Chapter Twenty-Seven

• Jurisdiction: New York

Chapter Twenty-seven

Fire and Property Insurance

Michael F. Chelus, Esq. Thomas P. Kawalec, Esq. Jonathan A. Emdin, Esq.

I. Statutory Provisions

New York Insurance Law § 3404 (Insurance Law) sets forth the mandatory provisions for fire insurance policies in New York State. In 1901, the Court of Appeals succinctly described the purpose of a standard policy: “The use of the standard policy in this state was made compulsory in order to protect both parties to the contract of insurance from unnecessary and wasting litigation over questions having their origin in the varying forms of the policies issued by the different companies.”³⁶⁶³ Even oral contracts of fire insurance embrace the terms and conditions of the standard fire insurance policy.³⁶⁶⁴

II. Coverage Issues

A. What Is Covered and What Is Not

1. Contract Construction

Pursuant to Insurance Law § 3404(e), the standard fire insurance policy specifies that the insurer must protect against “all direct loss by fire, lightning, and by removal from premises endangered by [fire or lighting].” ³⁶⁶⁵ Naturally, and with some exceptions, much of the question of coverage in an insurance policy is a matter of contract law, thus, an insurer is liable to the extent that it is specified in the policy.

Although § 3404 does not require the specific language of the standard fire policy be used verbatim, the printed provisions of a policy may be rejected in instances where there are printed provisions of a policy that are irreconcilable with its written provisions.³⁶⁶⁶

2 Statutory Minimum Requirements

The standard policy states that insurance coverage shall be void if the insured willfully conceals or misrepresents any material fact. It then itemizes the various types of accounts and documents that are excluded from coverage: money, currency and 10 various additional perils, such as the neglect of the insured to use “all reasonable means” to save the property at, and after, a loss.

The statute sets forth the minimum requirements of what is covered under the standard policy. If a fire insurance policy contains terms less favorable to an insured than those contained in the standard fire policy, the policy is enforceable as if it conformed with the statutory standard. Thus, in TAG 380 LLC v. ComMet 380, Inc.,³⁶⁶⁷ the N.Y. Court of Appeals held that a lease required the tenant to procure insurance covering terrorism. The policy it secured excluded terrorism. The standard fire insurance policy does not permit an exclusion for terrorism. The tenant was, therefore, in breach of the lease and public policy concerning the terms of coverage required in the standard policy.³⁶⁶⁸

To determine whether an insured has a valid claim, the first step is to classify the type of fire as either “friendly” or “hostile.” If the insured has no involvement other than a possible negligent act, the fire will be considered “hostile” and there will be insurance coverage.³⁶⁶⁹ The fire will be considered “friendly” and no coverage will be afforded if the insured has taken an affirmative act in the form of misrepresentation, arson or has possibly failed to prevent property from being lost to the fire.

B. Proof of Loss: Obligations of the Insured

The standard policy language reads as follows:

Requirements in case loss occurs. The insured shall give immediate written notice to this Company of any loss . . . and within sixty days after the loss, unless such time is extended in writing by this Company, the insured shall render to this Company a proof of loss, signed, and sworn to by the insured, stating the knowledge and belief of the insured as to the following: the time and origin of the loss, the interest of the insured and of all others in the property, the actual cash value of each item thereof and the amount of loss thereto, all encumbrances thereon, all other contracts of insurance, whether valid or not, covering any of said property, any changes in the title, use, occupation, location, possession or exposures of said property since the issuing of this policy, by whom and for what purpose any building herein described and the several parts thereof were occupied at the time of loss. . . . The insured as often as may be reasonably required, shall . . . submit to examinations under oath by any person named by this Company and subscribe the same; and, as often as may be reasonably required, shall produce for examination all books of account, bills, invoices and other vouchers . . . at such reasonable time and place as may be designated by this Company. ³⁶⁷⁰

An insured must cooperate with the insurer in the investigation of the fire and consequent loss. The purpose of the cooperation clause was so the insurer could obtain all knowledge and facts concerning the cause of the fire and the loss involved while the information was fresh, in order to protect itself from fraudulent and false claims.³⁶⁷¹ An insured’s failure to cooperate with the fire insurer by not providing a loss history has been held a material breach, precluding recovery under the policy.³⁶⁷²

In Santilli v. Allstate Insurance Co.,³⁶⁷³ the insured moved to dismiss the insurer’s affirmative defense of lack of cooperation. The insurer alleged that the plaintiff’s roommate, which it viewed as an “additional insured” under the policy, would not submit to a deposition, thus impeding investigation of the claim.

