New York Insurance Coverage Law Update

November 30, 2022 | Alan C. Eagle | Insurance Coverage

Court Finds That Defense Documents Must Be Produced Because Placed “At Issue” by Late Notice

In this declaratory judgment action, American Empire Surplus Lines Insurance Company sought insurance coverage on behalf of its insured contractor from certain excess insurers.  The excess insurers were not placed on notice until six years after the filing of the underlying action and after summary judgment had been entered against the contractor.  The excess insurers disclaimed coverage under their policies, which required notice of a claim or suit as soon “as it is reasonably likely to involve the policy.”  The excess insurers moved to compel the production of evaluations and reports prepared by defense counsel retained by American Empire to defend the underlying action and American Empire’s claims notes, which American Empire refused to produce the documents as privileged.  The Supreme Court, New York County, granted the motion to compel, reasoning that the “at issue” waiver occurs when “a party has asserted a claim or defense that he or she intends to prove by use of the privileged material.”  The court explained that “[i]f the documents, particularly the claim notes, show [a] valuation of the case implicated [the] excess policies long before notice was actually given …, then it will undercut [American Empire’s] theory that notice was timely.”  The court concluded that American Empire cannot “simply assert that its notice was timely and then withhold documents in its possession that might aid in” the excess insurers’ central coverage defense.  [American Empire Surplus Lines Ins. Co. v. Com-merce & Indus. Ins. Co., 2022 N.Y. Misc. LEXIS 5684 (Sup. Ct., N.Y. Cnty Sept. 1, 2022).]

Second Department Finds Coverage For Third-Party Action Against Insured Based on “Insured Contract” Exception To Exclusions

A contractor entered into a contract with the New York City Housing Authority (NYCHA) for construction work and agreed to defend and to indemnify NYCHA for claims arising out of the work.  The contractor’s employee was injured and sued NYCHA, which filed a third-party action against the contractor for contractual indemnity, among other things.  Peleus Insurance Company disclaimed coverage to the contractor as its named insured and to NYCHA as an additional insured.  The Appellate Division, Second Department, held that Peleus had a duty to defend the third-party action against the contractor because the contractual liability and employer’s liability exclusions in the policy contained an exception for liability assumed by the insured under an “insured contract.”  The court also found that another exclusion in the policy for “designated ongoing operations” did not unambiguously apply to the third-party action against the insured for contractual indemnity because it “only expressly and clearly excludes coverage for bodily injury sought by way of a direct claim” by an employee of the insured.  However, the court held that the “designated ongoing operations” exclusion precluded coverage for the direct claim against NYCHA, an additional insured.  The court concluded that the policy was not rendered ambiguous by the “apparent conflict” between the employer’s liability exclusion and the “designated ongoing operations exclusion” because “policy exclusions are to be read seriatim and, if any one exclusion applies, there is no coverage, since no one exclusion can be regarded as inconsistent with another.”  [Gem-Quality Corp. v. Colony Ins. Co., 2022 N.Y. App. Div. LEXIS 5845 (2d Dep’t Oct. 26, 2022).]

Eastern District Finds Duty To Defend Additional Insureds Under Policy Issued to Injured Claimant’s Employer

A construction worker was allegedly injured at a construction project and sued the owner, general contractor (GC), and subcontractor (which was dismissed after the Workers’ Compensation Board found that the subcontractor was the worker’s employer).  The owner and GC sought coverage as additional insureds under the subcontractor’s policy issued by Hudson Excess Insurance Company. The United States District Court for the Eastern District of New York held that Hudson had a duty to defend the owner and GC because of the possibility that the accident was caused at least in part by the employer.  The court pointed to allegations that the worker “tripped and fell on debris/construction material” and that his employer “was to provide site safety management” and was negligent, as well as evidence that the employer’s work included cleaning.  [U.S. Specialty Ins. Co. v. Hudson Excess Ins. Co., 2022 U.S. Dist. LEXIS 180013 (E.D.N.Y. Sept. 30, 2022).]

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