Does An Insurer Have a Right to Take Property or Claim Salvage Absent Policy Language?

When an insurance company pays out the full insured value of damaged property, does it automatically acquire the right to take possession of that property as “salvage”? This question came before the New York Supreme Court in Federal Insurance Company v. Cowen, ¹ and the ruling offers important guidance for both insurers and policyholders.

The case involved a damaged Andy Warhol painting insured for $35,000. After the painting was harmed during transit, the insurer paid the full policy limit to the owners. Along with the payment, the insurer sent a transmittal letter stating it would be in touch to arrange pickup of the damaged artwork as salvage. However, years passed before the insurer made a formal request for the painting. When the owners did not surrender the artwork, the insurer sued to recover it, arguing that payment of the policy amount entitled it to ownership of the property.

The court disagreed. It emphasized that the insurance contract itself contained no clause requiring the insureds to surrender property to the insurer after payment of a total loss. The only provision addressing surrender dealt with items that were part of a set, and no general salvage clause was included. Without clear contractual language, the court refused to rewrite the insurance agreement or import obligations from other contexts, such as marine insurance law.

The insurer pointed to rules in marine insurance, where a damaged ship deemed a constructive total loss must be abandoned to the insurer if the insured seeks full policy proceeds. Yet the court found those principles inapplicable, noting that neither party had treated the claim under maritime standards and that no basis existed to impose them by judicial fiat. Instead, the court placed the responsibility squarely on the insurer to write the policy with such obligations and rights.

In granting summary judgment to the policyholders, the court highlighted a critical point that insurers cannot create salvage rights where the policy is silent. Absent an explicit contractual provision, the insured under a property insurance policy retains ownership of damaged property, even after receiving the full insured value.

Insurers who want to claim salvage must say so clearly in the policy. Otherwise, once the check is written, the damaged property remains with the policyholder. For consumers and policyholders, the decision is a reminder to read policies carefully and understand that insurers cannot claim rights not bargained for in the written contract.

Thought For The Day

“The right to hold private property is one of the most fundamental rights in a free society.”
—Milton Friedman

¹ Federal Ins. Co. v. Cowen, 145 Misc.2d 992, 549 N.Y.S.2d 338 (N.Y. Sup. Ct. 1989).