New York Insurance Coverage Law Update

One Party’s Default Did Not Preclude Others From Litigating Coverage, Court Rules

After allegedly falling on property owned by Ann Einhorn, Avigdor Ehrenfeld sued Einhorn and Beth Jacob Day School. Einhorn’s insurer disclaimed coverage on the ground that Einhorn did not reside at the property and, therefore, it was not an “insured location.” The insurer sued Einhorn, the Ehrenfelds, and Beth Jacob, seeking a judgment declaring that it was not obligated to defend or to indemnify any of them in the Ehrenfeld’s action. Einhorn failed to appear or answer the complaint, and the trial court granted the insurer’s motion for a default judgment against her. It also granted summary judgment against Beth Jacob, but not against the Ehrenfelds. The Second Depart-ment affirmed, reasoning that the default judgment against Einhorn bound only her and did not deprive the Ehrenfelds as non-defaulting parties of their right to litigate coverage. [Tower Ins. Co. of N.Y. v. Einhorn, 2015 N.Y. Slip Op. 08725 (2d Dep’t Nov. 25, 2015).]

House With Three Dwelling Units Was Not A “Residence Premises” Under Homeowners Policy, Court Decides

Hazem Elshazly’s house was damaged by fire. After investigating, his insurer disclaimed coverage, asserting that the property did not qualify as a “residence premises” because it contained more than two family units.  Elshazly sued and the insurer moved for summary judgment.  The court granted the insurer’s motion.  It found that the insurer’s evidence demonstrated that the property was arranged to consist of three dwelling units, each with its own bathroom, kitchen, living area/bedroom, and separate entrance.  The court was not persuaded by Elshazly’s contention that one kitchen was only a “very small kitchenette” and was not intended “to act as a place for a family to daily cook in,” noting that photographs showed “an electric range oven in a kitchen area along with cabinets.”  The court concluded that although the three alleged separate dwelling units might not each constitute an “apartment” as defined by New York City law, it was sufficient that the “structural configuration” of the property was arranged to consist of three dwelling units. [Elshazly v. Castlepoint Ins. Co., 2015 N.Y. Slip Op. 51732(U) (Sup.Ct. N.Y. Co. Nov. 16, 2015).]

Court Rejects Primary Insurer’s Efforts To Recover From Umbrella Insurer Funds It Paid Over Its Policy Limits To Settle Suit

The owners of a car involved in an accident had primary insurance coverage from one insurer and umbrella coverage from another. The primary insurer defended the owners in the resulting lawsuit but the umbrella carrier disclaimed coverage based upon late notice. The lawsuit settled for $200,000 above the primary insurer’s policy limits and the primary insurer sued the umbrella insurer. The court rejected the primary insurer’s contention that the umbrella carrier had to reimburse it for the $200,000. The court found that the primary insurer had not demonstrated the existence of any duty running from the umbrella carrier to the primary insurer with respect to its coverage determination. The Second Depart-ment concluded that the doctrine of equitable subrogation did not apply where “the payments sought to be recovered [we]re voluntary.” [Government Employees Ins. Co. v. RLI Ins. Co., 2015 N.Y. Slip Op. 08706 (2d Dep’t Nov. 25, 2015).]

Court Finds Insurer Waived Right To Rescind Policy By Accepting Premiums

An insurer disclaimed coverage for an underlying personal injury action on March 5, 2012, suspecting that the insureds had made a material misrepresentation sufficient to permit it to rescind the policy. The insurer filed a declaratory judgment action on June 4, 2012. The trial court granted the insurer’s motion for summary judgment, declaring that it had no duty to defend or to indemnify the insureds in the personal injury action, but the First Department reversed.  The First Department noted that the insurer suspected a material misrepresentation as early as March 5, 2012, but continued to accept the insureds’ premium payments and it renewed the policy on December 8, 2012. It ruled that, by accepting premium payments after learning of the alleged material misrepresentation, the insurer waived its right to rescind the policy – even if its reason for accepting the payments was to “protect” its insureds pending determination of the declaratory judgment action. [Tower Ins. Co. of N.Y. v. Anderson, 2015 N.Y. Slip Op. 08633 (1st Dep’t Nov. 24, 2015).]

“The Named Insured” Language In “Action Over” Exclusion Barred General Contractor’s Coverage, Second Circuit Holds

A general contractor sought additional insured coverage under its subcontractor’s policy for a lawsuit involving injury to the subcontractor’s employee. The federal district court found that the policy’s “action over” exclusion, which precluded coverage for bodily injury to an employee of the named insured, when read in combination with the policy’s “separation of insureds” clause, did not preclude additional insured coverage to the general contractor. The U.S. Court of Appeals for the Second Circuit reversed. It held that the “action over” exclusion precluded coverage because the bodily injury was to an employee of the subcontractor, the named insured.  The Second Circuit concluded that the “separation of insureds” clause, which provided that the insurance applied “[s]eparately to each insured,” did not confer coverage to the general contractor because the exclusion applied to “the named insured” rather than “the insured.”  [Endurance American Specialty Ins. Co. v. Century Sur. Co., No. 14-4184-cv (2d Cir. Nov. 4, 2015).]