City Court Has Jurisdiction to Hear Suits Over Property Insurance Where Defense is Based on Exclusion
Royal Housing LLC v Allegany Co-op Ins. Co.
Do the lower courts (such as City Court, in this instance) have jurisdiction to hear suits for insurance benefits where the defense is an exclusion? Yes, holds the City Court of Jamestown in this case.
Allegany Co-op Insurance Company moved for an order dismissing plaintiff ’s complaint for lack of subject matter jurisdiction.
“Plaintiff, Royal Housing, LLC (“Royal”), commenced this action on December 20, 2010 by filing a summons and complaint. In essence, the complaint alleges that Royal purchased a landlord insurance policy from Allegany covering premises that were leased by Royal to certain tenants, that the policy was in full force and effect in December 2008, that Royal presented a claim to Allegany seeking payment for water damage caused by the freezing and bursting of water pipes discovered on January 2, 2009 and that Allegany denied the claim based upon an exclusionary provision of the policy pertaining to “vacant or unoccupied” residences. The complaint further alleges that Royal’s tenants moved into the premises on August 31, 2006 and paid the monthly rent each month until November 2008. In the month which followed, Royal attempted to collect the rent on two separate dates – – December 5 and 19, 2008. Neither tenant answered the door; however, Royal’s representative allegedly observed a number of telltale signs indicative of occupancy at the time of each visit. It was on January 2, 2009 that Royal allegedly learned that the tenants intended to voluntarily terminate their lease, and it is then that Royal reasserted possession of the premises and discovered the water damage.”
“In its prayer for relief, Royal demands judgment against Allegany in the amount of $5,375.36. There is no indication whatsoever in the complaint that Royal is seeking any type of equitable relief. Nevertheless, Allegany contends that a demand for equitable relief is implicit by virtue of Allegany’s assertion of a coverage issue.”
“The landlord insurance policy issued by Allegany provides coverage for “Freezing of Plumbing, Heating, Air Conditioning Systems . . . excepting loss or damage on the insured premises while the residence is vacant, unoccupied or being constructed.” In its complaint, Royal alleges that the vacancy or unoccupancy provision should be construed with reference to the species of property insured andthe use contemplated for the particular type of property, and that a landlord cannot assert possession of a rental unit unless and until the tenant has been evicted or voluntarily surrenders. Thus, Royal argues that rental premises should be deemed “occupied” and not “vacant” unless and until the tenant is evicted or voluntarily surrenders. In contrast, Allegany maintains that the plain language of the policy controls and that a rental premises becomes vacant or unoccupied regardless of an eviction or voluntary surrender.”
“Relying on Bury v. Cigna, 254 AD2d 229 (1st Dept 1998), Allegany contends that the determination of the issue of when coverage terminated under the vacancy or unoccupancy provision of the policy is ‘a mixed question of law and equity that lies outside the jurisdiction of the City Court and should be decided pursuant to a declaratory judgment action in New York State Supreme Court.’ Thus, Allegany maintains that Royal’s breach of contract cause of action is not ripe.”
“It is axiomatic that the City Court is a court of limited jurisdiction and that the City Court generally does not possess the power to grant declaratory relief (see Bury v. Cigna, 254 AD2d 229, supra; but see Uniform City Court Act § 212-a, as added by L 2010, ch 65, § 7).”
“However, Allegany’s reliance on Bury is misplaced. ‘Bury involved a classic coverage dispute between different insurers, and the relief sought was a declaratory judgment’ (Whitfield v. State Farm Mutual Automobile Ins. Co., 12 Misc 3d 428, 430). In the instant case, Royal has brought an action against a single insurer “for the recovery of money . . . where the amount sought to be recovered . . . does not exceed fifteen thousand dollars exclusive of interest and costs” (Uniform City Court Act § 202). Thus, this action falls categorically under the jurisdiction of the City Court.”
“Moreover, Allegany’s attempt to distinguish Whitfield on the grounds that the issue here is one of coverage, as opposed to whether or not the insurance contract became void by virtue of the exclusion is unavailing. No compelling reason exists to treat the insurance policy here different from any other contract or to treat the exclusionary provision different from any other condition precedent or condition subsequent. As the Whitfield court wisely observed: ‘a defendant can always arguecondition precedent was not satisfied, that an exception applies, that a condition subsequent was not satisfied, etc., and, therefore, that a simple breach of contract claim is equitable in nature, and, thus, needs to be brought in Supreme Court, with its attendant delay, complexity, and expense’ (12 Misc 3d at 429). “A contract of insurance is no different from any other contract” (New York Cent. Mut. Fire Ins. Co. V. Ward, 38 AD3d 898, 899 [2nd Dept 2007]), and a vacancy or unoccupancy clause is simply a condition, the breach of which relieves the insurer from liability where the loss occurs while the premises is vacant or unoccupied (Nurnberg v. Citizens Cas. Co. of New York, Inc., 18 AD2d 650 [1st Dept 1962], affd 13 NY2d 681 [1963]).”
“In the instant case, Allegany’s argument that the exclusionary clause applies is no different conceptually from an argument ‘that a contract does not exist, that a condition precedent was not satisfied, that an exception applies, that a condition subsequent was not satisfied’ (Whitfield at 429). Accepting Allegany’s argument would logically mean that anytime a defendant in a insurance policy breach of contract action asserts that an exclusion applies, the City Court would be without jurisdiction until the plaintiff establishes the invalidity of the exclusion in Supreme Court.”
“Allegany is correct that the issue to be resolved is whether or not the vacancy or unoccupancy clause applies; if so, then Royal’s loss would not be covered. In deciding that issue, the City Court would, of course, be compelled to interpret the language of the insurance contract, but “[t]he fact that the City Court may have to review the contract of insurance . . . , as an incident to determining whether or not to award damages, does not compel the conclusion that the relief essentially sought is equitable” (Celestin v. American Transit Insur. Co., 193 Misc 2d 72, 74). The interpretation of a contract or insurance policy is “simply incidental to the relief sought’.”
“Based upon the foregoing, the Court denies defendant’s motion in all respects.”
