Matter of United States Fid. & Guar. Co. (Friedman)
Annotate this CaseDecided on March 14, 2006
Supreme Court, New York County
In the Matter of the Application to Compel Appraisal under Insurance Policy BK00949643 between United States Fidelity and Guaranty Co., Petitioner, and
Herschel Friedman, d/b/a Pinpoint for Kids, Respondent.
118690-03
Pisano Mills & Isgard LLP (Carol Pisano of counsel) for petitioner. Matthew Aboulafia for respondent.
James A. Yates, J.
Respondent, Herschel Friedman, seeks to recover interest on an appraisal award of $373,723 paid to him by Petitioner, United States Fidelity and Guaranty Company (USF&G). Petitioner opposes the motion, arguing that interest is not recoverable on an appraisal award that is paid within the time proscribed by the insurance policy. As well, USF&G argues that the award did not provide for payment of interest on the amount awarded, and consequently, it is binding in that regard.
On December 22, 2001, a fire occurred at a commercial building located at 128 32nd Street, in Brooklyn, New York, a day care center owned and operated by Herschel Friedman. As a result of the fire, certain inventory owned by Mr. Friedman was damaged. On that date, a fire insurance policy, policy number BK00949643, was in effect between the parties.
Mr. Friedman submitted a property damage claim to the insurance company pursuant to a proof of loss sworn to on January 30, 2002. The proof of loss alleged that respondent's damages were "not less than $123,415.43," but sought only $50,000 "[a]t this time subject to form CL/BF00300999 Paragraph 1 of policy conditions." Section I. 3 of Form CL/BF00300999 stated that "Your rights and duties under this policy will not be affected if you commit the following error or omission: fail to report a premises or operation."
Five days later, on February 4, 2002, USF&G paid the Respondent $50,000. Additionally, USF&G explained to the Respondent that damage to the day care center itself was not covered under the insurance policy because it was not listed under the policy's "Schedule of [*2]Premises." As a result, only the inventory was covered pursuant to a "Property Off Premises" provision of the policy. The "Property Off Premises" provision had a $50,000 coverage limitation and, therefore, only that amount was owed to Respondent. Friedman disputed this explanation. He argues that Section I.3 of Form CL/BF00300999 allowed the day care center to be treated as if it were listed under the "Schedule of Premises" in the main policy. In fact, on March 20, 2002 Mr. Friedman wrote the New York State Insurance Department complaining that USF&G breached its obligations under the agreement. The Insurance Department investigated the claim and took no action.
Subsequently, on December 7, 2002, Friedman presented a separate claim to USF&G for a loss of business income and related expenses arising from damage to his inventory. However, he never filed a supplemental or amended proof of loss in support of the business interruption claim nor did his initial proof of loss allege a loss of business income. USF&G conducted an investigation of the claim and hired an accounting firm. Several meetings and discussions took place between the parties but they reached no resolution.
The insurance policy contains an appraisal provision that allows either party to pursue appraisal if the insurer or insured "disagree on the amount of loss." Therefore, on April 16, 2003, respondent wrote to USF&G demanding an appraisal. Two days later, the insurance company paid respondent an additional sum of $21,810.00, increasing the total amount paid by USF&G to $71,810.00. Both parties selected an appraiser and they, in turn, selected an umpire to decide those matters that the party appraisers could not agree on. The two appraisers failed to agree on how to calculate respondent's loss. Respondent commenced an action in Kings County Supreme Court against insurer parent company, St. Paul Fire and Marine Insurance Company. Conversely, USF&G commenced a special proceeding before this Court to compel appraisal. On July 8, 2004, the parties agreed to suspend the special proceeding and proceed with the appraisal pursuant to a written appraisal agreement.
Under the agreement the umpire considered both the original property damage claim and the business interruption claim. On June 29, 2005, the umpire rendered a decision which was released to the parties on July 28, 2005. For the property damage aspect of the claim, the umpire found that "the insured is entitled to $373,723 ($350,000 plus the inflation guard)." The decision awarded Respondent nothing for the business interruption claim because the umpire held that the policy does not permit the insured to collect on both claims. See Resp. Mem. Ex. F, Decision and Award, dated June 29, 2005. Furthermore, the appraisal award did not provide for the payment of interest.
The insurance policy in question contains a loss payment provision, which is part of New York's mandatory 165 Line Statutory Fire Insurance Policy. Lines 150 through 156 of the Policy, under the heading "When loss payable," provide that: "the amount of loss for which this Company may be liable shall be payable sixty days after proof of loss, as herein provided, is received by this Company and ascertainment of the loss is made either by agreement between the insured and this Company expressed in writing or by the filing with this Company of an award as herein provided."[*3]
On August 19, 2005, within 51 days of the umpire's decision, USF&G paid respondent the sum of $301,913.00. This amount, in conjunction with the prior sums paid by the insurance company of $50,000 on February 4, 2000 and of $21,810.00 on April 18, 2003, aggregated $373,723.00, representing the full amount of the appraisal award. Mr. Friedman is seeking interest upon that sum. He contends that USF&G owes interest on the award from the date of the fire to the date of payment to him. As well, he argues that USF&G is not entitled to credit the $21,810.00 that it had previously paid. USF&G contends that under these circumstances, no interest is due on the award.
CPLR § 5001 [a] authorizes an award of prejudgment interest "upon a sum awarded because of a breach of performance of a contract." As a result, a court may only compute interest from the date a defendant breaches the contract of insurance. Buttignol v Allstate Insurance Co., 22 AD2d 689[2d Dept 1964]. The loss payment provision of the New York standard form fire insurance policy that is at issue provides that the amount of loss for which the insurance company is liable should be payable: (1) 60 days after proof of loss is received by the company and; (2) ascertainment of the loss or damage is made by agreement between the insured and the company or by appraisal agreement. See Insurance Law § 3404.
In Rubin v Williams, the Appellate Division, First Department examined facts similar to this one and found that there was no breach of an insurance policy where the insurer paid an appraisal award within the 60 day time limit in the policy. 245 AD2d 181, 182 [1st Dept 1997]. Therefore, where parties to an insurance policy pursue appraisal, and an award is set, there can be no breach of the policy if the insurance company pays the award within the time prescribed by the loss payment provision. id.; see also Caiati of Westchester, Inc. v Glen Falls Insurance Co., 265 AD2d 286 [2d Dept 1999].
Respondent is not entitled to interest on the appraisal award. USF&G was obligated to pay respondent after ascertainment of the loss was made by agreement or by an appraisal award. See Insurance Law § 3404. USF&G had 60 days after the June 29th decision to pay the appraisal award. USF&G timely paid the award and, therefore, did not breach the insurance policy. Thus, under CPLR § 5001[a] and Rubin v Williams, respondent cannot collect interest on the appraisal award. As well, the appraisal award determined that the actual loss sustained by respondent was $373,723.00. It is thus apparent that USF&G is entitled to deduct payments previously made to the insured. Accordingly, respondent's petition is denied in all respects.
This constitutes the decision and order of the Court.
Dated: March 14, 2006
New York, New York_______________________________
James A. Yates, J.S.C.
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