Insurance Law § 3404 Does Not Bar Policy Condition That Insured Building Have Sprinklers

On December 9, 2016, Justice Oing of the New York County Commercial Division issued a decision in Illinois Union Insurance Co. v Grandview Palace Condominiums Association Corp., 2016 NY Slip Op. 32421(U), holding that an insurance policy condition requiring a building to have sprinklers did not violate Insurance Law § 3404.

Insurance Law § 3404 "mandates that any property insurance policy covering the peril of fire must provide for at least as much coverage as the New York State standard fire policy, which is set forth in § 3404 (e)(the 'Standard Policy')." "The standard policy is the minimum level of coverage permissible for an insurance company to issue. An insurer may offer policy terms more favorable to the insured than those contained in the standard policy, however, a policy that contains a term less favorable to the insured than the Standard Policy is only enforceable as if it conformed with the statutory standard."

In Illinois Union Insurance Co., the defendant

argue[ed] that because nothing in the Standard Policy requires an insured to have sprinklers, the policy requirement that Grandview maintain an automatic sprinkler system must be stricken from its policy. Grandview, however, proffers no legal support for its proposition and, indeed, independent research has not revealed any legal authority supporting such a conclusion, on analogous facts. . . . Were that argument accepted, however, an anomalous result for insureds would produced: without the ability to require that an insured mitigate certain high risk by installing, sprinklers, insurers would either charge substantially higher premiums of insureds like plaintiff who possess a substantially higher risk of fire due to this construction or decline coverage altogether. Although the result Grandview advocates may benefit itself in this instance, that position would produce a detrimental result for insureds as a whole, which would be at odds with what the Standard Fire Policy was enacted to accomplish. For all the foregoing reasons, Grandview's argument that the Standard Fire Policy precludes the plaintiff insurers from enforcing the PSE is without merit.

(Internal quotations and citations omitted).