April 2025 New York Insurance Coverage Law Update

Southern District Finds No Coverage For Legal Malpractice Action And Rejects Insured’s Argument That Insurer Improperly Handled Coverage Claim

John H. Fisher and his P.C. represented a client in a medical malpractice action filed on February 15, 2019, alleging that the defendant medical providers failed to provide proper prenatal care to the client, causing the client’s son to be born with disabilities. Fisher did not include as a defendant in the action a facility where the client had received prenatal care. The action was dismissed on summary judgment. On July 8, 2022, Fisher received a letter from the client’s new counsel advising of the client’s legal malpractice claim against Fisher. On August 5, 2022, the client filed a malpractice action against Fisher alleging Fisher failed to investigate and pursue viable claims against all potential parties and to file a timely claim against the facility. Fisher sought coverage for the action under a claims-made policy issued by Berkley Assurance Company for the period July 10, 2022 to July 10, 2023, with a retroactive date of July 10, 2020. The policy covered claims arising out of legal services that took place after the retroactive date and excluded coverage for any claim arising from legal services “rendered prior to” the policy period if any insured knew or reasonably should have known that the prior services could give rise to a claim. Berkley defended Fisher under a reservation of rights and filed a declaratory judgment seeking a declaration of no coverage. The Southern District of New York granted Berkley’s motion for summary judgment, declaring that Berkley had no duty to defend or to indemnify Fisher in the legal malpractice action because (i) the legal services giving rise to the action occurred before the policy’s retroactive date, and (ii) the exclusion precluded coverage. The court rejected Fisher’s argument that Berkley was estopped from denying coverage because of its alleged improper handling of the coverage claim. Specifically, the court found that Berkley was not obligated to “create an internal wall between its coverage investigation and the underlying liability defense” because a conflict of interest requiring such a wall does not arise every time an insurer defends its insured under a reservation of rights and Fisher offered no evidence of a conflict. Accordingly, Fisher did not have a right to independent counsel and, thus, Berkley did not breach its duty to advise Fisher of that right. The court noted that Berkley “followed a textbook course of action” by defending Fisher under a reservation of rights and filing a declaratory judgment action for a declaration of no coverage. Moreover, the court denied Fisher’s claim for attorneys’ fees, explaining that “there is no cognizable, free-standing claim for attorneys’ fees based on general bad faith and improper conduct by an insurer,” among other reasons. [Berkley Assur. Co. v. John H. Fisher, P.C., 23-cv-1716-MKV, 2025 U.S. Dist. LEXIS 51983 (S.D.N.Y. Mar. 20, 2025).]

Southern District Finds False Information Exclusion In Policy Does Not Require Materiality And Precludes Coverage

The insureds own and manage multiple rental units. On their insurance application, they answered “No” in response to the question “Are any properties rented by the day or by the week?” At the time, the insureds had been renting their units by the day or by the week. Mt. Hawley Insurance Company issued a liability policy to the insureds that excluded coverage “if, at any time and regardless of intent,” the insured “provide[s] incorrect, false, inaccurate or incomplete information in the Application for this policy.” The policy was renewed twice and, during the second renewal, two people were injured at one of the insureds’ units that had been rented to a party of renters for three nights. The injured renters sued the insureds, and the insureds sought coverage from Mt. Hawley. Mt. Hawley denied coverage based upon the exclusion, among other reasons; agreed to provide the insureds with a courtesy defense; and filed a declaratory judgment action. The Southern District of New York granted Mt. Hawley’s motion for summary judgment, declaring that the exclusion in the Mt. Hawley policy precluded coverage for the renters’ action, irrespective of whether the false information in the application was material to the issuance of the policy. The court refused to read a materiality requirement into the exclusion, explaining that the requirements of Insurance Law §3105, which codifies an insurer’s right to rescind a policy issued based on a material misrepresentation, do not alter the unambiguous language of Mt. Hawley’s policy exclusion. [Mt. Hawley Ins. Co. v. Beach Cruiser, LLC, 22-cv-10354-GHW, 2025 U.S. Dist. LEXIS 40665 (S.D.N.Y. Mar. 6, 2025).]