New York Insurance Coverage Law Update (2nd Ed.)

July 27, 2018 | Alan C. Eagle | Insurance Coverage

Insured’s Misrepresentation About His “Earned Annual Income” Dooms Widow’s Bid For Life Insurance Benefits 

The insured’s application for a $150,000 term life insurance policy indicated that his “earned annual income” was $50,000.  The insured died within the two-year contestable period, and his widow claimed the policy proceeds.  The insurer determined that the insured reported $0 in income on his tax returns, and denied the claim based on the insured’s misrepresentation of his earned annual income.  His widow sued.  The court granted the insurer’s motion for summary judgment, finding that “earned annual income” was not ambiguous and that the insured made a material misrepresentation within the meaning of New York Insurance Law § 3105(b) when he represented on the application that he had $50,000 in earned annual income when he actually had $0.  The court concluded that it was “of no moment” that the insured may have innocently misrepresented his earned annual income, as even innocent misrepresentations provide a basis for rescission of an insurance policy, as long as they are material. [Han v. Metropolitan Life Ins. Co., 2018 N.Y. Slip Op. 31260(U) (Sup.Ct. N.Y. Co. June 21, 2018).]

Construction Contractor Exception To Professional Services Exclusion Did Not Apply, Federal Court Rules 

The Washington State Department of Transportation (“WSDOT”) hired WSP USA, Inc. (“WSP”) to evaluate whether to repair or replace a Seattle highway, and its sub- subcontractor drilled and installed several water wells along the highway. Years later, the WSDOT contracted with Seattle Tunnel Partners (“STP”) to work on a tunnel project to replace the highway, and STP’s tunnel boring machine was allegedly damaged when it struck the steel casing of one of the water wells.  STP sued WSP for professional negligence, and WSP’s insurer disclaimed based upon a “professional liability” exclusion with an exception for “construction contractor” services. The court granted summary judgment in favor of the insurer, reasoning that WSP’s agreements with WSDOT did not require WSP to act in the capacity of a construction contractor. The court added that the exception would not apply even if WSP had been engaged in construction-related services because the exception also required that any such services be “employed … in connection with your operations in your capacity as a construction contractor.”  [Liberty Ins. Corp. v. WSP USA, Inc., No. 17-CV-4398 (JPO) (S.D.N.Y. June 27, 2018).]

Fourth Department Holds That Standing Of Claimant To Bring Direct Action Against Insurer Under New York Insurance Law Limited To Policy Limits

Plaintiff obtained a $350,000 judgment against the insureds.  Plaintiff then brought a direct action against their insurer under Insurance Law §§ 3420(a)(2) and (b)(1) and was awarded a judgment in the amount of the insureds’ $50,000 policy limits. Thereafter, the insureds assigned their rights against the insurer to plaintiff, who sued the insurer for bad faith damages excess of the policy limits. The Appellate Division, Fourth Department, held that plaintiff’s failure to litigate the bad faith claim in his earlier action did not preclude him from subsequently litigating that claim.  The court noted that the doctrine of res judicata may bar a plaintiff from litigating a claim that could have been raised in the prior litigation.  However, the court found that plaintiff was not in a position to assert the bad faith claim in the prior litigation because an injured party’s standing to bring a direct action against an insurer under the New York Insurance Law is limited to recovering the policy limits, and the insureds had not yet assigned their bad faith claims against their insurer at the time of the first action. [Corle v. Allstate Ins. Co., 2018 N.Y. Slip Op. 04135 (4th Dep’t June 8, 2018).]

Court Says Insurer Had No Coverage Obligation For Contractual Indemnity Claim, But That It Was Premature To Decide Coverage As To Common Law Indemnity Claim 

An employee of Service Star LLC sued Lufthansa Cargo AG for personal injuries allegedly sustained while at work.  Lufthansa then sued Service Star for contractual and common law indemnification. The insurer that issued a workers’ compensation and employers liability insurance policy to Service Star asked a New York state court to declare that it had no duty to defend or to indemnify Service Star in connection with Lufthansa’s claims.  The court agreed with the insurer that the policy’s exclusion for liability assumed by a contract precluded coverage for Lufthansa’s contractual indemnification claim. However, the court denied as premature the insurer’s motion for summary judgment with respect to Lufthansa’s common law indemnification claim.  The court reasoned that the insurer covered Service Star’s liability for common law indemnification, which turned on whether the employee sustained a “grave injury,” an issue to be determined in the underlying action.  [Granite State Ins. v. Service Star LLC, 2018 N.Y. Slip Op. 51019(U) (Sup.Ct. N.Y. Co. June 20, 2018).]

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