OGC Opinion No. 06-03-05
The Office of General Counsel issued the following opinion on March 8, 2006, representing the position of the New York State Insurance Department.
Re: Insurance Coverage for Criminal Acts
Question Presented:
May an excess line or other insurer in an insurance policy exclude coverage for loss or damage resulting from criminal acts, such as arson, committed by the employees of the insured, with respect to the peril of fire?
Conclusion:
No, an excess line or other insurer may not exclude coverage in an insurance policy for loss or damage resulting from criminal acts with respect to the peril of fire but may exclude coverage for "loss occurring . . . while the hazard is increased by any means within the control or knowledge of the insured."
Facts Presented:
The inquirer's client has purchased, from a New York authorized surplus lines insurer, an "all risk property insurance policy" covering the client's building and contents. The policy contains the following exclusion, "This policy does not insure any loss or damage resulting from, or arising out of fraudulent or dishonest or criminal act or acts committed by the insured or any of the insured's employees."
Analysis:
N.Y. Ins. Law § 3404 sets forth the minimum provisions an insurance policy must contain with respect to the peril of fire, including policies issued in the excess line market.
Any policy that insures against the peril of fire must incorporate "terms and provisions no less favorable to the insured than those contained in the [standard policy]," N.Y. Ins. Law § 3404(f)(1)(A) (West, WESTLAW through L. 1990, c. 27 legislation). The standard policy exclusion provision entitled "Conditions suspending or restricting insurance," states that damages will be disclaimed "for loss occurring ... while the hazard is increased by any means within the control or knowledge of the insured" (emphasis added). The standard policy is the minimum level of coverage permissible for an insurance company to issue. Lane v. Security Mut. Ins. Co., 96 N.Y.2d 1, 724 N.Y.S.2d 670 (2001).
The exclusion presented in this inquiry is so broad as to exclude acts of employees that employer/insured did not know about as well as acts that may not increase the hazard, Thus, the provision would be less favorable to the insured than that contained in the standard New York fire policy stated in N.Y. Ins. Law § 3404(e)(lines 28-32)(West, WESTLAW through L. 1990, c. 27 legislation).
N.Y. Ins. Law § 3103(a)( West, WESTLAW through L. 1984, c. 367 legislation) states:
Except as otherwise specifically provided in this chapter, any policy of insurance or contract of annuity delivered or issued for delivery in this state in violation of any of the provisions of this chapter shall be valid and binding upon the insurer issuing the same, but in all respects in which its provisions are in violation of the requirements or prohibitions of this chapter it shall be enforceable as if it conformed with such requirements or prohibitions.
Under the standard New York fire policy, the insurer may not exclude coverage for loss or damage resulting from the criminal acts of the insured's employees, such as arson, as long as the hazard is not increased by any means that is within the control or knowledge of the insured. However, if the insured commits the arson or the arson is somehow within his or her control or knowledge, then, clearly, that would not be covered under the insurance policy.
For further information you may contact Special Counsel Athan Shinas at the Albany Office.