Judge Nealon of Lackawanna County Addresses Allegations of Post-Claim Underwriting by Carrier

In his recent July 26, 2012 Decision in the case of AJT Properties, LLC v. Lexington Insurance Company, No. 08-CV-4252 (C.P. Lacka. Co. July 26, 2012 Nealon, J.), Judge Terrence R. Nealon of the Lackawanna County Court of Common Pleas addressed allegations of post-claim underwriting by a flood insurance carrier.  

In this case, a commercial property owner which suffered flood damage in June of 2006 filed suit against its building and personal property insurance company which had denied coverage based upon a policy exclusion for flood loss occurring on properties located within a Special Flood Hazard Area (SFHA).    The Defendant insurance company filed a Motion for Summary Judgment on the grounds that there was no genuine issue of material fact that the subject property was situated in an SFHA such that the Defendant insurer was allegedly entitled to judgment as a matter of law by virtue of the unambiguous policy language excluding coverage for flood loss in such a zone.  

According to the Opinion, the property at issue was originally inspected in May of 2004 and was determined not to be in an SFHA.   Two months after the insurer had issued the policy to the owner in January of 2006, another property survey was completed in March of 2006 to determine the insurability of the land and that inspection likewise concluded that the property was not in an SFHA district.  

However, after the owner submitted its flood loss claim following a flood in late June of 2006, the insurer retained a new inspector to examine the property’s flood zone classification.  That inspector issued a report concluding that the property was in an excluded SFHA.   Thereafter, the authors of the May of 2004 and March of 2006 flood exposure surveys revisited their original conclusions and now concurred with the insured’s second inspector that the property is in an SFHA.  

Judge Nealon found that, at the time that the owner purchased the insurance policy in early 2006, the insurance company sold flood insurance for properties in SFHA zones, but the owner was not offered the opportunity to purchase such insurance since the parties believed at that time that the property was not in a SFHA, as per the flood exposure inspection conducted on behalf of the insurer in March of 2006.   The court found that there were genuine issues of material fact as to whether the owner would have purchased SFHA flood insurance if the insurer had performed a proper survey in March of 2006 and had advised the owner that the property was located in an excluded SFHA.  

Judge Nealon stated that, depending upon how the jury resolved those factual issues, the insurance company may be equitably estopped from denying coverage based upon its post-claims survey establishing that the property is in an excluded SFHA.   Accordingly, the Court denied the carrier’s Motion for Summary Judgment based upon its SFHA exclusion as well as other arguments put forth by the carrier.  

Anyone desiring a copy of this decision may contact me at dancummins@comcast.net.