New York Insurance Coverage Law Update

Employee May Receive Uninsured Motorist Benefits From Self-Insured Employer Despite Workers’ Compensation Law

An employee of a self-insured employer was injured in an accident while driving the employer’s car. The person driving the other car did not have liability insurance, and the employee sought uninsured motorist benefits from his employer. The employer contended that the employee was barred from recovering those benefits because he was entitled to workers’ compensation benefits. The New York Court of Appeals rejected the employer’s argument, deciding that the employee’s action to recover uninsured motorist benefits was not limited by the workers’ compensation benefits just because he “happened to be driving the car of a self-insurer.” [Matter of Elrac, Inc. v. Exum, 2011 N.Y. Slip Op. 08961 (N.Y. Dec. 13, 2011).]

Court Finds Additional Insured Coverage For Claim Allegedly Arising From Accident In Stairwell

The plaintiff in a personal injury action alleged that an accident had occurred in a stairwell of a leased building in which he was employed. The Appellate Division, First Department, held that the landlord and managing agent were entitled to a defense as additional insureds under the policy procured by the tenant, the employer of the plaintiff. The court found that the claim arose out of the “maintenance or use” of the leased property within the meaning of the additional insured clause, reasoning that the “accident occurred in the course of an activity necessarily incidental to the operation” of the leased space and “in a part of the premises that was used for access in and out of the leased space when the freight elevator was not in service.” [1515 Broadway Fee Owner, LLC v. Seneca Ins. Co., Inc., 2011 N.Y. Slip Op. 08803 (1st Dep’t Dec. 6, 2011).]

Title Insurer Must Indemnify Property Owner For Its Payment Of “Emergency Repair Lien”

A property owner contended that because the services, labor and materials constituting an emergency repair lien under New York City law had been furnished prior to the date of its title insurance policy, the title insurer had a duty to indemnify it for its payment of the lien. The title insurer countered that such a lien was expressly excluded from coverage in the policy. The court concluded that to the extent this exclusion was inconsistent with a New York endorsement that added as an additional covered risk any statutory lien for services, labor, or materials “furnished prior to the date hereof,” the endorsement controlled, and the lien therefore was covered by the policy. [380 Kings Highway, LLC v. Fidelity Natl. Tit. Ins. Co., 33 Misc. 3d 1233(A) (Sup. Ct. Kings Co. Dec. 13, 2011).]

Disgorgement Payment To Settle SEC Charges Is Not An Insurable Loss, Court Confirms

After agreeing to disgorge $160 million to settle Securities and Exchange Commission charges of willfully facilitating illegal mutual fund trading practices, the insured claimed that the payment constituted an insurable loss under its professional liability insurance policies. The Appellate Department, First Department, ruled that the payment was not an insurable loss. It explained that under New York law, the risk of being directed to return improperly acquired funds is not insurable; thus, disgorgement of ill-gotten gains or restitutionary damages does not constitute an insurable loss. The First Department concluded that, read as a whole, the insured’s offer of settlement, the SEC order, and related documents were not reasonably susceptible to any interpretation other than that the insured had “knowingly and intentionally facilitated illegal late trading for preferred customers,” and that the relief provisions of the SEC’s order “required disgorgement of funds gained through that illegal activity.” [J.P. Morgan Sec. Inc. v. Vigilant Ins. Co., 2011 N.Y. Slip Op. 08995 (1st Dep’t Dec. 13, 2011).]

Absence Of Prior Written Agreement Indemnifying and Holding Insureds Harmless Dooms Coverage Claim

An insurer maintained that its insureds were not entitled to a defense and indemnity in a property damage action because of an exclusion for property damage arising out of work performed on behalf of an insured by a subcontractor where no prior written agreement existed indemnifying and holding harmless the insured in the event of a loss. The Appellate Division, Second Department, agreed that the insureds’ written agreement with their contractor did not contain the required indemnity and hold harmless language. [Yangtze Realty, LLC v. Sirius Am. Ins. Co., 2011 N.Y. Slip Op. 09117 (2d Dep’t Dec. 13, 2011).]