Fraud allegations in insurance disputes are serious business. When an insurer claims a policyholder intentionally misrepresented facts, it’s essentially saying, “You lied, and we don’t have to pay.” After insurers make that argument, they often state, “If we are wrong about the fraud arguments, the most we owe is actual cash value because you did not replace or repair the property.” Those were the arguments made by Mt. Hawley Insurance Company and Syndicate 1458 at Lloyd’s of London in this sequel to yesterday’s post, Why Do Agents Sell Insurance Requiring Disputes to Be Fought in Faraway Courts?
Once the Florida loss was sent to a New York court, a motion for summary judgment against Summerwind West Condominium Owners Association was made regarding the fraud and replacement costs issues. 1 The insurers sought to void the policy, arguing that Summerwind engaged in fraud and concealment regarding the condition of its elevators and roof before Hurricane Sally. But the court wasn’t buying it—at least not yet. Instead of granting summary judgment, the court ruled that the issues of fraud and replacement cost coverage should go to the jury. 1 This decision keeps the policyholder’s case alive and raises important lessons about how courts handle fraud and replacement cost defenses in New York insurance litigation.
The Alleged Fraud Issue
Mt. Hawley argued that Summerwind West misrepresented the condition of its property before the storm. According to the insurer, the condominium had already been planning to replace its elevators and roof well before Hurricane Sally made landfall. Mt. Hawley pointed to emails from Summerwind’s property manager, Anne Malone, showing she had sought modernization proposals for the elevators before the storm, describing them as past their useful life.
The insurer also focused on an October 2020 email where Malone allegedly asked an elevator contractor to change the date of a pre-storm bid to make it appear as if it were a post-storm repair estimate. Mt. Hawley argued that this was a clear attempt to “push it under the insurance claim,” and they contended this was enough to void the entire policy. The relevant policy language noted the following:
The Policy is Void in any case of fraud by [the insured] as it relates to this Coverage at any time. It is also void if you or any other insured, at any time, intentionally conceals or misrepresents a material fact concerning this policy, the Covered Property, your interest in the Covered Property, or a claim under this policy.
While the insurer presented what appeared to be strong circumstantial evidence, the court ruled that fraud is almost always a fact-intensive issue requiring a jury’s assessment. Under New York law, an insurer must prove fraud with “clear and convincing evidence,” a high legal standard. Courts are typically reluctant to determine at the summary judgment stage unless the evidence is overwhelming and uncontroverted.
The court explained that a reasonable jury could see things differently. Summerwind argued that while it had considered future elevator upgrades before the storm, the hurricane accelerated that need by causing significant damage. The insurer pointed to Malone’s request to “change the date” on the bid, but the court noted that this did not necessarily prove an intent to deceive. It was possible that Summerwind was simply updating an existing proposal to reflect post-storm circumstances rather than fabricating a claim.
Additionally, while the insurer criticized Summerwind’s failure to disclose certain pre-storm maintenance documents, the court was unwilling to declare this a fraudulent omission rather than a dispute over document production. The court concluded that it was ultimately up to the jury to determine whether Summerwind had truly engaged in fraud or whether its actions were simply part of the normal process of submitting an insurance claim. The court quoted New York case precedent that “ordinarily, the issue of fraudulent intent cannot be resolved on a motion for summary judgment, being a factual question involving the parties’ states of mind.”
The Replacement Cost Issue
Additionally, Mt. Hawley challenged Summerwind’s right to replacement cost coverage, arguing that the policyholder had not actually completed repairs, which the policy required before full replacement cost benefits could be paid. The insurer also sought summary judgment on Summerwind’s claim for replacement cost and code compliance coverage, arguing that because the property had not yet been fully repaired, the policyholder was not entitled to replacement cost benefits. Insurance policies frequently contain clauses stating that replacement cost benefits are only available if repairs or replacements actually occur within a specified timeframe.
The policy language stated:
Replacement cost valuation does not apply until the damaged or destroyed property is repaired or replaced. You may make a claim for actual cost value before repair or replacement takes place, and within 180 days after the loss for the replacement cost. Repair or replacement must take place within 180 days after the loss in order for replacement cost valuation to apply.
