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(Article from Insurance Law Alert, April 2016)

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A New York appellate court rejected a policyholder’s argument that an insurer waived its right to rely on a policy exclusion to deny coverage because it failed to identify that specific provision in its disclaimer letter.  Provencal, LLC v. Tower Ins. Co. of N.Y., 2016 WL 1354865 (N.Y. App. Div. 2d Dep’t Apr. 6, 2016).

The policyholder sought coverage for water-related damage under a commercial property policy.  The insurer disclaimed coverage, identifying a particular exclusion relating to underground water.  In ensuing litigation, the insurer argued, among other things, that the damage was excluded by a flood and surface water exclusion.  The court agreed and ruled in the insurer’s favor.  On appeal, the policyholder conceded that the flood and surface water exclusion applied, but argued that the insurer had waived its right to disclaim coverage on that basis because it was not specifically mentioned in the disclaimer. 

The court explained that New York Ins. Law § 3420, which imposes strict disclaimer requirements, does not apply here because the statute is limited to death or bodily injury claims, and does not encompass property damage claims.  Therefore, common law principles of waiver applied.  Under New York precedent, common law waiver requires a showing of prejudice resulting from the insurer’s conduct.  The court held that the policyholder failed to establish prejudice and that the insurer was therefore not estopped from relying on the flood and surface water exclusion in denying coverage.