Insurer’s interpretation was the only reasonable interpretation of an otherwise unambiguous deductible clause in a commercial property insurance policy.

Plaintiff insured owned a fuel oil terminal on the East River in Port Morris, Bronx County. Defendant insurer issued a commercial property insurance policy to plaintiff which covered in pertinent part the Port Morris facility up to a policy limit of $2,500,000.

The policy provided that “2% of the total insurable values at risk per location subject to a minimum of $250,000” would be deducted from each adjusted claim arising out a flood “occurrence”. At issue in the case was the interpretation of the phrase “total insurable values at risk per location”.

The total value for the Port Morris facility was listed on the policy’s “Schedule of Locations Endorsement” as being $124,701,000. A note at the bottom of that endorsement stated that the values listed on the endorsement were for premium purposes only. A separate endorsement confirmed that plaintiff had provided the values listed on the “Schedule of Locations Endorsement”.

In October 2012, flooding from Superstorm Sandy damaged the Port Morris Terminal and plaintiff submitted a claim to defendant for $2,284.239.95. Defendant denied plaintiff’s claim as being less than the amount of the deductible of $2,494,020.

Plaintiff moved for summary judgment contending that the deductible was $250,000, being two percent of the $2.5 million dollar policy limit. Defendant opposed plaintiff’s motion and cross-moved for summary judgment dismissing the complaint, contending that the deductible was $2,494,020, i.e., 2% of the $124,701,000 valuation for the Port Morris terminal listed on the Schedule of Locations Endorsement. Under defendant’s calculation, there was only $5,980 of coverage between the amount of the deductible and the policy limit for the Port Morris facility. The Second Department granted defendant’s motion.
Applying standard rules of contract construction, the Second Department stated that it agreed with the parties that the deductible clause was unambiguous and held that defendant’s interpretation of the phrase ‘”total insurable value” was the only reasonable one. The Second Department stated that to an average insured , “risk” in the phrase “total insurable values at risk per location” means “risk of loss”. In deciding how much coverage to buy, the average insured is concerned with the value of what is at risk and takes into account the likelihood of significant loss and the cost of insurance. The amount of insurance that the average insured chooses to buy is not the same as the “total insurable values at risk”, so the average insured could not reasonably conclude that the “total insurable values at risk” referred to a limit of coverage that was less than the total amount at risk. Therefore, the only reasonable expectation as to the meaning of the phrase “total insurable values at risk” was the insured’s own risk of loss and damage.
The Second Department held that plaintiff’s interpretation was unreasonable, because it rendered the $250,000 minimum deductible superfluous, and likewise rejected plaintiff’s contention that the note on the Schedule (which stated that the listed values were for “premium purposes only”) precluded those values from being used as “total insurable values”. The Second Department stated that the reasonable interpretation of that note was that the values were being used only to determine the premiums, not to set policy limits. Therefore, the listed values could be used to calculate the applicable flood deductible (the deductible being relevant in determining the amount of the premium).
Castle Oil Corp. v ACE Am. Ins. Co., 2016 NY Slip Op 01632, 2nd Dept March 9, 2016

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