CBKZZ Investment LLC v. Renaissance Re Syndicate 1458 LLoyds

Background

CBKZZ Investment LLC owns Casa Rosa Hotel in Port Isabel, Texas. Renaissance Re Syndicate 1458 Lloyds and Mt. Hawley Insurance Company issued CBKZZ commercial property insurance covering September 24, 2021, through September 24, 2022. A severe windstorm damaged the hotel’s roof on or around October 16, 2021. CBKZZ reported the loss to the insurers on February 10, 2022.

The policy’s windstorm-or-hail loss reporting addendum required prompt notice of the loss, including information about the property and how, when, and where the damage occurred. It also stated that a claim could not be filed later than one year after the loss. The policy further required full compliance with its terms before an insured could bring a legal action for coverage. A choice-of-law provision stated that New York law governed matters arising under the policy.

The insurers moved for summary judgment, which is a request to decide a case without a trial because no genuine dispute over an important fact allegedly exists.

Choice of Law

The parties disputed whether New York or Texas law governed. The court applied New York’s choice-of-law rules because it sits in New York. Under controlling New York law, the parties’ express selection of New York law prevented the court from conducting the public-policy comparison CBKZZ proposed. The court therefore held that the choice-of-law provision was enforceable and that New York law governed the dispute.

Notice and Summary Judgment

The court rejected CBKZZ’s argument that the policy allowed it to report a windstorm or hail loss at any time within one year. The one-year period was an outside deadline; it did not eliminate the separate requirement that notice be prompt.

The court nevertheless found genuine disputes of material fact about whether CBKZZ gave prompt notice. The parties disputed when CBKZZ first learned of the roof damage. CBKZZ relied on testimony that it did not learn about the damage on the day of the storm and became aware of it later, after hotel guests complained about leaks. The insurers disputed that account and argued that CBKZZ knew about the damage no later than a building consultant’s inspection.

The parties also disputed when that inspection occurred. The insurers relied on the consultant’s report and deposition testimony indicating an inspection date of December 2, 2021. CBKZZ relied on an affidavit and photographs dated January 12, 2022, arguing that the inspection occurred then and that the final report was not submitted until January 22, 2022. The court said these disputes, including questions about witness credibility, prevented summary judgment. CBKZZ would have the burden at trial to prove that its notice was prompt.

Attorneys’ Fees and Other Damages

CBKZZ sought attorneys’ fees and other costs based on its allegation that the insurers acted in bad faith by challenging or denying its claim. Under New York law, an insured generally cannot recover the expense of bringing an affirmative action against an insurer. A narrow exception may allow fees when the insurer acted in such bad faith that no reasonable insurer would have denied coverage under the circumstances.

The court held that summary judgment was not appropriate on CBKZZ’s fee request. The insurers argued only that attorneys’ fees are never available under New York law, even when an insurer acts in bad faith. They did not argue that the evidence in this case failed to meet the requirements of the bad-faith exception. The court noted that CBKZZ appeared unlikely to meet that high standard, but it did not decide the issue on the insurers’ motion.

The court separately ruled that any other consequential damages were unavailable because the policy did not contain a provision allowing recovery of damages resulting from an alleged breach by the insurers.

Disposition

Judge Arun Subramanian denied the insurers’ motion for summary judgment. The court directed the parties to propose trial dates and address whether CBKZZ had, and intended to assert, a right to a jury trial or whether the policy waived that right.