7001 E. 71st St. LLC v Certain Underwriters at Lloyd's of London
Annotate this CaseDecided on April 28, 2014
Supreme Court, Kings County
7001 East 71st Street LLC, Plaintiff,
against
Certain Underwriters at Lloyd's of London, Beazley Syndicates 623 and 2623, Subscribing to Policy No. WB 0008767, Defendants.
506259/13
Counsel for plaintiff
Wolf Haldenstein Adler Freeman & Herz, LLP
270 Madison Avenue
New York, New York 10016
Counsel for defendants
Bruckmann & Victory, LLP
420 Lexington Avenue
Suite 1621
New York, New York 10170
Karen B. Rothenberg, J.
The following papers numbered 1 to 10 read herein:Papers Numbered
Notice of Motion/Order to Show Cause, Affidavits
(Affirmations), and Memoranda of Law Annexed1-2, 3; 7-9
Opposing Affidavits (Affirmations) and
Memorandum of Law Annexed4;10
Reply Affidavits (Affirmations) and
Memorandum of Law Annexed5, 6
[*2]
Pending before the Court are defendants' pre-answer motion to dismiss and plaintiff's motion for leave to serve a sur reply. Defendants' motion to dismiss ( Seq. No. 1) is granted. Plaintiff's motion for leave to serve a sur reply (Seq. No. 2) is also granted, and plaintiff's surreply will be considered.
Facts
Plaintiff 7001 East 71st Street LLC (plaintiff) owns commercial real property in Brooklyn, New York (the realty). In Sept. 2012, it obtained an insurance policy for the realty from defendants Certain Underwriters at Lloyd's of London, Beazley Syndicates 623 and 2623, Subscribing to Policy No. WB 0008767 (defendants). The policy was for a term of one year starting on Sept. 25, 2012, for the "policy premium" of $12,070, plus a separate premium for any potential equipment breakdown.[FN1] The policy permitted plaintiff to cancel it before the expiration of its one-year term,[FN2] in which case plaintiff would be liable to defendants for, among other things, a short-rate premium — a variable percentage of the policy premium based on the number of days the policy was in effect before cancellation.[FN3] For example, if the policy was in effect for 1 day only, the short-rate premium would be 5% of the policy premium, but if the policy was in effect between 52 and 54 days, the short-rate premium would increase to 25% of the policy premium. The short-rate premium was a penalty for early cancellation as it entitled defendants to retain a greater percentage of unearned premium than would otherwise apply pro rata.
Aside from the cancellation penalty in the form of the aforementioned short-rate premium, the policy further discouraged plaintiff from early cancellation by imposing a minimum earned premium equal to 25% of the policy premium.[FN4] Where the minimum earned premium was higher than the short-rate premium (that is, where plaintiff canceled the policy before its 52nd day), the minimum earned premium would be payable instead of the short-rate premium.[FN5] [*3]
On or before Oct. 19, 2012, plaintiff requested a "flat" cancellation of the policy; that is, cancellation without a premium payment. On or before Oct. 19, 2012, plaintiff signed a Cancellation Request/Policy Release (the cancellation notice).[FN6] By executing the cancellation notice, plaintiff expressly agreed that (1) the cancellation of the policy was effective as of its inception date ( Sept. 25, 2012); (2) "[n]o claims of any type will be made against [defendants], [their] agents or . . . representatives . . . under this policy for losses which occur after the date of cancellation shown above" ( Sept. 25, 2012); and (3) "[a]ny premium adjustments will be made in accordance with the terms and conditions of the policy."[FN7]
On Oct. 29, 2012, the realty was damaged by Superstorm Sandy. On Nov. 5, 2012, New York State Department of Financial Services established a 30-day moratorium, effective Oct. 26, 2012, on cancellation of certain insurance policies, with an exception that "an owner of any covered policy may voluntarily terminate that policy during the Moratorium."[FN8]
On Nov. 8, 2012, defendants received by email the cancellation notice, as executed by plaintiff, from an insurance broker. On Nov. 20, 2012, defendants issued Endorsement No. 1, confirming that the policy had been canceled retroactive to Sept. 25, 2012.
In Feb. 2013, defendants invoiced plaintiff for the minimum earned premium of $3,017,[FN9] plus taxes and fees, for a total of $3,566.55. In Mar. 2013, plaintiff paid the invoiced amount. After plaintiff submitted (and defendants rejected) its proofs of loss due to damage alleged to have been sustained in the storm, it commenced this action for declaratory judgment and breach of contract for failure to provide insurance coverage and indemnification under the policy. Defendants move, pre-answer, to dismiss the complaint under CPLR 3211 (a) (1), (5), and (7). Plaintiff cross-moves for leave under CPLR 2214 (b) and (c) to serve a surreply.
