Great American Insurance Company v. Zelik
1:19-cv-01805
| S.D.N.Y. | Jan 6, 2020Background
- Zelik, a real estate investor, obtained a $5 million commercial umbrella policy from Great American Insurance Company (GAIC) through broker Secure Insure; he submitted a spreadsheet listing 27 properties and underlying carriers.
- Several listed locations (including a vacant lot at 467 Bushwick Ave.) showed Allstate as the underlying carrier; those Allstate policies were homeowners policies, not Commercial General Liability (CGL) policies required by the umbrella application.
- Secure checked an application box affirming that all underlying insurance complied with the umbrella’s CGL requirements; no changes were made to replace homeowner policies before the umbrella bound in 2011, and renewals contained the same affirmation.
- In 2019 Kim Hodges tripped and was injured on the vacant lot at 467 Bushwick Ave.; Allstate tendered its $1 million primary limit and sought GAIC participation, prompting GAIC to investigate and then sue to rescind or reform the umbrella policy (or alternatively to find no coverage).
- Zelik counterclaimed for breach/declaratory relief that GAIC must cover the Hodges claim; Zelik sued Secure for broker malpractice and breach of contract. Cross-motions for summary judgment were filed by GAIC, Zelik, and Secure.
Issues
| Issue | GAIC / Plaintiff's Argument | Zelik / Defendant's Argument | Held |
|---|---|---|---|
| Rescission for misrepresentation | Zelik (via Secure) falsely affirmed underlying CGL compliance; rescission warranted | Affirmation was not material; GAIC had notice or relied on broker; equitable/timeliness defenses | Genuine factual disputes (materiality, reliance, divisibility, timeliness, equity). Summary judgment denied to all on rescission. |
| Reformation of policy | Parties were mutually mistaken that underlying policies were CGLs; reform to exclude certain locations | No clear-and-convincing proof of mutual mistake or of a shared intent to exclude such properties | GAIC failed to meet the clear-and-convincing standard; summary judgment for Zelik dismissing reformation claim. |
| Coverage under umbrella (follow-form; business/non-business exclusions) | Umbrella follows form to underlying Allstate; Allstate’s business-activities exclusion (and umbrella’s non-business exclusion) together bar coverage for Hodges | Umbrella does not plainly adopt Allstate terms; terms ambiguous; passive investment may not be a ‘‘business activity’’ under either policy | Ambiguity and factual dispute as to meaning and applicability of exclusions; summary judgment denied on coverage question. |
| Broker liability (malpractice / breach / fees) | Secure contends brokers aren’t subject to malpractice or lack consideration for contract; not proximate cause | Zelik alleges Secure negligently procured coverage, received commissions/fees (consideration), and may be liable for fees if insurer loses | Triable issues exist on negligence, breach, consideration, causation, and entitlement to attorneys’ fees; Secure’s summary judgment motion denied. |
Key Cases Cited
- Fid. & Guar. Ins. Underwriters, Inc. v. Jasam Realty Corp., 540 F.3d 133 (2d Cir. 2008) (insurer may rescind for material misrepresentations on application)
- Christiania Gen'l Ins. Corp. v. Great Am. Ins. Co., 979 F.2d 268 (2d Cir. 1992) (definition of materiality for rescission: would insurer have issued policy or charged higher premium)
- Ross v. Food Specialties, Inc., 6 N.Y.2d 336 (N.Y. 1959) (reformation requires clear and convincing evidence of mutual mistake)
- Seaboard Sur. Co. v. Gillette Co., 64 N.Y.2d 304 (N.Y. 1984) (follow-form exclusions must be specific and clear to be enforced)
- Travelers' Ins. Co. v. Pomerantz, 246 N.Y. 63 (N.Y. 1927) (false answer on insurance application constitutes misrepresentation)
- LaSalle Bank Nat'l Ass'n v. Nomura Asset Capital Corp., 424 F.3d 195 (2d Cir. 2005) (contract ambiguity presents fact question not resolvable on summary judgment)
- U.S. Underwriters Ins. Co. v. City Club Hotel, LLC, 3 N.Y.3d 592 (N.Y. 2004) (insured may recover attorneys' fees when insurer's suit forces insured into defensive posture and insured prevails)