All Parties Required for Reformation of Insurance Policy

Right to Reformation

New York appellate courts are well known for their truly brief, succinct and well reasoned opinions. When a tenant expected to be made an additional insured on a liability policy it sought to reform a policy that did not name the tenant without including the named insured as a defendant in the action.

In Jerusalem Avenue Taxpayer, LLC v. Liberty Mut. Ins. Co., — N.Y.S.3d —- 2016 N.Y. Slip Op. 02024, 2016 WL 1097021 the appellate court was asked to reverse the January 14, 2015 trial court (Supreme Court) order which, to the extent appealed from as limited by the briefs, granted plaintiffs’ motion for summary judgment seeking to reform defendant’s insurance policy to add plaintiff Jerusalem Avenue Taxpayer, LLC (Jerusalem) as an additional insured, ordered defendant to defend and indemnify Jerusalem in an underlying action and to reimburse plaintiff CastlePoint for reasonable costs and expenses it spent defending and indemnifying Jerusalem in that action because Best Yet Markets, Inc. (Best Yet) was not joined.

The appellate court concluded that Best Yet is a necessary party to the plaintiffs’ reformation claim. Plaintiffs seek reformation of an insurance policy to which they are not parties, and which was executed between defendant Liberty and nonparty Best Yet, on the ground that the parties to the policy intended that Best Yet, as lessor, obtain insurance coverage for plaintiff, Jerusalem, as lessee of the Best Yet premises in Hicksville.

The issue of whether Best Yet intended to obtain coverage from Liberty for Jerusalem, which it was not obliged to do in the underlying lease, and whom Best Yet never expressly requested be included in the Liberty insurance policy, is at the heart of the reformation claim. More importantly, the reformation claim would have adverse effects on Best Yet, which would be obligated to pay the deductible if Liberty is ordered to indemnify Jerusalem, and who could incur increased premiums. It would also affect the amount of insurance coverage available at that Best Yet location. In addition, as Best Yet would not otherwise be bound by the trial court’s order, there could be inconsistent results where Best Yet argues that Liberty improperly paid the claim (see Steinbach v. Prudential Ins. Co. of Am. (172 N.Y. 471, 477–478 [1902] ).

Accordingly, plaintiffs’ summary judgment motion should not have been granted, nor should the case continue without joinder of Best Yet within a reasonable time (CPLR 1001[a]; L–3 Communications Corp. v. SafeNet, Inc., 45 AD3d 1, 10–11 [1st Dept 2007]; Safena v. Giuliano, 53 AD3d 650, 650 [2d Dept 2008]; see also Steinbach, 172 N.Y. at 477–478).

ZALMA OPINION

The appellate court – in this brief opinion – succinctly stated that an issue of coverage available to a person claiming to be an additional insured requires the named insured to be a party to the action since its funds and obligations will come into play if the policy is reformed or it is found that equity requires the insurer to defend and indemnify the tenant.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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