Discussion[*4]
The initial question is what effect plaintiff's cancellation had on the coverage afforded by the policy. Plaintiff maintains (at pages 1-2 of its memorandum of law) that "[d]efendants' policy expressly provided . . . coverage for 52-54 days in exchange for the minimum earned premium.' . . . [T]he policy was in effect when Plaintiff's building was damaged by Superstorm Sandy, which occurred only 34 days after the policy was issued" (emphasis omitted). Plaintiff's argument conflates two distinct insurance concepts — that of the short-rate premium and that of the minimum earned premium. A short-rate premium is a variable percentage (ranging from 1% to 100%) of the policy premium depending on how long the policy is in effect before cancellation. The longer the policy is in effect before cancellation, the higher the short-rate premium is going to be. In contrast to the short-rate premium, the minimum earned premium stays constant at 25%, regardless of how long the policy is in effect before cancellation.
Here, defendants charged (and plaintiff paid) a minimum earned premium, rather than a short-rate premium, as a penalty for early cancellation of the policy. Any relationship between the minimum earned premium (which is always 25%) and the short-rate premium (which happens also to be 25% for the 52-54 days of the policy term) is merely coincidental, and plaintiff's payment of the minimum earned premium cannot resurrect the policy if it was otherwise validly canceled.
The next question is whether plaintiff's cancellation of the policy before the loss may be given retroactive effect, notwithstanding that defendants processed cancellation after the loss. The policy provides, in relevant part, that:
"The first Named Insured shown in the Declarations [i.e., plaintiff] may cancel this policy by mailing or delivering to us advance written notice of cancellation.
* * *
Notice of cancellation will state the effective date of cancellation. The policy period will end on that date.
* * * If notice is mailed, proof of mailing will be sufficient proof of notice."[FN10]
Under the terms of the policy, cancellation of coverage does not require any act by the insurer. Instead, plaintiff as the insured may cancel coverage by unilateral act. It is undisputed that, by the terms of the policy, plaintiff was entitled to cancel it. By executing the written cancellation notice, plaintiff did what was necessary to cancel the policy. Any policy limitation on retroactive cancellation (here, that an insured must provide an insurer with "advance" written notice of cancellation) is for the sole benefit of the insurer — protecting it against an insured who waits until the end of the policy period and, when no accidents have occurred, sends a retroactive cancellation [*5]to avoid paying for the policy — and thus may be waived by the insurer (see 2-10 Jerusalem Ave. Realty, LLC v Utica First Ins. Co., 62 AD3d 481, 482 [1st Dept 2009]). Considering that plaintiff canceled the policy before the loss and, moreover, chose the cancellation date preceding the loss, the Court finds that no coverage was in effect at the time of loss, even though defendants received the cancellation notice after the loss (see Nobile v Travelers Indem. Co., 4 NY2d 536, 540-541 [1958]; Lehmann v Engel, 97 AD2d 675, 676 [3d Dept 1983], appeal dismissed 62 NY2d 617 [1984]; Matter of Country-Wide Ins. v Wagoner, 57 AD2d 498, 502-503 [4th Dept 1977], revd on other grounds 45 NY2d 581 [1978]; City of NY v Commerce & Ind. Ins., 2007 NY Slip Op 30747[U] [Sup Ct, NY County 2007]).
Conclusion
Defendants' motion is granted, and the Court hereby declares that defendants are not obligated under policy No. WB 0008767 to provide insurance coverage or indemnification to plaintiff for damages arising from the loss to the realty.
Plaintiff's cross motion for leave to serve a surreply is granted, and plaintiff's surreply is in the record.
This constitutes the Decision, Order, and Judgment of the Court.
E N T E R,
Karen B. Rothenberg
Justice, Supreme Court
J. S. C.
Footnotes
Footnote 1:Form FS C 422 09 12 (General Cover Declarations Page).
Footnote 2:Form IL 00 17 11 98 (Common Policy Conditions), § A.1.
Footnote 3:Form SLC-3 (USA) NMA2868 (amended) (24/08/00) (Lloyd's Certificate), § 8.
Footnote 4:Form FS C 407 04 09 (Minimum Earned Premium Clause).
Footnote 5:Three portions of the policy are relevant on this point. First, Lloyd's Certificate provides (in § 9) that:
"Notwithstanding any cancellation provisions within this Certificate it is hereby noted and agreed that should a minimum earned premium percentage be shown in the declarations of this Certificate, then the Underwriters [defendants] shall retain as a minium such percentage of premium stated" (emphasis added).
Second, the General Cover Declarations Page provides:
"Terms and Conditions Applicable: See Attached."
"This Declaration, together with the Policy Jacket, the above policy wording and endorsements, issued to form a part thereof, completes the above numbered policy."
Third and finally, Form FS C 424 is a schedule of all forms and endorsements constituting the policy. One of these forms is the Minimum Earned Premium Clause.
Footnote 6:Form Acord 35 (1/97).
Footnote 7:According to plaintiff's memorandum of law in opposition (at 8), plaintiff signed the cancellation notice on Sept. 25, 2012, even though it is dated Oct. 19, 2012. For purposes of this decision, the Court assumes that plaintiff signed the cancellation notice on or before Oct. 19, 2012.
Footnote 8:Amended Order Regarding Suspension of Certain Insurance and Banking Law Provisions, dated Nov. 5, 2012.
Footnote 9:$3,017 is 25% of the policy premium of $12,070.
Footnote 10:Common Policy Conditions, §§ A.1, A.4, and A.6.
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