HNRK Coverage Corner

On August 15, 2019, Justice Perry of the New York County Supreme Court issued a decision in Villas of Ocean Dunes Assn., Inc. v. First Specialty Ins. Corp., 2019 NY Slip Op 32435(U), denying an insured’s petition to compel an excess insurer to submit a disputed property damage claim to appraisal under an appraisal provision in the primary policy.

The insured in Villas of Ocean Dunes was a condominium in Florida that suffered damage during Hurricane Irma.  The condominium had two insurance policies covering property damage:  a primary policy issued by Westchester Surplus Lines Insurance Company, and an excess policy issued by First Specialty Insurance Corporation.  The primary policy contained a provision requiring the parties to submit disputes concerning the value of a claim to an appraisal proceeding.  In such an insurance appraisal, each side retains an appraiser to assess the value of the claim. If the parties’ appraisers are unable to reach agreement, they select a neutral umpire to resolve the dispute.  (As discussed in an earlier post on this blog, the scope of the appraisal is limited:  it cannot be used to resolve legal questions regarding the interpretation of the policy, but only to determine the amount of the covered loss.)

The excess policy “followed the form,” meaning that it generally incorporated the terms of the primary policy, except to the extent the excess policy had express terms that were “inconsistent” with the primary policy (in which case the excess policy’s terms would “supersede” those of the primary policy).  The excess policy was silent on this issue of appraisal, but contained a mandatory forum selection clause, stating that the parties “irrevocably” agreed that all disputes would be determined in the "exclusive" jurisdiction of the courts of the State of New York and that the "parties expressly waive all rights to challenge or otherwise limit such jurisdiction." The insured reached an impasse with the excess insurer and filed a petition to compel an appraisal, pursuant to the appraisal provision in the primary policy. 

Justice Perry held that the New York forum selection clause in the excess policy superseded the appraisal provision in the primary policy, and dismissed the petition, explaining:

Petitioner's attempt to avoid the unambiguous language of First Specialty's forum selection clause in favor of the appraisal provision set forth in the Westchester primary policy is unavailing. Even abiding a liberal construction of the pleadings and giving petitioner every favorable inference, does not alter the plain language of the terms, conditions and endorsements set forth in First Specialty's excess surplus lines policy.

This court has reviewed the language of the policies at issue and notes that the excess policy contains a forum selection clause that is clear and unambiguous. Notably, unlike the primary policy, the excess policy does not contain an appraisal provision. Moreover, the choice of law and forum selection clause is mandatory and unmistakable in its scope, providing that "[t]he laws of the State of New York, without regard to any conflict of laws rules that would cause the application of the laws of any other jurisdiction, shall govern the construction, effect, and interpretation of this insurance agreement." Additionally, the forum selection clause provides that the parties "irrevocably" agreed that all disputes are to be determined in the "exclusive" jurisdiction of the courts of the State of New York and the "parties expressly waive all rights to challenge or otherwise limit such jurisdiction."

Granting the relief sought in the Amended Petition, would be tantamount to this court rewriting the terms of the contract the parties negotiated and agreed to be bound by. The First Specialty excess contract expressly states that the "provisions, terms, conditions and exclusions . . . shall supersede, for the purposes of coverage under this Policy, any provisions of the Followed Policy that are inconsistent with this Policy. No endorsement . . . to the Followed Policy or to any primary, underlying or any other insurance shall alter the provisions . . . of this Policy, including without limitation, any Attached Endorsement.” As such, First Specialty has demonstrated that the terms of its excess contract require that all disputes be resolved exclusively in New York courts and that the policy does not contain the appraisal provision on which petitioner relies in seeking to compel First Specialty to participate in an appraisal.

This decision illustrates the complications that can arise in construing a “follow the form” excess insurance policy. But was the forum selection clause in the excess policy “inconsistent” with the primary policy’s appraisal provision, as Justice Perry held? Notably, in the context of another ADR procedure (arbitration), the First Department held that a contract provision “vesting the courts of this State with exclusive jurisdiction in all actions and proceedings” did not negate an arbitration clause in the same agreement.  Rather, in light of New York’s “strong policy favoring arbitration,” the “exclusive jurisdiction provision” was interpreted as merely fixing “the required venue of applications to compel arbitration or confirm or reject arbitration awards.” Isaacs v. Westchester Wood Works, Inc., 278 A.D.2d 184, 185 (1st Dep’t 2000). At least arguably the same public policy applies with respect to insurance appraisal.