On October 17, 2013, the New York Court of Appeals answered two questions certified to it by the United States Court of Appeals for the Second Circuit, regarding property insurance policy coverage for acts of "vandalism." Georgitsi Realty, LLC vs. Penn-Star Insurance Company, NY Court of Appeals, October 17, 2013. Plaintiff, Georgitisi Realty, LLC ("Georgitisi") owned an apartment building in Brooklyn. It purchased a "named perils" property insurance policy from defendant. One of the perils insured was "[v]andalism, meaning willful and malicious damage to, or destruction of, the described property."
Armory Plaza, the owner of the property next to plaintiff's building, began construction of a new building which would include an underground parking garage. Allegedly, the excavation caused cracks in the walls and foundations of plaintiff's building. Plaintiff notified the New York City Department of Buildings, which issued violations and "stop work" orders resulting in guilty pleas and fines. Allegedly, the stop work orders were ignored, and the contractors kept working. A temporary restraining order directing Armory and its contractors "to cease all construction and/or excavation work" was also allegedly ignored.
Plaintiff filed a claim under its policy, which was rejected by defendant, Penn-Star. Plaintiff filed suit in Supreme Court. The case was removed from New York Supreme Court to the United States District Court for the Eastern District of New York. The District Court granted summary judgment in favor of defendant, holding that the conduct in question was not "vandalism" within the meaning of the policy.
Plaintiff appealed to the Second Circuit Court of Appeals, which submitted two certified questions to the New York State Court of Appeals for clarification on New York law. The questions were:
For purposes of construing a property insurance policy covering acts of vandalism, may malicious damage be found to result from an act not directed specifically at the covered property?
If so, what state of mind is required?
The New York Court of Appeals answered the first question "Yes". The Court of Appeals noted that it had not previously addressed the meaning of "vandalism" in an insurance policy. It cited an Appellate Division decision, Cresthill Industries v Providence Washington Insurance Company, 53 A.D.2d 488 (2d Dep't 1976), with approval, noting that in that case the plaintiff had leased part of the ground floor of a warehouse for storage of its property. Perpetrators broke into the unoccupied third floor of the warehouse, uncoupled water pipes to the bathroom fixtures, and left the water running from the connections. The water flowed down to the first floor, and damaged plaintiff's property. The damage was held to be covered by a property policy covering "[v]andalism and malicious mischief, meaning only willful and malicious damage to, or destruction of, the property covered hereunder," notwithstanding the fact that the alleged perpetrators did not direct their acts at the plaintiff's property, and probably never knew that plaintiff, or its property, existed.
In Georgitsi, the Court of Appeals saw no reason why the term "vandalism" should be limited to acts "directed specifically at the covered property. *** Where damage naturally and foreseeably results from an act of vandalism, a vandalism clause in an insurance policy should cover it."
With respect to the second question submitted by the Second Circuit Court of Appeals, New York's high court held:
We answer by adopting, insofar as it relates to property damage, the formulation we have used in reviewing awards of punitive damages. Conduct is 'malicious' for these purposes when it reflects 'such a conscious and deliberate disregard of the interests of others that [it] may be called willful or wanton.'*** This familiar test, we believe, will serve to distinguish between acts that may fairly be called vandalism, and ordinary tortious conduct. Insurance against vandalism should not be converted into something approaching general coverage for property damage. Insureds who want broader coverage, should obtain it, and pay an appropriate premium.
This case is an important decision in defining the parameters of vandalism coverage in property insurance, and additionally, instructive in emphasizing the importance of an insured seeking the broadest coverage available, where necessary, to avoid a limitation on coverage.
If you require further information regarding the information presented in this Legal Alert and its impact on your organization, please contact John R. Casey at (518) 429-4277 or jcasey@hblaw.com.