Div. Apr. 4, 2014)   A formerly insured vehicle was dropped from an insurance policy. The insured was subsequently involved in an accident and, in response to the insurer's refusal to cover the insured's damages, argued the insurer had not given proper cancellation notice. The Appellate Division found no such notice was required because the policy had not been canceled -- its terms had instead been modified.   The insured was involved in a traffic accident while driving a vehicle leased by her employer. She sought coverage under the vehicle's business motor vehicle policy. The insurer responded that the vehicle had not been insured at the time of the accident. It relied on the insured's failure to satisfy a condition precedent under the policy: transmit documents to the insurer proving the vehicle's status as a leased company car.   Read the full summary...
Estoppel 
Insurer Not Estopped from Recovering PIP Benefits Paid to Another Insurer   Hudeen v. Smith, 2014 N.J. Super. Unpub. LEXIS 805 (App. Div. Apr. 10, 2014)   An insurer sought, after a year-long delay, to claw back PIP benefit payments it had made to another insurer. The Appellate Division found reimbursement was appropriate. The paying insurer had not been estopped from requesting repayment because the insurer seeking estoppel had suffered no harm or prejudice.   An individual was involved in a traffic accident while operating his employer's company car. The employer obtained a judgment finding the employee had not been operating the vehicle within the scope of his professional duties. That ruling was based on findings that the accident.    Read the full summary...
Homeowners Warranty - Arbitration Clause
Arbitration Not Required Unless Clearly Mandated by Policy   McCloy v. Quality Builders Warranty Corp., 2014 N.J. Super. Unpub. LEXIS 517 (App. Div. Mar. 13, 2014)   Insured homeowners sought coverage under a homeowner's warranty agreement for defects in their home that were reported to the insurer in the eighth year of coverage. The insurer argued the policy required that the dispute be submitted to arbitration. The Appellate Division rejected this contention, finding that the policy's arbitration provision related only to claims made within the first two years of coverage.     Read the full summary...

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