New York Insurance Coverage Law Update

July 1, 2013 | Insurance Coverage

N.Y. Court of Appeals Reinstates Bear Stearns’ Complaint for Indemnification of “Disgorgement Payment”

After Bear Stearns settled “late trading” and “market timing” charges with the Securities and Exchange Commission, it sought indemnification from its professional liability and excess insurers for what the SEC had characterized as a “disgorgement payment.” Bear Stearns alleged that a substantial portion of the payment represented illicit profits obtained by its customers rather than gains enjoyed by Bear Stearns. The Appellate Division held that coverage was barred as a matter of public policy because Bear Stearns’ settlement was “specifically linked” to Bear Stearns’ improperly acquired funds, as opposed to profits that flowed to its customers. The New York Court of Appeals reversed and reinstated the complaint, ruling that on the “limited record,” it could not say that the public policy bar for intentionally harmful conduct applied to preclude Bear Stearns’ claims for coverage. The Court reasoned that, “at this early juncture” of the litigation, the documentary evidence did not “decisively repudiate” Bear Stearns’ contention that the payment amount had been calculated in large measure on the profits of others. [J.P. Morgan Sec. Inc. v. Vigilant Ins. Co., 2013 N.Y. Slip Op. 04272 (N.Y. June 11, 2013).]

Failure to Produce Witness at EUO Dooms Coverage, Even If Notice Improperly Requested Specific Person 

Utica Mutual Insurance Company denied claims for no-fault benefits submitted by New Century Medical Diagnostics, P.C., based upon New Century’s failure to appear at its scheduled examination under oath (“EUO”). New Century sued, contending that the EUO notices were defective because they sought the production of a specific individual. The court ruled in favor of Utica, explaining that even if New Century could not be required to produce a specific person at an EUO, its failure to produce any person permitted Utica to deny its claims. [New Century Med. Diagnostics, P.C. v. Utica Mut. Ins. Co., 2013 N.Y. Slip Op. 23204 (Civ. Ct. N.Y. Co., June 24, 2013).]

Insurer’s Disclaimer 21 Days after Learning of Ground for Disclaimer Was Timely

Martin Enoe was sued and tendered the defense to his insurer, Quincy Mutual Fire Insurance Company. Twenty-one days after Quincy was notified by its investigator that Enoe did not live in the same residence as the plaintiffs in the underlying action, it issued a disclaimer. The court found the disclaimer was timely as a matter of law, explaining that Quincy’s receipt of the information from its investigator was necessary for it to determine whether Enoe was entitled to coverage under an exception to the lead-paint exclusion in his insurance policy. [Quincy Mut. Fire Ins. Co. v. Enoe, 2013 N.Y. Slip Op. 04320 (App. Div. 2d Dep’t June 12, 2013).]

No Coverage for Tenant’s Claim Where Property Owner Received Letter from Tenant’s Attorney But Waited Until Sued – Nearly Two Years Later – to Notify Insurer

A property owner received a letter from her tenant’s lawyer asserting that the tenant had been injured by mold in her apartment. Nearly two years later, the owner was sued, and she forwarded the complaint to her insurer.  The insurer disclaimed on the ground that the owner had failed to provide notice of the occurrence as soon as practicable as required by her policy, which was issued before New York’s late notice – prejudice statute became effective. The court upheld the disclaimer, rejecting the owner’s contention that she had reasonably withheld the claim letter because she believed the mold issue had been resolved. [Tower Ins. Co. of N.Y. v. 2165 Pacific Street, LLC, 2013 NY Slip Op 31373(U) (Sup. Ct. N.Y. Co. June 27, 2013).]

Excess Coverage Triggered When Payments Reached Attachment Point, Not When Liability Accrued, Second Circuit Holds

Former directors and officers of Commodore International Limited argued that two excess insurers’ coverage obligations were triggered once the total amount of their defense and/or indemnity obligations exceeded the limits of any underlying insurance policies. The court rejected that argument and ruled that the plain language of the excess insurance policies required the “payment of losses” – not merely the accrual of liability – to trigger the excess coverage. [Ali v. Federal Ins. Co., No. 11-5000-cv (2d Cir. June 4, 2013).]

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