On Unusual Facts, Court Orders Co-Op Board To Allow Purchase Of Unit
Decisions by cooperative boards on whether to approve or reject the proposed sale and purchase of a unit are protected by the business judgment rule, except where it is sho’Wil that the board’s decision was motivated by unlawful considerations such as an applicant’s race or religion. For this reason, lawsuits in which a rejected purchaser or seller challenges a cooperative’s decision to reject an application are rarely successful. But “rarely” does not mean “never.” Kallop v. Board of Directors for Edgewater Park Owners Cooperative, Inc., 2017 N.Y. App. LEXIS 8212, 2017 N.Y. Slip Op. 8174 (1st Dep’t Nov. 21, 2017), reflects an unusual set of facts that led the comts to compel a board to permit a sale.
In this case, the board of directors initially approved the applicant’s request to purchase a cooperative apartment. However, two weeks later, the board rescinded its approval, based upon a board member’s repo1t that the applicant had stated he did not intend to reside in the building, as required by the purchase contract. The applicant sued the board, and the court held an evidentiary hearing. At the hearing, the board member in question admitted that her report had been erroneous and that the applicant had never said he did not intend to reside in the building. The applicant testified, without contradiction, that he had always planned to reside in the unit together with his elderly mother.
The court concluded that “in these unique circumstances,” the board’s decision to rescind its approval and deny the application was “without any basis in reason and without regard to the facts, was wholly arbitrary, and thus not entitled to the protections generally provided to cooperative boards by the business judgment rule.” The court also concluded that in the absence of a court order, the plaintiffs would suffer “irreparable harm” because after they were told the board had approved their application, plaintiffs gave notice of their intent to vacate their current rented home. That home had gone into contract with a third party, and plaintiffs had been served with litigation to force them to vacate, leaving them with “nowhere to go when the Board rescinded its approval.”
COURT PROVIDES GUIDANCE ON DISCLOSURE OF INSURANCE CLAIM INVESTIGATORY FILES
When an insured party submits a claim for coverage, the carrier will often conduct an investigation to determine whether coverage should be provided. Are the contents of the carrier’s claims investigation files shielded from discovery in the event of litigation? The Appellate Division in Manhattan recently revisited this issue and held that the carrier’s investigative file may be discoverable, even if its contents were prepared by attorneys and contain attorney work product or attorney-client communications.
Typically, an insurance company’s claim file holds all information available to the carrier about the claim. Based on this information, an adjuster will evaluate the claim and decide whether to reject or pay it. If the carrier denies coverage and the insured sues to collect on the policy, the carrier’s investigative file may be integral to the insured’s case, and the insured will serve a document request for the complete and unredacted file. Often the carrier resists this request, contending that its claims file includes communications with the carrier’s counsel and/or counsel’s work-product, which should be exempt from disclosure.
Historically, the New York courts have not laid down a bright-line rule governing what attorney-client communications are privileged in this context, but instead have evaluated this issue on a case-by-case basis. However, courts have held that claims evaluation reports by a carrier’s attorneys were non-privileged, and therefore discoverable, because the process of reporting and evaluating claims is part and parcel of an insurance carrier’s regular business. In other words, a claims report does not become privileged and thus exempt from disclosure merely because it happens to be written by an attorney.
The courts have sometimes allowed an exception to this general rule, when the documents and communications at issue are predominantly of a legal character, such as when they are “riddled” with confidential communications between the attorney and client that are made in the context of seeking and giving legal advice and raise legal concerns. However, over time, comis have narrowed this exception and found many attorney-insurer communications involving the evaluation of the insured1s claim to be discoverable, even when the investigative reports are motivated by the prospect of litigation.
Venture v. Preferred Mutual Ins. Co., 153 A.D.3d 1155 (1st Dep’t Sept. 26, 2017), is a recent appellate decision on issue. This decision reflects that the cmx of the inquiry is whether the attorney was acting in the capacity of an attorney, rather than performing a claims investigator’s role. The court held that “attorney work product applies only to documents prepared by counsel acting as such, and to materials uniquely the product of a lawyer1s learning and professional skills, such as those reflecting an attorney’s legal research, analysis, conclusions, legal theory or strategy.” Thus, in a coverage litigation, a property owner or other insured whose claim has been denied will often be entitled to review the complete claims file.
Although this decision arose in the context of a lawsuit by the insured seeking to recover under the insurance policy, it may be cited by parties outside the insurer-insured relationship. For example, suppose a carrier investigates the facts underlying a lawsuit brought by someone who was injured on the insured’s premises, for the purpose of deciding whether to provide coverage. May the plaintiff – who is not the insured, but the person suing the insured – obtain discovery of the claims file? To the extent documents in the file were prepared by attorneys in anticipation of litigation, or constitute attorney-client communications, the insurer will argue that they are immune or privileged from disclosure. However, it is possible that a court would hold that at least portions of the carrier’s file are discoverable. An insured must be mindful of this fact, while also bearing in mind its obligation to be candid during the carrier’s investigation. Insureds finding themselves in this situation should consult with their own counsel – not counsel provided by the insurance carrier – regarding how to address these competing concerns.
CONDOMINIUM IS DENIED INSURANCE COVERAGE FOR FIRE LOSS BECAUSE APPLICATION MISSTATED THAT PREMISES WERE SPRINKLERED
A condominium bought property insurance and then suffered a fire. When it submitted its insurance claim, the insurance carrier sued the condominium, seeking a court mling that it was not required to provide coverage. The court found that “[t]he property insurance policy … contained a protective safeguards endorsement that unambiguously required as a condition of insurance that [the condominium] maintain automatic sprinkler systems in complete working order in all buildings in its multi-building condominium complex.” However, “[t]he investigation into the fire that spread through the complex causing extensive damage determined … that some of the buildings did not have sprinkler systems and others had only limited sprinkler systems and not all of them were working properly.” Because the conditions of insurance were not complied with, there was no insurance coverage. Illinois Union Insurance Co. v. Grandview Palace Condominiums Ass’n, 2017 N.Y. App. LEXIS 8023, 2017 N.Y. Slip. Op. 7959 (1st Dep’t Nov. 14, i017).