New York Insurance Coverage Law Update

January 30, 2023 | Alan C. Eagle | Insurance Coverage

Southern District Refuses To Use Extrinsic Evidence “Bound Up With Merits” Of Underlying Action To Defeat Duty To Defend

622 Third Avenue LLC filed a declaratory judgment action against Harleysville Worcester Insurance Company and others, seeking a declaration that Harleysville must defend 622 Third Avenue as an additional insured in an underlying personal injury action filed by a construction worker against 622 Third Avenue and J.T. Magen & Company Inc. The worker alleged that 622 Third Avenue hired J.T. Magen as the general contractor for a construction project at premises owned by 622 Third Avenue; that one of them retained Harleysville’s named insured, Architectural Flooring Restoration (AFR), to perform certain work on the project as a subcontractor; and that he was injured while working for a company hired by AFR to serve as another subcontractor on the project.   622 Third Avenue filed a third-party action against AFR.  Harleysville refused to defend 622 Third Avenue as an additional insured under its policy issued to AFR. Harleysville did not dispute that the allegations in the worker’s underlying complaint gave rise to a possibility of coverage and a potential duty to defend, but it maintained that it could rely upon facts extrinsic to the underlying complaint, including affirmations, memos and discovery in the underlying action, to defeat the duty to defend.  Specifically, Harleysville argued that the extrinsic facts established that 622 Third Avenue’s liability did not arise out of AFR’s ongoing operations for 622 Third Avenue at the space designated in its additional insured endorsement as required to trigger additional insured coverage.  The United States District Court for the Southern District of New York rejected Harleysville’s argument and held that Harleysville had a duty to defend.  The court acknowledged that the duty to defend is not “inter-minable” and will end if it is “shown unequivocally that the damages alleged would not be covered”.  However, the court stressed that the insurer could not rely upon extrinsic evidence “bound up with merits” or that “overlap[s] with facts at issue in the underlying case” to defeat a duty to defend.   The court concluded that the extrinsic evidence that Harleysville sought to use was “related to the merits of the underlying case, and thus within the … line of cases finding that insurers may not use such evidence to defeat a duty to defend.”  [622 Third Ave. Co., LLC v. Nat’l Fire Ins. Co. of Hartford, 2022 U.S. Dist. LEXIS 226996 (S.D.N.Y. Dec. 16, 2022).]

Second Department Holds That Assault And Battery Sublimit Applies to Negligence Claims Arising From Assault And Battery

A decedent was stabbed to death during a party in a room at a Howard Johnsons hotel owned by Commack Hotel LLC, and his estate sued and was awarded summary judgment against the hotel.  The hotel’s insurer, Great American E&S Insurance Company, maintained that it had no obligation to indemnify the hotel in excess of the $25,000 limitation of coverage for assault and battery under an endorsement in the hotel’s policy.   The Appellate Division, Second Department, agreed, reasoning that the assault and battery limitation applied to preclude coverage for amounts in excess of $25,000.  The court explained that the limitation applies to limit coverage if “no cause of action would exist ‘but for’ the assault and/or battery”, including for “negligence claims arising from an assault and battery.”  [Great Am. E&S Ins. Co. v. Commack Hotel, LLC, 2022 N.Y. App. Div. LEXIS 6813 (2d Dep’t Dec. 7, 2022).]

Southern District Finds That Insured Failed To Meet Burden Of Proving That Loss Occurred During Policy Period

The insureds sought coverage for $1.5 million in art that they claimed was discovered missing from their storage space on August 25, 2019, one week after their policy’s coverage with Chubb incepted on August 18, 2019.  Chubb denied coverage on the ground that the insureds failed to establish that the loss occurred during the coverage period, among other things.   The United States District Court for the Southern District of New York agreed that the insureds failed to meet their burden of proving that the loss occurred during the policy period, as opposed to the period of time from when they last observed their art intact in October 2018 to when the policy incepted on August 18, 2019.  The court rejected the insureds’ arguments that the “all risk” policy did not include such a burden and that the coverage dates for the policy were on policy pages not delivered to the insureds as contrary to the stipulated facts and because it would “strip from their policy any coverage period limitation at all.” [Weintraub v. Great N. Ins. Co., 2022 U.S. Dist. LEXIS 233298 (S.D.N.Y. Dec. 29, 2022.]

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