In Seneca Ins. Co. v. Cimran Co., — N.Y.S.2d –, 2013 WL 1405231 (App. Div. 1st Dep’t 2013), the New York appeals court granted the insurer’s motion for summary judgment, declaring that it had no duty to defend and indemnify the defendants in an underlying personal injury action because the commercial general liability (CGL) insurance policy it issued did not cover the portion of their property on which the accident occurred. Additionally, the court held that the insurer’s cancellation of the underlying policy did not estop the insurer from later rescinding the policy. The court’s ruling provides two key lessons for insurers: (1) specificity in defining the term “Designated Premises” in a CGL policy can avoid liability for unintended coverage, and (2) an insurer should cancel a policy when the available information warrants cancellation without fear that doing so will waive subsequent rescission as a remedy.
The insureds obtained a CGL policy to insure a one-story building, the “Designated Premises,” after submitting a renewal application indicating that no demolition or construction was contemplated at the premises. While construction to add three additional stories on to the building was under way, a worker fell from the fourth story and sustained injuries.
After receiving notice of the claim, Seneca reserved its rights to disclaim coverage and/or rescind the policy, stating that further investigation of the claim was needed, including whether defendants had misrepresented that they had no intention of conducting demolition or construction at the premises on their insurance application. Meanwhile, by notice of cancellation, Seneca cancelled defendants’ policy because “[t]he building is currently under construction.”
Seneca filed a declaratory judgment action, seeking a declaration that (1) it had no duty to defend in the underlying action because the accident occurred outside the “Designated Premises” and (2) the policy was void ab initio based on defendants’ material misrepresentations in their application that no demolition or construction at the premises was contemplated. The insureds sought summary judgment that they were entitled to coverage because (1) the alleged accident occurred at the designated premises and (2) Seneca’s cancellation of the policy effectuated a waiver of the rescission claim or constituted grounds to estop it from seeking rescission of the policy.
The court ruled the “Designated Premises” covered by the policy was limited to the one-story building existing when the policy was issued. On rescission, the court ruled Seneca was not estopped from rescinding the subject policy because, at the time of the cancellation, Seneca lacked a basis for claiming a right of rescission. However, the court stopped short of granting rescission because Seneca had not established whether defendants were “contemplat[ing]” the construction work when they submitted their renewal application.