The increased cost of construction coverage language stated:
We will not pay:
(1) Until the property is actually repaired or replaced, at the same or another premises; and
(2) Unless the repairs or replacement are made as soon as reasonably possible after the loss or damage, not to exceed two years. We may extend this period in writing during the two years.
To avoid these provisions, the court phrased Summerwind’s argument as follows:
Summerwind argues that, despite not replacing the cladding, windows, or sliding doors at the Property, it is ‘still entitled to Replacement Cash Value’ because Mt. Hawley prevented Summerwind from replacing the damaged property by denying the insurance claim. ‘Without such insurance proceeds,’ Summerwind argues, it ‘could not finance the needed repairs.’
The court then recited New York law on this issue:
“In general, ‘a party to a contract cannot rely on the failure of another to perform a condition precedent where he has frustrated or prevented the occurrence of the condition.’ A.H.A. Gen. Const., Inc. v. N.Y.C. Hous. Auth., 699 N.E.2d 368, 374 (N.Y. 1998) (internal quotation marks omitted). Where insureds ‘were refused any monies under the insurance contract,’ and as a result are ‘unable to replace their [property],’ they may be ‘excuse[d] . . . from performance of the replacement condition’ because the insurer’s conduct made it impossible to fulfill the condition precedent. Zaitchick v. Am. Motorists Ins. Co., 554 F. Supp. 209, 217 (S.D.N.Y. 1982), aff’d, 742 F.2d 1441 (2d Cir. 1983); see Ram Krishana Inc. v. Mt. Hawley Ins. Co., No. 22 Civ. 3803 (JLR), 2025 WL 371016, at *11 (S.D.N.Y. Feb. 3, 2025) (‘[C]ourts have excused the insured from the condition precedent of completing repairs to recover replacement costs . . . where the insurer either failed to pay any of the actual cash value or significantly underpaid the actual cash value.’); Matos v. Peerless Ins. Co., No. 14 Civ 120 (SR), 2017 WL 444687, at *10-11 (W.D.N.Y. Feb. 2, 2017) (applying Zaitchick to deny the injurer’s motion for summary judgment with respect to replacement cost coverage and observing that ‘there is no precedent to suggest that plaintiff is under an obligation to expend personal funds to satisfy a condition precedent to obtaining replacement cost coverage where the insurance company is challenging coverage in the first instance’); Woodworth v. Erie Ins. Co., 743 F. Supp. 2d 201, 218 n.14 (W.D.N.Y. 2010) (‘[A] complete failure to pay actual cash value, which prevents the insured from rebuilding or replacing, may excuse the insured from performing the condition precedent of rebuilding or replacing.’
The court found that Summerwind had presented enough evidence to create a factual dispute. Summerwind claimed that it was in the process of making repairs and that delays were due to factors outside its control, such as contractor availability and insurance disputes. Given these facts, the court ruled that a jury should decide whether Summerwind had made a good-faith effort to comply with the policy’s requirements and was prevented from doing so because of the denial.
Policyholders should take note of several key lessons:
- Transparency is crucial. Even if certain upgrades were planned before a loss, policyholders should clearly document how storm damage affected their repair or replacement decisions.
- Be mindful of how documents are presented. Adjusting or modifying pre-existing estimates may be common practice, but doing so without full context can create the appearance of deception.
- Replacement cost claims require careful attention to policy conditions. If repairs haven’t been completed within the policy’s time limits, insurers may attempt to deny full replacement cost benefits. Policyholders should document all efforts to repair, including reasons for any delays.
For now, Summerwind West will get its day in court. Whether a jury finds the insurer’s fraud allegations credible or sees the case as a legitimate coverage dispute remains to be seen. Either way, this case is a strong reminder that when insurers cry fraud, courts often demand more than just suspicious emails and circumstantial evidence before voiding a policy.
Thought For The Day
“Each of us tends to think we see reality as it is. We think we are objective. But this is not the case.”
—Stephen R. Covey
1 Summerwind West Condo. Owners Ass’n v. Mt. Hawley Ins. Co., No. 3:22-cv-3165 [Doc. 63, Motion for Summary Judgment] (S.D.N.Y. filed May 10, 2024).
2 Summerwind West Condo. Owners Ass’n v. Mt. Hawley Ins. Co., No. 3:22-cv-3165 (S.D.N.Y. Mar. 3, 2025).