Malicious Damage and Covered Property

 

December 29, 2014

 

The insured sued the insurer seeking coverage for damage to his property. This case is Georgitsi Realty, LLC v. Penn-Star Ins. Co., 745 F.3d 617 (2d Cir. 2014).

 

Georgitsi owned an apartment building in Brooklyn. The building sustained substantial damage as a result of construction and excavation work performed in the building of an underground parking lot on the adjacent property. Georgitsi made a claim under its insurance policy with Penn-Star Insurance. The insurer denied the claim, asserting that the damage was not caused by any of the perils covered by the policy. The insured then filed a lawsuit.

 

The district court found that even if malice could be inferred from the excavator's reckless conduct, this malice would not have been directed at the insured building, something that the court ruled was required to qualify for the policy's vandalism coverage. Therefore, the court ruled in favor of Penn-Star. Georgitsi appealed.

 

The United States Court of Appeals, Second Circuit, noted that New York courts had not resolved the question of whether an act must be directed at the policyholder's property to fall under the property policy's coverage for vandalism. Therefore, the court directed a question to the New York Court of Appeals: for purposes of construing a property insurance policy covering acts of vandalism, may malicious damage be found to result from an act not directed specifically at the covered property?

 

The New York Court of Appeals stated that malicious damage within the coverage of such a policy may be found to result from acts not directed specifically at the covered property. Based on this answer, the circuit court vacated the judgment of the district court and remanded the matter back to that court for further proceedings consistent with this opinion and the opinion of the New York court.

 

Editor's Note: The Second Circuit Court of Appeals ruled, in accordance with the New York Court of Appeals, that malicious damage can be covered as vandalism even though the damage is not directed at the covered property. In this instance, the insured property suffered damage by construction work at an adjacent site, and even though the insured acquired numerous stop work orders from the city, the construction work continued. When the insured sought coverage under its property policy for vandalism, the issue was whether the willful and malicious damage required by the definition of vandalism had to be directed at the described property. The courts involved here answered in the negative.