The court refused to dismiss the affirmative defense and held that a fire insurance policy may require that an insured cooperate with the insurer in the investigation of a fire loss.

An insured must give the carrier immediate written notice of the loss. It is wise to request and use the carrier’s own “Proof of Loss” form to avoid quarrels regarding the various items to be evaluated before final submission and processing of the claim. A standard claim form established by the Superintendent, pursuant to Insurance Law § 3413, is set forth at N.Y. Comp. Codes R. & Regs. title 11, § 62-3.2 (N.Y.C.R.R.).

An insurer has the right to demand an examination of the premises and contents, depositions and the production of financial and other documentation relating to investigation of the loss. The submission of documents and participation in oral examinations do not discharge an insured’s absolute obligation to submit timely proofs of loss.³⁶⁷⁴ Failure to timely file a proof of loss statement constitutes an absolute defense to an action to recover the proceeds of an insurance policy.³⁶⁷⁵

A proof of loss must be submitted within 60 days. Insurance Law § 3407, however, provides that claims shall not be invalidated for failure to submit the proof of loss within 60 days unless the insurer shall, after the loss, give written notice that it desires that proof of loss be furnished by the insured on a suitable blank form. The 60-day time limit, therefore, begins to run only after a written request for the proof of loss is served upon the insured by the insurer. Note, however, that the insurer’s written notice to the insured need not advise the insured of the 60-day time limit. “Nothing in the subdivision [Insurance Law § 3407(a)] mandates that the notice state that proofs must be submitted within 60 days after it is received by the insured.”³⁶⁷⁶

Failure to file sworn proofs of loss within 60 days of a written demand constitutes an absolute defense to an action on an insurance policy, absent a waiver of the proof of loss requirement by the insurer or conduct on its part estopping its assertion of the defense.³⁶⁷⁷

The burden of establishing a reasonable excuse for delay in providing notice of a potential claim to an insurer is upon the insured. Where the insured offers no excuse or an excuse unsupported by credible facts, the issue of reasonableness of notice may be determined by the Court as a matter of law.³⁶⁷⁸

In Bailey, the plaintiff failed to submit a sworn proof of loss within the 60-day period, thereby providing the insurance carrier with entitlement to judgment as a matter of law. The plaintiffs may raise a question of fact avoiding dismissal by relying on the theories of waiver, estoppel or showing proof that the defendant lulled the plaintiff into inaction. In this case, however, the plaintiffs failed to raise such questions of fact. As there was no contact between the defendant and the plaintiff after the demand to file sworn proof of loss was made, the theory of waiver did not preclude judgment in favor of the defendant. Dismissal also was not precluded by the insurance carrier’s failure to state that a proof of loss was required to be filed within 60 days. The notion of estoppel also was not triggered by a demand for an examination under oath of the plaintiff.

In Turkow v. Security Mut. Ins. Co., the Appellate Division, Third Department, found a triable issue of fact existed as to whether the proof of loss statements were timely filed by the insureds.³⁶⁷⁹ The plaintiff claimed to have completed the proof of loss forms and returned them to defendant-insurer prior to insurer’s letter indicating that the forms had not been received. Plaintiff’s submitted a copy of a letter from defendant's claims supervisor that documented a phone conversation (that took place approximately 30 days after defendant-insurer’s aforementioned letter), in which the plaintiff claimed that the proof of loss forms were completed and returned. The Third Department, in viewing the evidence in a light most favorable to plaintiffs, held that a “genuine issue of fact exists that cannot be determined on this record without resolving issues of credibility.”³⁶⁸⁰

Once an insurer requests written proof of loss, the 60-day requirement will not be deemed waived unless the insurer denies coverage within the 60-day period or otherwise expressly induces the insured to abandon completion and submission of the proof of loss.³⁶⁸¹ A loss is payable 60 days after the proof of loss is submitted to the carrier. Interest on the loss does not begin to accrue until 60 days after the proof of loss...