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February 7, 2024

Second Circuit Reverses in Favor of Insured in $600,000 Fire Loss Case

In insurance coverage disputes, courts generally review and interpret an insurance policy based only on the four corners of the policy at issue. If a policy is ambiguous, however, relevant extrinsic evidence can be considered to resolve the ambiguity. If the ambiguity cannot be resolved, the court’s decision must favor the policyholder over the insurer since (in most instances) it is the insurer who drafted the policy. In Ezrasons, Inc. v. Travelers Indem. Co.,1 the United States Court of Appeals for the Second Circuit applied these principles of policy interpretation in vacating an award of summary judgment to an insurance carrier and awarding judgment to the insured.  

The claim arose from a fire loss at a warehouse that caused damage to goods exceeding $600,000 in value. The warehouse was located at a 19-acre property containing multiple buildings and addresses. The property insurance policy at issue provided a maximum limit of coverage of $600,000 for a loss at an “Approved Location” and lesser coverage of $250,000 for a loss at any other location.

The policyholder and insurer disputed whether the fire occurred at an “Approved Location” under the policy. The only relevant Approved Location listed on the policy was 56 Branch Street; the warehouse where the fire occurred was known (at least for some purposes) as 1386 Virginia Road, which was not listed as an Approved Location. Thus, the insurer denied coverage in excess of $250,000 on this basis.

The insured filed a lawsuit, claiming, among other things, that there was evidence showing that the entire 19-acre parcel of the insured property was known as 56 Branch Street and that the warehouse thus was included as part of an “Approved Location” and subject to the higher $600,000 policy limit. The district court rejected this argument and granted the insurer’s motion for summary judgment, finding that the policy was clear and unambiguous and did not list the address for the warehouse as an “Approved Location.”

On appeal, however, the Second Circuit reversed and held in favor of the insured. The court reasoned that, based upon the documentary evidence presented by the parties, the policy was ambiguous because the insured’s interpretation was not unreasonable. The court further reasoned that this ambiguity required the evaluation of extrinsic evidence, which included a deed of trust, maps, tax assessor information, and satellite imagery as well as declarations from employees. The court determined, however, that this evidence did not resolve the ambiguity; thus, the court ruled in favor of the insured based on the well-settled rule that an ambiguity resulting in more than one reasonable interpretation of a policy must be resolved in favor of the insured.

This decision highlights the importance of the underwriting process and the need for policyholders and insurance companies, agents, and brokers to carefully examine the listed properties and locations described in an insurance policy, especially with larger properties containing multiple buildings and locations. Otherwise, there is a risk that the coverage being issued will not be consistent with the parties’ expectations.

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

1Ezrasons, Inc. v. Travelers Indem. Co., 2023 U.S. App. LEXIS 34125, *11 (2d Circ. December 23, 2023).

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