New York Insurance Coverage Law Update

Second Circuit Finds That Criminal Activities Exclusion Defeats Coverage For Disability Benefits

Jason Brand made a claim for disability benefits under his disability policy with Principal Life Insurance Company on the basis that he was totally disabled by extreme anxiety that began in July 2014 after a warrant was served on him by the New York State Attorney General’s Office. Fifteen months after making the claim, Brand entered into a plea agreement in which he admitted to committing felony crimes in connection with his business between 2009 and 2015, including enterprise corruption, insurance fraud and grand larceny. Brand’s policy contained a Criminal Activities Exclusion, which excluded coverage when an insured’s commission of a felony “in whole or in part … contribute[s] to” the insured’s “injury or [s]ickness.” The United States Court of Appeals for the Second Circuit affirmed the trial court’s granting of summary judgment to Principal, reasoning that Brand’s commission of the felonies necessarily “caused” or “contributed” to the anxiety that formed the basis of his disability claim. The Second Circuit also remanded the case back to the trial court to address Principal’s claim that the policy should be deemed void and rescinded based on Brand’s fraud in obtaining the policy or submitting his claim. The Court found the recission claim justiciable, rejecting the trial court’s determination that the claim was mooted by the finding of no coverage based on the exclusion [Principal Life Ins. v. Brand, 2023 U.S. App. LEXIS 31632 (2d Cir. Nov. 30, 2023).]

Southern District Rules That Coverage Action Meets Federal Amount-In-Controversy Requirement Based On Record Outside Pleadings

Greater New York Insurance Company (GNY) filed an action in state court against Kinsale Insurance Company seeking a declaration that Kinsale was obligated to defend GNY’s insured in an underlying personal injury action. Kinsale removed the action to federal court, and GNY moved to remand the case back to state court claiming that the case did not meet the federal $75,000 amount-in-controversy requirement. The United States District Court for the Southern District of New York denied GNY’s motion, reasoning that Kinsale established a “reasonable possibility” that defense costs in the underlying action will exceed $75,000. Although GNY’s complaint and Kinsale’s petition for removal did not establish the amount in controversy, the court stressed that a district court may consider documents outside the pleadings to determine the amount in controversy. Because the plaintiff’s bill of particulars in the underlying action revealed spine, shoulder and knee injuries likely requiring the defense to retain several experts, the court concluded that defense of the action would almost certainly cost more than $75,000, which is enough to support jurisdiction. The court also granted Kinsale’s motion to compel arbitration as required under its policy. [Ins. Co. of Greater N.Y. v. Kinsale Ins. Co., 2023 U.S. Dist. LEXIS 204754 (S.D.N.Y. Nov. 15, 2023).]

Southern District Refuses To Compel Appraisal Before Resolution Of Coverage Issues

7Group LLC’s property in Florida was damaged during Hurricane Ian. 7Group made a claim under its property policy with Mt. Hawley Insurance Company, which allegedly underpaid 7Group’s claim. 7Group sued and moved to compel an appraisal and to stay the coverage action pending the outcome of the appraisal. The United States District Court for the Southern District of New York enforced the New York choice-of-law provision in the policy and denied the motion, reasoning that an appraisal was premature pending resolution of the scope of coverage under the policy. [7Grp., LLC v. Mt. Hawley Ins. Co., 2023 U.S. Dist. LEXIS 207442 (S.D.N.Y. Nov. 20, 2023).]