New York Insurance Coverage Law Update

New York’s Highest Court Holds That Portion Of Premium Need Not Be Refunded For Death During Policy Period Of Universal Life Policy

The Joan C. Lupe Family Trust purchased a policy under which Lincoln Life and Annuity Company of New York agreed to provide universal life insurance coverage with Joan C. Lupe as the insured. The policy listed a “planned premium” of $53,877 but explained that the Trust could pay premiums by other agreeable methods subject to certain minor limitations. The Trust paid an annual planned premium on May 7, 2018, and Ms. Lupe died on October 6, 2018. Her Trust filed a putative class action in federal court against Lincoln, alleging that its refusal to refund a prorated portion of the final year’s premium violated Insurance Law § 3203 (a)(2), which requires a refund of any life insurance premium “actually paid for any period beyond the end of the policy month in which” the death of the insured occurs. The case made its way to the Second Circuit Court of Appeals, which found that no New York state cases had resolved the issue. Accordingly, the Second Circuit certified the following question to the New York Court of Appeals: “Whether a planned payment in an interest-bearing policy account, as part of a universal life insurance policy, constitutes a ‘premium actually paid for any period’ under the refund provision” of § 3203 (a)(2). The New York Court of Appeals answered the certified question in the negative because “the plain language of section 3203 (a)(2) does not apply to such discretionary payments.” [Nitkewicz v. Lincoln Life & Annuity Co., 2023 N.Y. LEXIS 1757 (N.Y.  Oct. 19, 2023).]

Court Finds That Auto Insurer’s Tendering Of Policy Limits Did Not Terminate Its Duty To Defend

This declaratory judgment action arose out of an accident between a tractor-trailer and a car. The estates of the car’s passengers sued the driver of the tractor-trailer and its owners. Country-Wide Insurance Company, the tractor’s insurer, defended the driver and owners. Country-Wide then tendered the balance of its $1 million policy limit to Zurich American Insurance Company, the trailer’s insurer under a $5 million policy. Although Country-Wide acknowledged that its policy was primary to the Zurich policy, it argued that its tender of its limits terminated its duty to defend and obligated Zurich to assume the defense of the case. The Supreme Court, New York County, held that Country-Wide was not permitted to “simply send over the full amount of the policy and avoid paying defense costs,” and that its policy’s purported limitation of its duty to defend is of no moment because it conflicts with New York Insurance Regulation 11 NYCRR § 60-1.1 [b]. The court explained that this regulation has been construed as “requiring automobile insurers to pay all defense costs until a case ends,” and “they are not excused from defense obligations by exhaustion of policy limits.” [Country-Wide Ins. Co. v. Zurich Am. Ins. Co., 2023 NYLJ LEXIS 2712 (N.Y. Sup. Ct., N.Y. Cnty. Oct. 12, 2023).]  

Policies Both Deemed To Be “True Excess” and Therefore Co-Insurance

Walter Breitenbach struck a pedestrian while driving his automobile within his course of employment with the Town of Riverhead. The pedestrian sued Breitenbach who was insured under a homeowner’s policy with Adirondack Insurance Exchange that contained an endorsement providing applicable umbrella coverage excess of a retained limit and other available insurance. The Town was insured by Ace American Insurance Company under a Public Entity Policy that provided applicable insurance excess of a self-insured retention and other available insurance. After the personal injury action settled, Ace filed a declaratory judgment action against Adirondack to determine the priority of coverage. The Supreme Court, New York County, held that the two insurers must contribute pro rata based on their policy limits towards the settlement because they both cover the accident as “true excess” policies. [Ace Am. Ins. Co. v. Adirondack Ins. Exch., 2023 N.Y. Misc. LEXIS 9619 (Sup. Ct., N.Y. Cnty. Oct. 17, 2023).]