UNCOOPERATIVE INSURED CAN’T SEEK ARBITRATION (Classic)

Commercial Property	Duties After A Loss
Policy Conditions	Policy Compliance

A fire in an insured’s furniture store caused damage to merchandise, fixtures, and leasehold improvements. The insured filed a proof of loss in the amount of $129,000. Of this amount, $71,000 was for damage to merchandise "in sight" after the fire; approximately $20,000 for merchandise missing or not identified after the fire; and about $38,000 covered damage to the improvements, betterments and fixtures.

The insured and the insurance company were unable to agree upon the amount of the loss. The company conducted numerous oral examinations under oath of the insured’s principal officers and its accountant. During the last hearing, the insured announced that it was amending its proofs of loss by withdrawing that portion of its claim as to missing merchandise, reducing its total claim to $109,000.

At the same time, the insured, under policy provisions, demanded an appraisal and named its appraiser, but the company refused to take part in any appraisal because of the insured’s intentional and fraudulent concealments, misrepresentations, and refusal to produce documents and information during the examination. As a result, the insurer denied liability because of the insured’s breach of warranties.

Judgment was entered in favor of the company. The court stated that the policies were void because the insured had willfully refused to answer questions and produce documents. The higher court affirmed the judgment insofar as it held that the insured was not entitled to an appraisal. However, it ruled that the questions of the insured’s breach of policy provisions by refusing to answer questions, etc., were triable issues of fact, and the judgment was modified accordingly.

Happy Hank Auction Company, Inc. v. American Eagle Fire – New York Court of Appeals – July 11, 1956 – Insurance Law Journal, Vol. 406, page 749 (Rough Notes Magazine, January 1957)