In New York State, at least for the time being, it may be possible to trigger vandalism coverage even when the actions causing damage to your property occur at your neighbor’s property. Recently, the United States Court of Appeals for the Second Circuit certified a question a question on that issue to New York State’s highest appeals court.
The case is Georgitsi Realty, LLC v. Penn-Star Insurance Company, 11-cv-4444 (11th Cir. December 21, 2012). Georgitsi owns an apartment building located in Brooklyn, New York. Georgitsi obtained an insurance policy from Penn-Star covering a variety of named perils, including fire, windstorm, smoke, riots, and vandalism. The policy defines “vandalism” as the “willful and malicious damage to, or destruction of, the described property.” Beginning in 2007, the building sustained significant damage as a result of construction and excavation work on the adjacent property. The excavation work was performed to construct an underground parking garage. Georgitsi had previously notified the owners of the adjacent property and the excavators, engineers, and architect working on the project about the damage to his building. Georgitsi had also notified the New York City Department of Buildings, which issued numerous “stop work” orders to the excavators. The stop work orders specifically referenced damage to the building and other neighboring properties. Georgitsi also obtained a temporary restraining order from the Kings County Supreme Court enjoining the excavators from continuing work on the adjacent parcel. The excavators continued the construction work and ultimately admitted to many violations of the stop work orders, paying $36,500 in fines to the city.
Georgitsi filed a claim and requested reimbursement for damages pursuant to the policy’s coverage for vandalism. Penn-Star denied the claim on the ground that the excavation damage did not constitute vandalism under the policy. Georgitsi then brought suit against Penn-Star in New York state court, and Penn-Star removed the case to federal court.
The district court held the excavators had not committed vandalism within the meaning of the policy because their actions were directed only to the adjacent parcel, not the building, and proof of recklessness would not satisfy the malice requirement of the policy as a matter of law. The policyholder appealed to the Second Circuit Court of Appeals. The Second Circuit Court stated that:
We conclude that this appeal turns on the unsettled and important question of New York law of whether “malicious damage” within the meaning of an insurance policy covering vandalism may be found to result from an act not directed at the policyholder’s property but causing damage thereto and undertaken with knowing disregard for the policyholder’s rights.
The Court certified the following question to New York’s highest state appellate court:
Whether an act performed on adjacent property that causes damage to the plaintiff’s property may constitute “vandalism” under the plaintiff’s property insurance policy. The subsidiary question of whether “malicious damage” may be found to result from an act not directed specifically at the insured property is critical to resolving this issue. Because this question has not been decided by the New York Court of Appeals, and because it is dispositive of this appeal, and because the answer to this question will likely have broad implications for insurance disputes under New York law, we believe that the New York Court of Appeals should have the opportunity to address it. We therefore CERTIFY this question to the New York Court of Appeals.
So for the time being in New York, actions on an adjacent property may trigger coverage if willful or malicious. However, as the Court stated in the case:
If the New York Court of Appeals holds that malicious damage may be found to result only from actions directed at the insured property, then the district court’s grant of summary judgment to the defendants was proper. If, however, the New York Court of Appeals holds that malicious may be found to result from actions not directed towards the insured property, then we would remand the case to the district court to determine whether the Excavators’ actions constituted vandalism within the meaning of the Policy.
We will continue to monitor the case, but in the meantime, I am curious what your opinion is on the issue?