New York Insurance Coverage Law Update

New York’s Highest Court Holds That Liability Insurer that Breached Duty to Defend Must Indemnify Insured for Judgment, Even if Policy Exclusions Would Have Negated Duty to Indemnify

The New York Court of Appeals has ruled that, when a liability insurer has breached its duty to defend, it “must indemnify its insured for the resulting judgment, even if policy exclusions would otherwise have negated the duty to indemnify.”  The Court said that it adopted this rule to “give insurers an incentive to defend the cases they are bound by law to defend,” and suggested that an insurer may be “well advised” to file a declaratory judgment action where “coverage may be arguable.” The Court, however, affirmed the dismissal of claims against the insurer for alleged bad faith failure to settle within policy limits, explaining that an insurer’s rejection of a settlement offer for less than the full amount of its policy “does not by itself establish the insurer’s bad faith, even when the insured later suffers a judgment greater than the policy limit.”  Instead, a “bad-faith plaintiff must establish that the defendant insurer engaged in a pattern of behavior evincing a conscious or knowing indifference to the probability that an insured would be held personally accountable for a large judgment if a settlement offer within the policy limits were not accepted.”  [K2 Inv. Group, LLC v. American Guar. & Liab. Ins. Co., 2013 N.Y. Slip Op. 04270 (Ct. Ap. June 11, 2013).]

Alleged Sexual Abuse by Priest Over Several Years At Multiple Locations Constituted Multiple Occurrences

The New York Court of Appeals has held that incidents of alleged sexual abuse of a minor by a priest that allegedly spanned several years and several policy periods, and that allegedly took place in different locations, constituted multiple occurrences. It also ruled that any potential liability should be apportioned among the various insurance policies, pro rata. [Roman Catholic Diocese of Brooklyn v. National Union Fire Ins. Co. of Pittsburgh, PA., 2013 N.Y. Slip Op. 03264 (Ct. Ap. May 7, 2013).]

Claim Barred by Rain and “Back Up or Overflow” Exclusions 

The Consulate General of Lebanon claimed that its Manhattan property suffered water damage from rain because debris became lodged in the drain system at the premises. The court found that the policy’s rain exclusion precluded property coverage because the rain did not enter through a covered loss to the “roof or walls”. The court also applied the exclusion for “water that backs up or overflows from a sewer, drain or sump,” finding that the damage was caused by an overflow resulting from a blockage in the plumbing system. [Consulate General of Lebanon v. Hermitage Ins. Co., No. 653092/11 (Sup. Ct. N.Y. Co. April 30, 2013).]

Exclusion Barred Coverage for Claims in Contractor’s Personal Injury Action

Joseph J. Mondone Jr. was injured while working as an electrical contractor at a residential construction project, and he sued another contractor on the project. The court held that Essex Insurance Company was not required to defend or to indemnify the other contractor because of an exclusion for injury sustained by “any contractor, self-employed contractor, and/or subcontractor, or any employee, leased worker, temporary worker or volunteer help of same.” The court explained that because the items in the exclusion were listed in the disjunctive, if any one of them applied (as it did), the exclusion was triggered. [Essex Ins. Co. v. Mondone, 2013 N.Y. Slip Op. 03812 (App. Div. 2d Dep’t May 29, 2013).]

Collateral Estoppel Did Not Bar State’s Environmental Suit against Property Owner’s Insurer

The New York Department of Environmental Conservation ordered a property owner to clean up petroleum discharges from its underground storage tanks.  The company sued its insurer for coverage, and the court ruled in favor of the insurer. The State then sued the insurer under Navigation Law § 190, seeking reimbursement of expenses it incurred in cleaning up the property. The court found that the complaint was not barred by collateral estoppel because the State was not “in privity” with the property owner, and § 190 gave the State the right to commence a direct action against the insurer which was independent of its right to indemnification against the property owner. [State of New York v. Zurich Am. Ins. Co., 2013 N.Y. Slip Op. 03367 (App. Div. 3d Dep’t May 9, 2013).]