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Current Developments in the Commercial Divisions of the
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Posted: April 24, 2016

Question of Fact Whether Insurance Policy Covered Affiliates of Sole Named Insured

On March 30, 2016, Justice Kornreich of the New York County Commercial Division issued a decision in El-Ad 250 West LLC v. Zurich America Insurance Co., 2016 NY Slip Op. 30595(U), finding that there were questions of fact regarding whether affiliates of an insured were covered by an insurance policy despite not being named as insureds in it, explaining:

It is clear . . . that the Policy states that only the Named Insured – plaintiff El-Ad 250 – may recover delay in completion losses. Nonetheless, plaintiff contends that it may recover delay in completion losses incurred by related “El-Ad” affiliates who worked on the covered project.

. . .

Plaintiffs argument that delay in completion coverage is available to its affiliates is based on a line of cases originating with Lipschitz v Hotel Charles. . . . . Lipschitz and its progeny are understood to stand for the proposition that if an insurance policy inaccurately recites the party for whom it was intended that coverage for the subject risk would be available, then that intended insured could receive coverage, despite not being named in the policy. . . .

[The defendant] correctly observes that the legal principles of mistake and reformation are themes underlying many of these cases. However, not all of the above-cited cases . . . expressly base their holding on the doctrine of mistake, nor do any of these cases expressly hold that mistake is an essential element of a claim that the intended insured was not correctly identified in the Policy. On the contrary, there are a number of cases where the decision to afford coverage to a party not named in the policy turned exclusively on intent without any consideration of whether a mistake was made. In fact, the First Department has held that denying coverage based on an absence of evidence of mutual mistake or unilateral mistake coupled with fraud is not justified. Rather, coverage must be provided to the owners of and the only parties with an insurable interest in the insured property, as named insureds because the name of the insured need not appear on the face of the policy; it is enough that it describes the person for whose benefit the insurance is obtained.

Indeed, Lipschitz and its progeny recognize that coverage determinations must turn on the question of whether the parties’ intended to cover the underlying risk, not which corporate entity was the intended insured. . . .

Moreover, as noted, [the defendant’s] underwriting process appears to have accounted for the affiliates, suggesting it understood coverage might extend to them. While[the defendant] disputes this, the reasons behind [its] underwriting are questions of fact that cannot be resolved on its summary judgment motion, where the evidence must be viewed in the light most favorable to plaintiff, the party opposing summary judgment.

(Internal quotations and citations omitted).

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