Si Meat Village Inc. v. AmGuard Insurance Company
MEMORANDUM & ORDER: Accordingly, the Court concludes that, AmGuard has not waived the protective safeguards endorsement, and is not estopped from invoking it. AmGuards motion 23 for summary judgment on Si Meats claim for coverage is granted. The case shall proceed on AmGuards counterclaim for reimbursement of payments to third parties under the policy. Ordered by Judge Frederic Block on 9/23/2016. (Innelli, Michael)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
SI MEAT VILLAGE, INC.,
MEMORANDUM AND ORDER
For the Plaintiff:
CRAIG A. BLUMBERG, ESQ.
15 Maiden Lane, 20th Floor
New York, New York 10038
For the Defendants:
STEPHEN M. LAZARE, ESQ.
YALE GLAZER, ESQ.
Lazare Potter & Giacovas LLP
875 Third Avenue, 28th Floor
New York, New York 10022
BLOCK, Senior District Judge:
Si Meat Village, Inc., seeks recovery from its insurer, AmGuard Insurance
Company, for property damage and lost income due to a fire. AmGuard moves for
summary judgment on that claim. For the following reasons, the motion is granted.1
In its reply memorandum, AmGuard asks the court to enter judgment on its
counterclaim for money it paid under the policy to a third party whose property was
damaged in the fire. However, AmGuard’s initial memorandum did not request that
relief, and the Court cannot grant summary judgment on an issue unless the opposing
party has had a fair opportunity to address it. Cf. Hispanics for Fair & Equitable
Reapportionment (H-FERA) v. Griffin, 958 F.3d 24, 25 (2d Cir. 1992) (“We cannot
in good conscience affirm a summary judgment if we are not satisfied that the
appellant had been given an opportunity upon notice to oppose the grant below.”).
The policy at issue includes what is known as a “protective safeguards
endorsement,” which required Si Meat to maintain an automatic fire alarm on the
premises. The policy explicitly excludes losses due to fire “if, prior to the fire, [the
policyholder f]ailed to maintain any protective safeguard listed in the Schedule above,
and over which [the policyholder] had control, in complete working order.” Decl. of
Paul Prislupsky, Ex. A-1. It is undisputed that there was no fire alarm at the premises.
The application for coverage, submitted by an insurance broker, represented
that there was a fire alarm on the premises. In addition, AmGuard commissioned two
inspections of the premises, one shortly after the policy was issued and a second when
it came up for renewal. Raymond Hagemann, an independent contractor, conducted
both inspections. During each inspection, he asked Si Meat’s principal, Ziad
Abdeldayum, if there was a working fire alarm on the premises and was told that there
Hagemann did not independently verify Abdeldayum’s representations. He
stated at his deposition that he had “no specific intention to look” for a fire alarm, and
did not remember seeing any alarm equipment on the premises. Hagemann Dep. 65,
70. He further stated that “the existence of [such] equipment doesn’t necessarily mean
that the equipment is functional, is turned on, is operational.” Id. at 49.
In its statement pursuant to Local Rule 56.1, Si Meat denied making any
representations to AmGuard or its inspector regarding the presence of a fire alarm.
However, the rule requires that “each statement controverting any statement of
material fact . . . must be followed by citation to evidence which would be
admissible.” E.D.N.Y. R. 56.1(d). As confirmed at oral argument, there is no
evidence controverting AmGuard’s and Hagemann’s statements. Accordingly, the
Court accepts them as undisputed. See id. R. 56.1(c).
Jurisdiction in this case is premised on diversity, and the parties agree that New
York substantive law governs.
That law categorizes a protective safeguard
endorsement as a warranty by the insured, see Triple Diamond Cafe, Inc. v. Those
Certain Underwriters at Lloyd’s London, 3 N.Y.S.2d 46, 49 (2d Dep’t 2015) (promise
to keep burglar alarm operational “meets the definition of a warranty pursuant to the
Insurance Law”), and a breach of the warranty voids coverage as long as the breach
“materially increases the risk of loss, damage or injury within the coverage of the
contract,” N.Y. Ins. L. § 3106(b). There is no requirement that the breach be
intentional or knowing; “even innocent misrepresentations, if material, are sufficient
to allow an insurer to defeat recovery under the insurance contract.” Kulikowski v.
Roslyn Sav. Bank, 503 N.Y.S.2d 863, 864 (2d Dep’t 1986).
Si Meat concedes both the breach and its materiality. It argues, however, that
AmGuard either waived the protective safeguards endorsement or is estopped from
relying on it. It bases both theories on a contention that Hagemann negligently
inspected the premises, and that a reasonably competent inspection would have
revealed the lack of a fire alarm.
“Waiver and estoppel are distinct in New York insurance law.” Burt Rigid Box,
Inc. v. Travelers Prop. Cas. Corp., 302 F.3d 83, 95 (2d Cir. 2002). Waiver “is the
voluntary and intentional relinquishment of a contract right.” Stassa v. Stassa, 999
N.Y.S.2d 116, 119 (2d Dep’t 2014). As such, it requires “full knowledge of the facts
upon which the existence of the right depends.” Amrep Corp. v. American Home
Assurance Co., 440 N.Y.S.2d 244, 247 (1st Dep’t 1981). Si Meat does not claim that
AmGuard had actual knowledge that there was no fire alarm at the premises, and
Hagemann’s failure to learn the true state of affairs is not an adequate substitute.
