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January 27, 2023

New York State's Highest Court Rejects Untimely $2.4 Million Claim for Reformation of Insurance Policy

Reformation is an equitable (as opposed to a legal) remedy available to parties to a contract, allowing courts to rewrite an agreement that does not accurately represent the intentions of the parties due to mistake or fraud. In general, reformation of an insurance policy is appropriate if the insurer and policyholder came to an understanding about the terms of a policy but there was a mistake (mutual or one sided) resulting in a policy provision that was incorrectly omitted or inserted despite the parties’ previous agreement. 

Recently, in 34-06 73, LLC v Seneca Ins. Co.,i  the New York State Court of Appeals, in a reversal, denied a policyholder’s motion to amend its complaint and add a claim of reformation because the motion was made for the first time at trial and did not relate back to the original complaint and thus was time barred.

The subject claim arose from a fire loss at vacant commercial properties. The property insurance policy at issue required, as a prerequisite for coverage for any fire loss, working automatic sprinkler systems on the insured properties. One month after the policy went into effect, an inspection revealed the properties lacked the required sprinkler systems, but the insurer did not cancel the policy. Approximately four months later, a fire occurred at the properties, and the insured submitted a claim of over $2.4 million to the insurer under the policy. The insurer denied the claim, citing the insured’s failure to satisfy the automatic sprinkler system requirement in the policy.

The policyholder sued the insurer, asserting only a breach of contract claim. The case proceeded to trial, at which time the policyholder for the first time argued the policy did not reflect the parties’ agreement because, prior to the inception of the policy, the insured allegedly told its insurance broker that it did not want the requirement for a sprinkler system because the properties were vacant and did not have sprinklers. In addition, the insurer had admitted that the premiums quoted for the policy were for a building without a sprinkler system and that the inclusion of the condition may have been a mistake. Since the policyholder had not included a reformation claim in its original complaint, it was required to show that the claim related back to the same facts and occurrences in its original complaint. The reformation claim otherwise would have been time barred.

The trial court permitted the amendment, agreeing with the policyholder that the reformation claim related back to the complaint because it was “part of the whole thrust of the complaint originally.” On appeal, the appellate division affirmed.

On a further appeal, however, the NYS Court of Appeals reversed in favor of the insurer, concluding that the complaint “failed to give notice to the [insurer] of the transactions or occurrences on which plaintiffs base their claim.” Notably, the Court of Appeals reasoned that the plaintiff’s allegation in its complaint that it complied with all the requirements of the policy was fatal to its reformation argument, as that compliance waived any challenge to the policy terms (including the sprinkler system requirement). Thus, the court held, there could be notice of mistake or fraud to the insurer. As such, the court denied the policyholder’s motion to amend.

This decision is an interesting look into the equitable theory of reformation and a reminder that plaintiffs, including policyholders and insurers, must be careful to include all potential claims in their original pleadings or else to amend and add any potential new claims as soon as possible. Otherwise, the plaintiff risks having a potentially viable claim barred as untimely.

If you have any questions regarding the content of this alert, please contact Earl Storrs III, associate, at; Tony Piazza, Insurance Coverage & Regulation Practice Area chair, at; or another member of the firm’s Insurance Coverage & Regulation Practice Area.


iN.Y.S. 3d, 2022 NY Slip Op 06029 (2022).


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