Protective Safeguards Provision
Illinois Union Ins. Co. v. Grandview Palace Condominiums Assoc. Corp., 155 A.D.3d 459 (1st Dep’t 2017), lv denied, 31 N.Y.3d 912 (2018)
In this case the New York Court of Appeals denied defendant-insured’s motion for leave to appeal a decision by the Appellate Division, First Department, in favor of plaintiff-insurers, namely, that the insurers were entitled to 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 Appellate Division found that the primary policies’ protective safeguard endorsement (“PSE”) required the insured 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 the insured argued that the PSE should be applied on a building-by-building basis, such that buildings with sprinklers would still be covered, the 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 also rejected the insured’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 properly outfitted with sprinklers.
Moreover, the Appellate Division rejected the insured’s argument that the excess insurer, Great American, could not benefit from the PSE because Great American did not provide separate consideration to the insured when the prior policy was replaced with the Illinois Union policy that contained the PSE. The court found that the prior policy, which identified each covered building as having 100% sprinkler coverage, also required fully functioning sprinkler systems in each building, such that there was no change in coverage requiring new consideration under the Great American policy. It also found that, in any event, sufficient consideration was given even if there was a change in coverage, because Great American did not cancel its policy when the primary policy was replaced.