New York Insurance Coverage Law Update

October 31, 2022 | Insurance Coverage

Southern District Finds That Insured’s Owner And CEO Not Entitled To SUM Coverage Because Not Acting In Scope Of His Duties For Insured

Majestic Rayon Corporation, a family business that manages the family’s real estate, obtained an insurance policy from Hartford Accident and Indemnity Company that included supplementary uninsured/ under-insured motorists (“SUM”) coverage for any person “while acting in the scope of that person’s duties” for Majestic.  Majestic’s owner and chief executive officer (“CEO”) was taking a leisurely walk with his wife when he was hit by a car, and he sought SUM coverage from Hartford.  The CEO argued that the family’s properties are in use 24 hours a day so he is on-call 24/7 and that he was discussing Majestic’s pending litigation with his wife during their walk.  The United States District Court for the Southern District of New York rejected the CEO’s claim for SUM coverage, reasoning that an employee is generally said to be acting within the scope of employment when the employer is, or could be, exercising control over the employee’s activities, and the employee is doing something in furtherance of his duties for his employer.  The court noted that an em-ployee cannot constantly be in the scope of employment; and “(m)erely pondering work affairs cannot be said to acting within the scope of employment.” As such, the court concluded that the CEO speaking about pending litigation while on a walk with his wife – not with Majestic’s counsel – did not render his actions in furtherance of his duties to Majestic. [Aibel v. Hartford Accident & Indem. Co., 2022 U.S. Dist. LEXIS 175355 (S.D.N.Y Sept. 27, 2022).]

Southern District Finds That Business Enterprise Exclusion Precludes Coverage Under Attorneys’ Malpractice Policy

Associated Industries Insurance Company filed a declaratory judgment action seeking a declaration that it had no duty to defend or to indemnify a law firm and its former partner in connection with a lawsuit filed by former clients under their malpractice policy, which contained a Business Enterprise Exclusion that precluded cov-erage for insureds’ activities in their capacity as an “officer…of a…business enterprise, other than the” law firm.  The former clients alleged that while the partner was simultaneously acting as the clients’ attorney and the Executive Vice President of a company formed by the partner, the partner recommended that the clients sell the property to the partner’s company; prepared the documentation for the $12 million sale; and structured the deal so his company would pay only $5 million and would owe the rest through an unsecured loan.  The United States District Court for the Southern District of New York held that the Business Enterprise Exclusion in the law firm’s policy applied to preclude coverage because the former clients would have no claim to pursue against the firm and partner “but for” the partner’s “dual roles of providing legal advice to a client, while simultaneously pursuing his own business interests”.  [Associated Indus. Ins. Co. v. Wachtel Missry LLP, 2022 U.S. Dist. LEXIS 162454 (S.D.N.Y. Sept. 8, 2022).]

Eastern District Finds That Jurisdictional Limit Met And That Employer’s Liability Exclusion Precludes Coverage

A construction worker was injured, and he sued his alleged employer and the alleged owner and operators of the premises where he was injured in the course of his employment.  His employer’s insurer filed a declaratory judgment action in the United States District Court for the Eastern District of New York seeking a declaration that it owed no duty to defend or to indemnify the employer or any other party that was sued because the employer’s primary and umbrella policies precluded coverage for “bodily injury to any employee of any insured” arising out of or in the course of employment by the insured.  The court first found that the $75,000 minimum amount in controversy for federal diversity jurisdiction was met because the “object of the litigation” was the insurer’s potential liability under its $2 million primary and $5 million umbrella policies, and there is a “reasonable probability” that the underlying bodily injury action could result in coverage in excess of $75,000.  The court then found that the “plain language” of the employer’s liability exclusion precluded coverage. [American European Ins. Co. v. Tri State Plumbing & Heating Inc., 2022 U.S. Dist. LEXIS 167154 (E.D.N.Y. Sept. 15, 2022).]

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