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.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.
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.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.