Federal – Second Circuit

INSURANCE LAW. COVERAGE. “VANDALISM.” DAMAGE TO BUILDING CAUSED BY EXCAVATION AND CONSTRUCTION WORK ON ADJACENT PROPERTY. MALICIOUS CONDUCT. CERTIFIED QUESTION TO NEW YORK COURT OF APPEALS. Plaintiff (insured), the owner of a building, brought an action in Supreme/Kings against the defendant (carrier) to recover damages to its building as a result of excavation and construction work done on an adjacent property as part of the construction of an underground garage. Plaintiff claimed that it was covered under the vandalism provision of its fire and other hazards policy because the parties involved in the excavation and construction work, including the property owner and the GC for the job, continued the work in violation of a TRO and numerous “stop work” orders and summonses issued by the City of New York as a result of the damage that was that being caused to its building. After the action was removed on diversity grounds to the EDNY, the defendant (carrier) moved for summary judgment on the ground that the excavation damage did not constitute “vandalism” under the policy. The EDNY granted the carrier’s motion after a Magistrate determined that the actions of the adjacent property owner and those involved in the excavation and construction project had not committed “vandalism” within the meaning of the policy because their actions were directed at the property under construction, not the plaintiff’s building, and that proof of recklessness did not satisfy, as a matter of law, the malice requirement of the policy. The Second Circuit finds, however, that New York law is unsettled on the issue of whether “malicious damage” within the meaning of an insurance policy covering vandalism may be found to result from an act that, although not directed at the policyholder’s property, is done with knowing disregard of the policyholder’s rights. Accordingly, the Second Circuit has certified the following question to New York’s Court of Appeals: “For purposes of construing a property insurance policy covering acts of vandalism, may malicious damage be found to result from an act not directed specifically at the covered property? If so, what state of mind is required?” Georgitsi Realty, LLC v. Penn-Star Insurance Co. Decided 12/21/12.