The New York Supreme Court Appellate Division upheld a lower court’s decision confirming that the applicable law in an insurance dispute depends on the jurisdiction with the closest connection to the parties and the transaction—referred to as the contract’s “center of gravity”, according to BestWire.
The dispute involved Zurich American Insurance Co., Providence Capital, and Sherle Wagner International, a retailer specializing in luxury home hardware and plumbing fixtures.
In February 2019, Sherle Wagner filed a claim for $8.6 mn following water damage caused by a burst pipe at its Manhattan showroom.
The claim included marble flooring, display items, office equipment, and $1.3 mn in additional expenses.
Zurich’s investigation concluded that the marble flooring damage stemmed from rust, wear, poor maintenance, and a prior 2010 water-related loss for which Zurich had already paid. At that time, Sherle Wagner opted to clean the flooring rather than replace it.
Zurich also concluded that damage to showroom pieces, furniture, and equipment had been overstated, with many items unaffected.
The insurer further stated that the additional expenses were regular operational costs unrelated to the incident. Based on its findings, Zurich adjusted the claim to approximately $1.1 mn, as reflected in a 2020 filing with the Supreme Court of New York County.
Sherle Wagner and Providence Capital responded with a bad faith claim under Rhode Island law, which permits legal action against insurers that wrongfully deny payment.
Zurich contested this, arguing that New York law should apply. Both the lower court and the Appellate Division rejected Zurich’s position.
The courts emphasized that the insured party, Providence Capital, is based in Rhode Island, the contracts were executed there, and the policy covered multiple Rhode Island properties tied to affiliated entities.
Accordingly, the court applied New York’s grouping of contracts principle, affirming Rhode Island as the relevant jurisdiction.
