The Appellate Division of the Supreme Court of New York, Second Department recently heard the case of Ginsburg v. Charter Oak Fire Ins. Co. This interesting case appeals perhaps a little more to the mathematically inclined among us, but regardless, illustrates how various financial provisions in insurance contracts are construed by a court and operate against each other.
Background of the Case
Ginsburg, et al., (“Ginsburg”) were the plaintiffs. They owned a home, presumably a rather nice home, in Westchester County, New York. Unfortunately, their home was damaged by a fire in March, 2005. Fortunately Ginsburg had a contract, aka a homeowner’s insurance policy, with the defendant, Charter Oak Fire Insurance Company (“Charter Oak”). Upon receiving due notice of the fire damage, Charter Oak wrote a check to Ginsburg for a sum exceeding $2,000,000. A portion of this sum, $720,000, represented compensation for damage to Ginsburg’s personal property.
Note that in legal terms, ‘real’ property refers to real estate – land and buildings affixed thereto. Personal property is basically everything else: cars, computers, pencils, clothing. Do not be confused by the names! The home owner’s insurance policy in this case, as in most cases, drew a distinction between coverage for the house itself and the possessions contained within the house. There are perhaps many reasons for this, but one of the major ones is that the value of the building is relatively fixed: a certain price was paid for it by the owner, the tax assessors periodically re-value it, etc. Personal property represents an unknown quantity. Did the homeowner buy the Mona Lisa the night before the fire? Did he or she store massive quantities of gemstones in the attic? Further, after some kind of casualty (the insurance term for events like fire/flood/theft) it can be difficult to ascertain what was actually present in the home. For this reason, there are often limitations on the amount that will be paid for the loss of personal, or non-real-estate, property.
This particular insurance policy, or contract, was no different. Plaintiffs claimed that various circumstances entitled them to additional payment for loss of personal property above the $720,000 already received.
In addition, plaintiffs sued for breach of contract, alleging they were owed more for the damage to their real property. Interestingly, the insurance policy provided for an alternate dispute resolution procedure – a hearing before a neutral “umpire.” The umpire valued the damage plaintiff’s house in excess of what the insurance company had determined. In compliance with the umpire’s ruling, the insurance company paid the plaintiffs an additional $500,000 for damage to their home.
Plaintiffs still were not satisfied, and sued for breach of contract, alleging they were owed interest on the $500,000 during the period that had elapsed from the $2,000,000 payment and the $500,000 payment. They also maintained their action for additional recovery on the personal property casualty.
The court upheld the lower court’s reasoning. The rule in New York was that under a fire insurance policy, after a loss, the insured may not receive interest on the amount payable (or principal amount) under the policy before the principal amount is due. In this case, the insurance company, under the plain language of the contract, had sixty days to make a payment after “the filing of an appraisal award.” (The appraisal award was the umpire’s determination). Here, the insurance company made the $500,000 payment within sixty days. Thus the language of the contract was satisfied – there was no breach. The New York rule operates to defeat plaintiff’s claim for interest on the $500,000.
The second claim was for additional recovery for personal property loss. The court placed a great deal of emphasis on the plain and unambiguous language of the contract. The contract set a maximum amount (Approximately $700,000) for personal property, adjusted for inflation. Thus, plaintiff’s various arguments were unavailing - $720,000 represented a ‘cap’ (including the inflation adjustment) on recovery.
Insurance contracts, especially in the difficult circumstances following a fire or other loss, can be tricky to navigate. Please don’t hesitate to contact our office for a consultation.