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New York Federal Court Rules Policy Did Not Provide Coverage for Basement Generator Flooded By Hurricane Sandy and Denies Breach of Fiduciary Duty and Bad Faith Claims Against Insurer

Bad Faith, Blogs

Earlier this month, the United States District Court for the Southern District of New York granted summary judgment in favor of an insurer on an insured’s claim for breach of contract, finding that coverage under the policy at issue was limited to property located on the 33rd floor of the subject building and, therefore, did not extend to a generator installed in the building’s basement. The Court further granted the insurer’s motion for summary judgment on the insured’s claims for breach of fiduciary duty and bad faith, ruling that the insured failed to plead facts suggesting a fiduciary relationship with the insurer and/or supporting an inference of bad faith. Jane Street Holding, LLC v. Aspen American Ins. Co., No. 13 Civ. 2291 (RWS), 2014 WL 28600 (S.D.N.Y. Jan. 2, 2014). 

In Jane Street Holding, quantitative proprietary trading company Jane Street Holding, LLC (“JSH”) sued Aspen American Insurance Company (“Aspen”), alleging that Aspen breached the property and inland marine insurance policy it issued to JSH (the “Policy”) by failing to pay up to $2.5 million for flood damage to JSH’s electric generator resulting from Hurricane Sandy. JSH further alleged that Aspen’s failure to pay constituted a breach of the insurer’s fiduciary duty to the insured and bad faith.

In deciding the parties’ competing motions for summary judgment, the Court first determined that the Policy was “appropriately read” as covering only the 33rd floor of One New York Plaza, where JSH’s offices were located. The Court found that the Schedule Locations Endorsement and the Locations Schedule identified only the 33rd floor as a “covered location” and further noted that this was consistent with JSH’s application for insurance, which identified the premises as “40,000 sq. ft. Office Property” located at “One New York Plaza 33rd Floor New York N.Y. 10004.” Thus, the Court concluded that the Policy did not cover JSH’s generator located in the basement of One New York Plaza.

In addition, while recognizing that “New York courts do not follow a per se rule prohibiting recognition of a fiduciary relationship in the insurance context,” the Court nonetheless denied JSH’s claim for breach of fiduciary duty, finding that JSH failed to plead “any allegations that suggest . . . a relationship [of trust and confidence] existed between Aspen and [JSH].” The Court similarly rejected JSH’s bad faith claim because JSH failed to show “sufficient evidence or sufficiently [plead] allegations to support an inference of bad faith.” The Court noted that, under New York law, bad faith cannot be found where an insurer has “an arguable case for denying coverage,” as Aspen had here.

For a complete copy of Jane Street Holding LLC v. Aspen American Ins. Co. click here