Court Upholds Lloyd’s Denial in Diamond Loss Case Over Inactive Security System

A recent ruling from the New York Appellate Division, First Department, has reaffirmed the critical importance of policyholders adhering strictly to coverage conditions—particularly when it comes to security requirements. The case involved Itzhak Nissanoff Inc., a New York-based diamond dealer whose claim for a missing diamond was denied by Certain Underwriters at Lloyd’s. The insurer cited a breach of the policy’s ‘alarm and protection’ clause, which mandated that all installed security equipment remain fully operational.

At the time of the loss, Nissanoff’s security cameras were not functioning, leading both the trial court and the appellate court to side with Lloyd’s. The court found the lapse in security constituted a failure to meet a condition precedent to coverage, thereby releasing the insurer from its obligation to provide a defense or indemnification.

Nissanoff argued the insurer had either waived its right to deny coverage or failed to do so promptly. However, the court pointed to Lloyd’s early reservation of rights and clarified that the timeliness provision under New York Insurance Law Ã,, 3420(d) does not apply to property claims.

This decision reinforces the legal weight courts give to clearly written policy conditions, especially in high-risk sectors like jewelry. For insurers and adjusters, it’s a strong reminder of the value in specifying enforceable security requirements. For insureds, it highlights the real-world impact of compliance with policy terms, even in cases of seemingly minor equipment failures.