Avoiding denial of coverage on your insurance claim: Know what you paid for

Another allegedly weather-related crane collapse occurred in New York City on Feb. 5 that resulted in property damage, personal injury and most tragically, a loss of life. It is expected that multiple firstparty and third-party claims will be filed by the business entities affected by the incident for losses that may include business interrupi i and property damage.

It is also reasonable to anticipate that any of these businesses dealing with the daunting experience of the aftermath - the cleanup, investigations and overall damage control - would least expect that an adverse determination from their own insurance company would delay a return to normal business operations. Unfortunately for any one of them, * that could be the case.

The insurance companies will certainly honor a loss that is expressly contracted for in the insurance contract. Conversely, they will deny a claim that is not, or is otherwise exempted by an exclusion. This holds true irrespective of the numbers of businesses and individuals aggrieved by an occurrence or the magnitude and extent of a loss.

Illustrative of this point is a memorable occurrence reminiscent of the crane collapse of recent days. In 2012, Hurricane Sandy allegedly contributed to a partial crane collapse in midtown Manhattan, which resulted in losses that included damage to a mixed-use building to which the tower crane was affixed and the tower crane itself. A multimillion-dollar claim was submitted to a builder's risk policy by the property owner and construction manager for the project. Coverage was denied on the basis that the tower crane did not constitute covered property as defined by the policy or alternatively was excluded property.

The aggrieved insured parties resorted to litigation seeking a declaration that the insurer was obligated to provide coverage (Lend Lease (US) Construction LMB Inc. et al v. Zurich American Insurance Co. et al). The state Supreme Court disagreed, essentially concluding that the tower crane was property of a nature that differed from the policy's definition of covered property, a decision that was upheld by a divided state appellate court last December.

In essence, insured parties must understand the fact that proof of payment of premiums does not establish entitlement to coverage. The coverage purchased is provided through an insurance contract which, contains terms, conditions and definitions, as well as limitations to and express exclusions from coverage. Collectively, these definitions, limitations and exclusions can and do create gaps in coverage for an unwary insured.

While it is unlikely that all potential variations of risk can be anticipated by an insured, the insured is in the best position to appreciate and contract for the risks he appreciates and intends to protect him and his company against.

If an insured's self-help efforts prove unsuccessful in getting the insurer to reconsider the position taken in a dreaded denialof-coverage letter, ultimately the burden is that of the insured to establish entitlement to coverage in the first instance. The New York State courts, in adjudicating such a dispute, will rely on well-settled principles of contract interpretation.

The most paramount of those is that clear language in the insurance contract will be afforded its commonly used meaning and that otherwise unequivocal language will not be construed in a manner to extend coverage for an insured that does not exist. Conversely, any contract language that is ambiguous or susceptible to two reasonable interpretations will be construed against the drafter and in favor of the insured.

The important takeaway is that no business that pays premiums for an insurance policy should make any assumptions about what is "covered" in the insurance contract. Rather, the insurance contract should be read and if there are any doubts, inquiries should be made to either an insurance or legal professional. Concerns that a particular risk is not adequately contemplated in the procured coverage can be potentially cured by including special endorsements to the contract.

Spending the extra time, effort, and, if necessary, additional money up front when purchasing business insurance can help ensure a timely return to business as usual when calamity strikes and can also help avoid protracted and costly coverage disputes.

Melissa Cintron is a partner in the insurance defense and corporate and real estate practice groups at Harrington, Ocko & Monk, LLP in White Plains. For more information, visit homlegd.com or call her at 914-686-4800.