New York Insurance Coverage Law Update

February 23, 2021 | Insurance Coverage

Federal District Court Finds That Virus Exclusion Precludes Coverage For COVID-19-Related Losses

A Manhattan law firm sued Midvale Indemnity Company seeking coverage under the firm’s commercial property insurance policy for losses caused by stay-at-home and social distancing directives issued by New York State in response to the COVID-19 pandemic. The law firm claimed that the stay-at-home orders prevented clients from visiting the firm’s offices, and thus cost it business. The insurer moved to dismiss, and the United States District Court for the Southern District of New York held that the law firm’s claim for coverage was precluded by the “Virus or Bacteria” exclusion in the policy. The court was not persuaded by the law firm’s argument that the firm’s loss most immediately resulted from New State’s stay-at-home and social distancing orders, not the COVID-19 virus. The court stressed that these emergency orders were prompted by the virus, and the policy expressly precluded coverage for  any damage caused “directly or indirectly” by “[a]ny virus” “regardless of any other cause or event that contributes con-currently or in any sequence to the loss.”  Because the court found that this exclusion precluded coverage, it did not reach the insurer’s alternative arguments for dismissal, including that there was no “direct physical loss or damage” to the premises.  [Michael J. Redenburg, Esq. PC v. Midvale Indem. Co., 2021 U.S. Dist. LEXIS 15434 20 Civ. 5818 (S.D.N.Y. Jan. 27, 2020).]

Tenant’s Insurer Must Cover Landlord As Additional Insured For Accident On Sidewalk In Front Of Leased Premises, First Department Holds

The plaintiff in the underlying action alleged that he slipped and fell on ice on the sidewalk abutting the front of Capital One’s branch building in a shopping center after exiting the building. Capital One leased the building from Waldman, the owner of the shopping center. The owner’s insurer, Wesco Insurance Comp-any, sought coverage for the owner as an additional insured under the tenant’s policy issued by Travelers. The Appellate Division, First Department, held that the tenant’s insurer was obligated to defend and to indemnify the owner in the underlying action because the action arose from the “use” of the leased premises, and that this obligation was “not affected” by the fact that the owner “may have failed to satisfy [its] legal obligations to maintain the sidewalk.”  The court also held that the owner’s insurer had no obligation to defend or to indemnify the tenant because it was not an insured under the owner’s policy.  The court noted that the owner’s policy provided for the defense of the owner’s indemnitees under certain circumstances, but that “the condition that there be no conflict between [the owner’s] and its indemnitee’s interests in the underlying action was not met.” The court concluded that the anti-subrogation doctrine barred the tenant’s insurer from seeking indemnification from the owner on behalf of the tenant in the underlying action because they were both covered under the tenant’s policy for the same risk. [Wesco Ins. Co. v. Travelers Prop. Cas. Co. of Am., 188 A.D.3d 476 (1st Dep’t 2020).]

Second Department Applies Insurance Law §3420(d)

Plaintiff, Harco Construction, LLC, filed a declaratory judgment action (DJ) against First Mercury Insurance Company seeking to be defended and indemnified in underlying bodily injury actions as an additional insured under a policy issued to Harco’s subcontractor. On an initial appeal, the Appellate Division, Second Department, held that the trial court erred in granting the insurer’s motion for summary judgment, finding the insurer did not timely disclaim as required by Insurance Law §3420(d).  Thereafter, the trial court granted summary judgment to Harco, and the subcontractor’s insurer appealed, arguing that §3420(d) no longer applied because “this action is, in effect, one for contribution and/or indemnification asserted by [Harco’s  insurer] as the real party in interest.” The court opined that the fact  that Harco’s insurer “provided a defense in [the underlying actions] and settled one of them [after the DJ was filed] above the limits of [the subcontractor’s] policy did not relieve [the subcontractor’s insurer] of its obligation” to reimburse certain defense and indemnity costs.  [Harco Constr., LLC v. First Mercury Ins. Co., 2021 N.Y. App. Div. LEXIS 290 18 Civ. 14768 (2nd Dep’t Jan. 20, 2020).]

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