New York Insurance Coverage Law Update

April 25, 2024 | Alan C. Eagle | Insurance Coverage

Southern District Rules That Insured Cannot Recover Its Attorney’s Fees for Its Coverage Action

The insured, Match Group, LLC, brought a coverage action against its insurer, Beazley Underwriting Limited, and obtained a judgment against Beazley that Beazley appealed. In turn, the insured moved to recover the attorney’s fees and expenses it incurred in its coverage action. The United States District Court for the Southern District of New York denied the insured’s motion, finding that it was premature given the pending appeal and, regardless, “New York law does not allow” an insured “to recover its legal fees in an affirmative action brought against the insurer ….” The court noted that “an insured who is ‘cast in a defensive posture by the legal steps an insurer takes in an effort to free itself from policy obligations,’ and who prevails on the merits, may recover attorneys’ fees incurred in defending against the insurer’s action.” However, the court ruled that the insurer’s disclaimer and exchanges between the insurer’s counsel and the insured do not suffice to place the insured in “defensive posture” for the recovery of attorney’s fees. The court also rejected the insured’s argument that the insurer’s filing of a motion to dismiss in the coverage action was tantamount to the filing of a suit, reasoning that the motion was in defense to the insured’s affirmative coverage action. [Match Grp., LLC v. Beazley Underwriters Ltd., 2024 N.Y. U.S. Dist. LEXIS 36381 (S.D.N.Y. Feb 29, 2024).]

Court Rejects Joinder of Liability and Coverage Actions for Trial 

Plaintiffs, landlords of property in Chatham, New York, sued their tenants for property damage arising out of a fire at the premises. The landlords filed a related coverage action against the tenants’ insurer, and the landlords’ insurer filed a related subrogation action against the tenants and their insurer.  Plaintiffs sought to join the related actions for purpose of discovery and trial. The Supreme Court, Columbia County, agreed with the consent of the parties to consolidate the cases for discovery.  However, the court refused to join the two related actions for purposes of trial, reasoning that under New York law, “the fact of insurance coverage is generally inadmissible in a jury trial to prevent prejudice to an insured defendant” and, therefore, it is “prejudicial to the insurer and its insured to try a main liability action before the same jury” as a coverage action. The court concluded that “the possibility of inconsistent verdicts is outweighed by the prejudice which would occur if the jury were to discover the existence of liability insurance, requiring the denial of the motion to join the actions for trial.” [Harison v. Hover, 2024 NYLJ LEXIS 875 (N.Y. Sup. Ct., Columbia Cnty. March 22, 2024).] 

Southern District Holds That Legionnaires’ Disease Does Not Fall Within Communicable Disease Exclusion

Claimants were residents at premises owned and operated by Doe Fund, Inc. in Bronx, New York. The Claimants allegedly inhaled legionella bacteria from vapors released at a cooling tower by the premises, and they sued the Doe Fund for their alleged bodily injuries. The Doe Fund tendered the bodily injury suits to its insurer, Berkley Insurance Company, which disclaimed coverage based on a Communicable Disease Exclusion in the Doe Fund’s policy. The exclusion precluded coverage for bodily injury arising from the “transmission” of a “communicable disease,” which was not defined in the policy. The United States District Court for the Southern District of New York held that the exclusion did not apply. The court noted that a policy term is not ambiguous just because it is undefined, or because the parties disagree on its meaning. However, relying upon dictionary definitions, the court found that the plain and ordinary meaning of “communicable disease” is a “disease transmitted from one individual or animal to another,” unlike legionnaires’ disease, which is usually transmitted through breathing water vapor or mist contaminated with Legionella. [Doe Fund, Inc. v. Berkley Ins. Co., 2024 U.S. Dist. LEXIS 53856 (S.D.N.Y. March 26, 2024).]

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