In Illinois Union Ins. Co. v. Grandview Palace Condominiums Assoc. Corp., 155 A.D.3d 459 (1st Dep’t 2017), the New York State Appellate Division, First Department, overturned a lower court’s ruling that had denied Plaintiffs Great American Insurance Company and Illinois Union Insurance Company summary judgment on a fire insurance claim involving nearly $50 million in damage stemming from a 2012 conflagration that consumed a condominium complex, which was once a popular Catskills resort – the Brown’s Hotel.
The Court found that the policies’ Protective Safeguard Endorsement (“PSE”) required the insured defendant, Grandview Palace Condominiums Ass’n, to “maintain automatic sprinkler systems in complete working order in all buildings in its multi-building condominium complex.” An investigation revealed that some of the buildings had no sprinklers, some had only limited sprinklers, and some had sprinklers that did not work properly. While Grandview argued that the PSE should be applied on a building-by-building basis, such that buildings with sprinklers would still be covered, the appellate court disagreed and held that there was no coverage for any loss by fire because not all of the buildings had sprinklers, in contravention of the PSE. The Court reject[ed] defendant’s attempts to create ambiguity in the PSE where none exists.”
The Court also rejected Grandview’s arguments that the insurers were estopped or had waived their right to enforce the PSE because they allegedly knew at the time the policies were issued that all buildings were not sprinklered.
Finally, the Court rejected Grandview’s argument that the excess insurer, Great American, could not benefit from the PSE contained in the primary policy because Great American did not provide separate consideration to Grandview when the prior policy was replaced with the Illinois Union Policy containing the PSE. The Court found that the prior policy, which identified each building being covered in that policy as having 100% sprinkler coverage, also required fully functioning sprinkler systems in each building, so there was no change in coverage requiring new consideration under the Great American excess policy that followed the form of the primary policy. It also found, in any event, that sufficient consideration was given if there was a change in coverage, because Great American did not cancel its policy when the primary policy was replaced.