Blanket Endorsement or Law Coverage Endorsement Requires Direct Connection

Insurance issues, especially regarding construction and flood related claims, continue to draw heightened interest by the appellate courts.  In St. George Tower v. Ins. Co. of Greater N.Y. (1st Dep’t, April 21, 2016), the First Department was presented with whether a claim was covered by a “blanket endorsement or law coverage endorsement.”

Plaintiff cooperative corporation purchased a commercial general liability policy from Defendant insurer covering the relevant time period.  After a pump ruptured and damaged the ceiling and floors in a certain apartment, Plaintiff submitted a claim to Defendant, and Defendant provided coverage for the damages sustained to certain apartments.  The flooding also caused mold to develop in certain other units.  As a result, Plaintiff’s architect filed an application pursuant to Directive 14 of the New York City Department of Buildings.

During the architect’s inspection it was discovered that certain concrete slabs were in a deteriorated condition and required repairs pursuant to the New York City Administrative Code.  The condition of the slabs was not caused by the flooding.  Rather, it was apparently caused by poor construction practices during the initial installation.

After Defendant rejected a claim to cover the cost of repairing the concrete slabs Plaintiff commenced a legal action.  Defendant’s motion for summary judgment was granted holding that Defendant was not obligated to reimburse Plaintiff for the cost of repairing the slabs.

The First Department affirmed.  The blanket endorsement or law coverage endorsement provides coverage in the event a building sustains damages covered under a relevant policy and such damage results from the enforcement of an ordinance or law.  The lower court had held that a causal link is necessary between the physical damage and the enforcement of the ordinance or law.  The First Department agreed, and cited to various consistent decisions both in New Jersey and other Departments in New York State.  The First Department also noted that other jurisdictions had adopted a contrary ruling, but declined to adopt their reasoning.

The court appeared to be aware of the far reaching implications of Plaintiff’s arguments and specifically declined to follow them.  According to the First Department, if Plaintiff’s arguments were accepted, an inspector’s discovery of code violations resulting from poor original construction would leave an insurance company liable for repairs even if there was no direct or causal connection between the covered damage and the enforcement of the ordinance or law.  Thus, according to both a strict reading of the insurance policy and based upon more general policy considerations, Plaintiff’s claims were denied.