A four-judge panel of the New York Appellate Division’s Second Judicial Department recently affirmed a trial court’s dismissal of an insurance coverage suit based on a flood exclusion, despite the insurer’s failure to specifically cite the flood exclusion it later relied upon in its initial notice to the insured disclaiming coverage.

In The Provencal, LLC v. Tower Ins. Co. of New York, 2016 NY Slip Op. 02644 (2d Dep’t Apr. 6, 2016), strip mall owner, The Provencal, LLC (“Provencal”), sued Tower Insurance Co. of New York (“Tower”) seeking damages for an alleged breach of policy. The lawsuit followed Tower’s denial of coverage for all losses claimed by Provencal for water damage to its Nyack, New York property resulting from the collapse of a retaining wall. The parties stipulated that the collapse of the retaining wall was caused by the force of runoff water from a neighboring property creating excessive water pressure against the wall. Further, there was no dispute that the commercial insurance policy issued to Provencal by Tower excluded coverage for any loss caused directly or indirectly by flood or surface water.

In a September 18, 2014 decision, the trial court, relying on the Tower policy’s exclusion for flood or surface water damage, had dismissed the action, agreeing with Tower that the policy did not provide coverage for the losses sustained by Provencal. Notwithstanding the unambiguous policy exclusion, Provencal appealed the dismissal of its lawsuit, arguing that Tower waived its right to rely on the exclusion for flood or surface water damage in denying coverage because it did not identify that particular ground in its initial letter to Provencal disclaiming coverage under the policy.

The New York appellate panel disagreed. Affirming the trial court’s dismissal of Provencal’s complaint, the panel found that “[Provencal] does not dispute that the exclusions for flood or surface water damage would prevent coverage of the loss at issue.” Id. at *2. Further, the panel found that “[b]ecause there was no basis for estopping [Tower] from relying on [the exclusions], the [trial court] properly found that the collapse of the retaining wall was not a covered loss under the policy.” Id.

In reaching its decision, the appellate panel rejected Provencal’s reliance on prior case law interpreting New York Insurance Law § 3420. Section 3420(d)(2) imposes strict requirements on the insurer to give timely and detailed written notice if the insurer is disclaiming liability or denying coverage for death or bodily injury arising out of an accident. Insofar as this case did not involve “death or bodily injury,” the panel found that § 3420 and the cases interpreting it do not apply.

Further, the panel rejected Provencal’s challenges to the trial court’s decision dismissing its complaint based upon the common law principles of waiver and estoppel. The panel explained that waiver requires “the voluntarily and intentional relinquishment of a known right.” Id. However, the principle does not apply in this case because “the failure to disclaim based on an exclusion will not give rise to coverage that does not exist.” Id. Also, to demonstrate that Tower should be estopped from relying on the exclusion, Provencal had to show that it was prejudiced by the insurer’s failure to raise the exclusion in the denial letter. Id. The panel, however, also found that Provencal failed to make the requisite showing of prejudice to support estoppel. Id.

This opinion affirms the proposition that property-casualty insurers in New York will not be deemed to have waived dispositive policy exclusions pertaining to property damage claims merely for failing to raise them in coverage determinations, absent compelling circumstances. It also upholds the long-established principle that the court will not make for a party a better contract than the one it made for itself.