New York Insurance Coverage Law Update

Insurer Failed To Demonstrate Insured’s Noncooperation, Second Department Rules

The claimant sued ML Specialty Construction, Inc., alleging that her property had been damaged by construction work performed by ML on a neighbor’s property.  ML’s insurer retained counsel to defend ML. The insurer disclaimed coverage on the ground that ML stopped cooperating after five years, and ML’s counsel withdrew from the case.  ML defaulted, the claimant obtained a judgment against ML, and the claimant then filed a direct action against ML’s insurer seeking coverage for her judgment against ML.  The trial court denied the insurer’s motion for summary judgment, and the Appellate Division, Second Department, affirmed. The Second Department ruled that the insurer had not met its “heavy burden” of demonstrating ML’s noncooperation with admissible evidence. The appellate court opined that most of insurer’s proof regarding ML’s alleged affirmative refusal to cooperate was inadmissible hearsay, and that the investigator’s  affidavit as to its inability to obtain ML’s cooperation was conclusory. [DeLuca v. RLI Ins. Co., 2017 N.Y. Slip Op. 06156 (2d Dep’t Aug. 16, 2017).]

Second Department Rules That Further Litigation Is Necessary As To Whether Insurer Properly Canceled Policy

After an insurance company sent a notice canceling a commercial insurance policy on a residential rental building to the agent listed in the policy, there was a fire on the top floor of the building. The building owner sued the insurer, asserting that the policy had not been effectively canceled. The building owner argued that the insurer failed to comply with the requirement in New York Insurance Law Section 3426 that the cancellation notice be sent to its “authorized agent or broker.” The building owner contended its broker (not the agent on the policy) should have received the notice.  The trial court denied the owner’s motion for summary judgment, and the Appellate Division, Second Department, affirmed, reasoning that the insurer raised triable issues of fact as to  whether the agent listed in the policy was the building owner’s “authorized agent or broker.” [GC Clinton, LLC v. Leading Ins. Grp. Ins. Co., Ltd. (U.S. Branch), 2017 N.Y. Slip Op. 06063 (2d Dep’t Aug. 9, 2017).]

Insurer Timely Disclaimed, New York Federal Court Concludes

A subcontractor’s employee was injured at a job site and sued the general contractor who sought additional insured coverage from the subcontractor’s insurer.  Thirty-one days later, the insurer disclaimed based on an exclusion in its policy. The United States District Court for the Southern District of New York ruled that the disclaimer was timely under New York Insurance Law Section 3420.  The district court reasoned that the insurer had to be given “reasonable time to adequately investigate” the claim to determine whether it wanted to disclaim coverage. The district court referred to a recent case where it held that fifty-five days was reasonable as a matter of law and concluded that “[t]here is no exact number of days that can be said to be reasonable or unreasonable” because the determination is “fact-specific” and “ultimately focuses onwhether the investigation was ‘used as a dilatory tactic’ or was made promptly and in good faith.” [Netherlands Ins. Co. v. United Specialty Ins. Co., No. 16 Civ. 7397 (S.D.N.Y. Aug. 30, 2017).]

New York Federal Court Dismisses Bad Faith And Statutory Claims Against Insurer

A building owned by Violet Realty, Inc. was damaged by fire, and Violet sought coverage from its insurance company. The insurer paid $2.2 million for direct losses from the fire.  Dissatisfied, Violet sued the insurer for breach of contract and for failure to act in good faith, unfair claim settlement practices in violation of New York Insurance Law Section 2601, and deceptive business practices in violation of New York General Business Law Section 349. The insurer moved for judgment on the pleadings with respect to all but the breach of contract cause of action, and the United States District Court for the Western District of New York granted its motion.  The district court dismissed Violet’s claim for breach of the covenant of good faith and fair dealing as duplicative of its breach of contract claim. The court found that the insured did not “plausibly claim” that the insurer’s delay in payment “created losses which would not otherwise be remedied by a full payment” of the insured’s breach of contract claim.  The court also dismissed Violet’s claim under Section 2601, reasoning that there is “no private right of action” under that law. Finally, the court dismissed Violet’s Section 349 claim, concluding that the law did not apply to a dispute “concerning a private insurance contract.” [Violet Realty, Inc. v. Affiliated FM Ins. Co., No. 1:16-CV-00757 EAW (W.D.N.Y. Aug. 28, 2017).]