See Peck v. Peck, 649 N.Y.S.2d 22, 23 (2d Dep’t 1996) (“[W]aiver is not created by
negligence, oversight, or thoughtlessness[.]”). Thus, there was no waiver.
“Estoppel . . . arises where an insurer acts in a manner inconsistent with a lack
of coverage, and the insured reasonably relies on those actions to its detriment.” Burt
Rigid Box, 302 F.2d at 95. Two cases cited by the plaintiff apply that principle. In
Tasty Candy Products, Inc. v. Great Eastern Insurance Co., 285 N.Y.S.2d 160 (1st
Dep’t 1967), the insurer was aware of changes to the insured’s property but
“continued to accept premiums up until the time of the fires in question, and paid out
on a prior claim and never sought to alter or cancel the policies issued to the plaintiff.”
Id. at 162. While AmGuard likewise renewed Si Meat’s policy, it did not—as
noted—have actual knowledge that there was not a fire alarm on the premises. As
with waiver, an insurer’s conduct works an estoppel only where the insurer has full
knowledge of the facts. See Amrep Corp., 440 N.Y.S.2d at 247 (“The same principles
apply where [the insured seeks] to estop the insurer from rescinding a policy because
of the fraud of the insured on the ground that the insurer had knowledge of the facts
and took no action.”).
In the second case cited by Si Meat, Val Drugs, Inc. v. Lynn, 402 F. Supp. 174
(W.D.N.Y. 1975), the insurer delayed processing a claim for a loss due to burglary.
While the claim was pending, a second burglary occurred. The court held that the
insurer could lawfully deny coverage for the first burglary based on the insured’s
failure to maintain a burglar alarm. With respect to the second burglary, however, it
reached the opposite conclusion:
Had the defendant acted promptly on plaintiff’s first claim, plaintiff
would have had the opportunity either to secure coverage elsewhere or
to make the necessary adjustments to come within the protective device
requirements. . . . [The insurer’s] failure to process plaintiff’s claim and
to inform plaintiff that he was not covered within a reasonable period of
time estops the company from denying coverage on the second burglary.
Id. at 177. The court reasoned that the first burglary “in effect amounted to notice of
the failure of the plaintiff to conform [to] the protective device requirements since an
inquiry pursued with ordinary diligence and understanding would have disclosed the
The unique circumstances of Val Drugs are not present here. There was no
prior fire to put AmGuard on inquiry notice that Si Meat was not complying with the
protective safeguards endorsement. And since there was no prior fire, there was no
prior claim for loss due to fire. Therefore, Si Meat could not have reasonably relied
on AmGuard’s conduct in processing such a claim to conclude that it was covered.
New York law is clear that “negligence in not making further inquiry” is “not
the equivalent of knowledge.” Cherkes v. Postal Life Ins. Co., 138 N.Y.S.2d 788, 790
(1st Dept. 1955). Something more—something “tantamount to notice”—is required.
Id. Otherwise, an insurer is “entitled to rely upon the insured’s representations,” and
further inquiry by the insurer is “optional.” Id.
Si Meats attempts to avoid that rule on the ground that AmGuard did undertake
“further inquiry” in the form of inspections, and it should be charged with knowledge
of what those inspections would have revealed had they been competently performed.
“[O]ne who assumes to act, even though not obligated to do so, may thereby become
subject to the duty to act carefully.” Jansen v. Fidelity & Cas. Co., 79 N.Y.2d 867,
868 (1992). That principle, however, “has been limited to those situations wherein the
action taken is for the benefit of another and not in furtherance of the interest of the
one who assumes to act.” Id. (internal quotation marks and citation omitted). In other
words, Si Meats could rely on the inspections to absolve it of its own responsibility
to comply with the protective safeguards endorsement only if the inspections had been
conducted for the benefit of Si Meats. On the contrary, it is generally understood that
an insurer conducts inspections for its own benefit. See, e.g., id. (“[I]t is apparent that
the safety inspections were undertaken solely for defendant's own underwriting
purposes—to reduce the risks that might give rise to liability under the policy.”).
Nothing in the record here intimates that AmGuard’s inspections were intended to
benefit Si Meat.
The Court is mindful that Si Meats has suffered a significant loss, and it takes
no issue with Abdeldayum’s assertion that he honestly believed there was a fire alarm
on the premises. Nevertheless, the law is clear that Si Meats bore the responsibility
of complying with the protective safeguards endorsement. If there were a genuine
dispute of fact as to whether AmGuard had actual notice, or even inquiry notice based
on suspicious circumstances, waiver or estoppel might excuse Si Meat’s breach of
warranty. But there is no evidence to support an inference of such knowledge, and,
as explained above, constructive knowledge—what AmGuard would have learned but
for Hagemann’s alleged negligence—is not sufficient.
Accordingly, the Court concludes that AmGuard has not waived the protective
safeguards endorsement, and is not estopped from invoking it. AmGuard’s motion for
summary judgment on Si Meat’s claim for coverage is granted. The case shall
proceed on AmGuard’s counterclaim for reimbursement of payments to third parties
under the policy.
/S/ Frederic Block_________
Senior United States District Judge
Brooklyn, New York
September 23, 2016
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