New York Insurance Coverage Law Update

October 27, 2017 | Alan C. Eagle | Insurance Coverage

Appellate Division Rules That Policy Covered Loss Caused By A Defect That Began Before Policy’s Effective Date

The insured made a claim under its insurance policy for losses that resulted when a power-generating turbine was taken out of operation due to excessive vibrations. The vibrations were found to have been caused by a crack in the turbine’s rotor. The insurer denied the claim on the ground that the crack had begun to form before the policy’s inception. A trial court ruled in favor of the insured, and the Appellate Division, First Department, affirmed. The appellate court decided that because there was no provision in the policy that excluded physical loss or damage originating prior to the commencement of the policy period, the policy covered the loss. [National Union Fire Ins. Co. of Pittsburgh, Pa. v. TransCanada Energy USA, Inc., 2017 N.Y. Slip Op. 06513 (1st Dep’t Sep. 19, 2017).]

No Coverage For Home Not “Residence Premises”

After the trustees of a trust that owned a residence in Brooklyn were sued, the insurer that issued a homeowners insurance policy for the property disclaimed coverage. The New York trial court agreed that there was no coverage under the policy for several reasons, including that (1) the trustees did not live at the property at the time of the alleged loss, as required by the policy’s definition of “residence premises”; (2) the property was a three-family dwelling and thus was not a covered “residence premises”; and (3) the trust was not an insured on the policy.   The court also refused to reform the policy to include the trust as an insured because the insurer did not  insure  premises  owned  by  trusts  and, therefore, could not have intended to do so. [CastlePoint Ins. Co. v. Atkins, 2017 N.Y. Slip Op. 32019(U) (Sup. Ct. N.Y. Cty. Sep. 25, 2017).]

Court Rejects Surgeon’s Bad Faith Claims Against Insurers

After a jury awarded $8.6 million to a couple who sued an orthopedic surgeon for malpractice, the surgeon asserted that his primary and excess insurers had acted in bad faith by failing or refusing to settle the action within the limits of his available insurance during jury deliberations. The court granted the primary insurer’s motion for summary judgment because there had never been an actual opportunity to settle the case within the primary limits at a time when all serious doubts as to the surgeon’s liability were removed, and the insurer’s conduct did not result in a failure to settle for the insurers’ combined limits.  The court also granted summary judgment to the excess insurer, finding that the excess insurer’s conduct did not cause a lost settlement  opportunity. [Healthcare Prof. Ins. Co. v. Parentis, 2017 N.Y. Slip Op. 51221(U) (Sup. Ct. Albany Cty. Sep. 21, 2017).]

Federal Court Deems Employment-Related Practices Exclusion Ambiguous Under Circumstances, Denying Insurer’s Summary Judgment Motion

The former chief executive officer of American Apparel, Inc. sued Standard General L.P., a New York-based investment firm, for, among other things, defamation, false light, “unfair business acts,” and “false advertising.” Standard General’s insurer denied    coverage,   and   Standard   General sued. The United States District Court for the Southern District of New York held that the lawsuit did not involve covered “advertising injury.”  However, the court found that the action triggered the coverage for “personal injury” and that the employment-related practices exclusion did not preclude a duty to defend.  The court found that the exclusion did not clearly apply under the circumstances where there was no employment relationship between the insured and the allegedly injured party. [Standard Gen. L.P. v. Travelers Indem. Co. of Conn., No. 17-CV-0548 (S.D.N.Y. Aug. 18, 2017).]

“Insured v. Insured” Exclusion Precluded Coverage For Former Board Member’s Suit, Second Circuit Decides

A corporation’s former board member sued the company’s board and obtained judgment. The board members assigned their rights under a directors and officers insurance policy to the former board member. He then sued the insurer, which maintained that coverage for his suit against the board was precluded by the policy’s insured-versus-insured exclusion. The
United States District Court for the Eastern District of New York agreed with the insurer, and the United States Court of Appeals for the Second Circuit affirmed. The Second Circuit rejected the former board member’s contention that the exclusion applied only to claims brought by directors in their capacity as directors and ruled that, on its face, the exclusion applied to all claims (except employment-related claims) regard-less of whether the director brought the claims in an individual or fiduciary capacity. [Intelligent Digital Syst., LLC v. Beazley Ins. Co., No. 16-3548-cv (2d Cir. Sep. 19, 2017).]

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