Every first-party property insurance policy contains a requirement that the
insured report a loss promptly. All use different language, but the key is that
the insurer wants to have notice soon enough to conduct a thorough
investigation of the loss claimed.
In Trustworthy LLC, d/b/a Days Inn v. Vermont Mut. Ins. Group,
8:16-CV-367 (NAM/DJS), United States District Court Northern District of New
York (March 15, 2018), Trustworthy LLC, the owner of the Days Inn Hotel in
Plattsburgh, New York, sued its insurer, Vermont Mutual Insurance Group,
alleging a single cause of action for breach of contract related to benefits
allegedly owed under an insurance policy.
Background
When Trustworthy purchased the hotel in 2009, the original roof had been in
place since the hotel was built in 1983. During this time, repairs were made
due to wear and tear on the roof. Every year there were problems with the roof
leaking due to the weight of snow and slush on the rubber and the rubber
shrinking. In 2011, a construction company also did work on the roof, adding
rubber where it had pulled out.
The Insurance Policy
Trustworthy obtained insurance for the hotel in 2009, through a business
owners policy. The policy covered the hotel building. In a section titled
"Duties in the Event of Loss or Damage," the policy stated the
following: "You must see that the following are done in the event of loss
or damage to Covered Property: (2) Give us prompt notice of the loss or damage.
Include a description of the property involved."
Plaintiff's Insurance Claim
On September 11, 2014, Trustworthy submitted a Property Loss Notice to
Defendant, which described the loss and damage as follows: "Wind driven
rain—damage to hotel rooms and hallway damage/ceiling, floor." The date of
loss was noted as May 16, 2014. The hotel caretaker testified that he could not
recall noticing anything significant on May 16, 2014, but that "I think
from our records that was when the first appearance of a water mark may have
appeared." The hotel maintenance supervisor testified that in 2014 he was
aware of problems with the roof as early as March and that he performed repairs
that spring, from March until May.
Toward the end of August 2014, Trustworthy retained The Insurance Doctor as
its public adjuster. The caretaker told the public adjuster about "the
type of issues we were having with the water damage getting worse and the smell
of mold getting worse."
Before the inspection date, Trustworthy retained CPR Restoration and
Cleaning Services LLC (CPR) to perform repairs at the hotel on September 16–19,
2014. The caretaker testified that CPR was brought in at the recommendation of
The Insurance Doctor. The supervisor believed that CPR worked on the hotel
before the insurer had the chance to inspect it in October. CPR removed carpet,
cut out sections of Sheetrock where it could not be dried, and cut out material
from the ceilings and walls.
At the first inspection, the adjuster noticed that portions of walls had
already been removed, ceiling tiles had already been replaced, wallpaper had
already been repaired, walls had been removed, portions of carpet had already
been removed, and some stains on the ceiling had already been painted over.
When the adjuster inspected the roof the same day, she noticed that "the
roof had already been repaired along the perimeter parapet wall with new
flashing" and that "[t]here were a few areas where the roof was
pulled down along the parapet wall, but most of the areas of the roof appeared
to have already been repaired prior to my arrival."
The proximate cause of loss was the weight of ice and snow on the flat roof
system at the hotel. The Insurance Doctor ultimately produced a report prepared
by CentiMark, which stated that the roof was at the "end of its life
cycle" and needed to be replaced. The report contained pictures of the
roof taken in 2011, before the repairs by the Monahan Brothers. The report
clearly states the entire roof was old and needed to be entirely replaced, and
there is no indication in this report to support a claim that the roof had been
damaged by the weight of snow and ice during the prior winter.
The insurer denied the claim because of the insured's failure to give
the insurer prompt notice of the loss. Also, Trustworthy did not afford the
insurer an opportunity to view the allegedly damaged roof and rooms prior to
repairs having been made, thus making it impossible for the insurer to make a
determination as to whether or not the roof was damaged by a covered event.
Court's Ruling
It was undisputed that Trustworthy gave notice on September 11, 2014, when
its public adjuster submitted a Property Loss Notice to Defendant. The date of
loss was reported as May 16, 2014, nearly 4 months after the loss was first
discovered. The court held that it is well-settled that when an insurance
policy requires that notice of an occurrence or claim be given
"promptly" or "as soon as possible," the "notice must
be given within a reasonable time in view of all of the facts and
circumstances." Cambridge Realty Co. LLC v. St.
Paul Fire & Marine Ins. Co., 421 F. App'x 52, 56 (2d
Cir. 2011) (citing cases). Among other things, the requirement for timely
notice protects the insurer against fraud or collusion and gives the insurer an
opportunity to investigate claims while evidence is fresh.
The court said that seeking a public adjuster and otherwise being busy are
not the sort of excuse, "such as lack of knowledge that an accident
occurred, that will explain or excuse delay in giving notice and show it to be
reasonable." The court ruled that Trustworthy failed to provide timely
notice because it waited nearly 4 months to report a loss to its insurer after
discovering damage to the hotel without any tenable excuse for the delay.
Conclusion: No Excuse for Late Notice
There is no excuse for such a late report, especially after performing many
repairs and making it impossible for the insurer to determine the actual amount
of loss. Had the insured reported the loss promptly, the claim would have been
resolved even though the roof was well beyond its lifespan and needed to be
replaced before its last session of leaks. Doing the repairs before inspection
is a red flag of fraud that was not needed because of the late report.
© 2018 Barry Zalma, Esq., CFE