Two Manhattan condominium unit owners sued their insurance company and agent when a fire loss left them underinsured by hundreds of thousands of dollars.
The insureds owned 100% of unit 5 in the condominium building and had a majority interest in unit 4. They lived in unit 5 part-time with their son and rented unit 4. One of the insureds is an artist; she used unit 5 for studio space and had paintings located there.
They purchased a condominium unit-owners policy on unit 5 through an independent agent. It provided the standard dwelling, personal property, and loss of use coverages plus a small amount of coverage for business personal property.
On consecutive days in March 2013, fires broke out in the building adjacent to theirs. One started on the second floor, the other on the third. The fires caused heat, smoke, and water damage to the insureds’ building, including their units. The damage to the building was so extensive that the New York City Buildings Department ordered it to be vacated. The insureds were prevented from entering their units for more than six months.
Before the fires, they had been preparing to lease the units. Because of the damage, the leases fell through. The one insured had been in the process of moving her art studio to Brooklyn before the fires. She had moved most of her paintings out of the unit at the time, but two suffered smoke and water damage. The director of a local art gallery who had worked closely with her over the years estimated the two paintings were worth $85,000 each.
The insureds obtained estimates on the damage to their units and arrived at a figure of at least $525,000 including the damaged paintings. However, the insurer paid them only $77,500, claiming that the two fires constituted one occurrence. The policy defined “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions …” The insureds sued the insurer for allegedly underpaying for the loss and the agent for procuring inadequate coverage on unit 5, not procuring any coverage on unit 4, and failure to advise them properly.
The court ruled that the loss was two occurrences, not one, but held that a jury trial was necessary to determine the amount the insurer owed the insureds. The agent asked the court for a ruling in their favor based on the law. In September 2020, the court granted the agent’s request.
The judge wrote, “… (The agent) was not obliged to ask whether plaintiffs stored valuable paintings in unit 5 or owned other apartments in the building.” He noted that there was no record that the insureds even mentioned additional coverage for the paintings or that they owned another unit in the building. He also pointed to the fact that the insureds had renewed their policies through the agent for several years and should have known that their coverage was insufficient.
This case illustrates the power of good documentation. The insureds argued that they brought up their uninsured exposures in conversation, but they had no documentation to back up that claim. The agent had plenty of documentation that showed no such discussions. Because the agency had strong evidence, it was able to defeat this claim. The suit against the insurer is ongoing, but the suit against the agent is over.
To protect themselves, agents should document conversations with clients with emails, notes in their agency management systems, letters, or any other form that can be used as a defense in court. A client with an uninsured loss can have a selective memory. Written records normally defeat memories in court.
