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February 17, 2015

Appellate Division Dismisses Fire Claim Where Insured Failed to Comply with Policy Warranty Regarding Operational Burglar Alarm Protection

The Appellate Division, Second Department, affirmed summary judgment in favor of an insurer because its insured failed to comply with a policy warranty by not activating its burglar alarm system. Triple Diamond Café, Inc. v. Those Certain Underwriters at Lloyd's London, 2015 N.Y. Slip Op. 00527 (January 21, 2015).

The insured, an owner of a bar and lounge that was broken into and then destroyed by fire, notified its insurer of the loss. The insurer denied coverage and moved for summary judgment to dismiss the complaint on the basis that the insured failed to comply with a policy condition, which required the insured to maintain its alarm system in full operation during the policy period. A provision in the "special conditions" section of the policy declaration page stated: "Warranted . . . burglar alarm[] will be [f]ully operational throughout the period of the policy." The insured argued that such provision did not constitute a warranty and that the term "fully operational" did not require that the alarm be actually set or activated, or in the alternative, the provision was ambiguous.

Insurance Law §3106(a) provides:

In this section, warranty means any provision of an insurance contract which has the effect of requiring, as a condition precedent of the taking effect of such contract, or as a condition precedent of the insurer's liability thereunder, the existence of a fact which tends to diminish, or the non-existence of a fact which tends to increase, the risk of the occurrence of any loss, damage, or injury within the coverage of the contract.

Supreme Court granted summary judgment to the insurer finding that the provision constituted a warranty under Insurance Law §3106, and that the term "fully operational" required the insured to actually activate the alarm, and there was no ambiguity.

On appeal, the Second Department affirmed, holding:

Here, the provision in the 'special conditions' section of the declaration page which states 'warranted burglar alarm[] will be fully operational throughout the period of the policy' meets the definition of a warranty pursuant to the Insurance Law, since requiring the plaintiff to have a fully operational burglar alarm would be significant to the defendant's risk of liability under the insurance policy.***[T]he statement that an insured have a fully operational security system logically requires that the system be actually utilized by the insured to prevent or mitigate the risk the insurer takes by writing the policy.

The Second Department's decision is a reminder that although courts will construe policy terms in favor of insureds, a clear and unambiguous policy condition or warranty will be enforced in favor of the insurer.


Should you have questions regarding the information presented in this alert, please contact Anthony J. Piazza, Chair of the firm's Insurance Coverage & Regulation Practice Area, at (585) 295-4420 or apiazza@hblaw.com.

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