New York Insurance Coverage Law Update

New York’s Highest Court Grants Reargument in Controversial K2 Case

The New York Court of Appeals has agreed to hear reargument of the controversial decision in which it held that “when a liability insurer has breached its duty to defend its insured, the insurer may not later rely on policy exclusions to escape its duty to indemnify the insured for a judgment against him.”  The Court of Appeals rarely hears reargument.  In the application to reargue, the moving parties stressed the inconsistency between that ruling and an older one in which the Court permitted an insurer to raise exclusions as a defense to indemnity even though the insurer had breached the duty to defend.  Reargument is not expected to take place until early 2014. [K2 Inv. Group, LLC v. American Guar. & Liab. Ins. Co., 21 N.Y.3d 384 (2013).]

Second Circuit Asks New York Court of Appeals to Decide if Fire Insurance Policy’s Apportionment-of-Loss Clause Is Enforceable

The Second Circuit Court of Appeals has certified a question to the New York Court of Appeals, requesting that it determine whether an apportionment-of-loss clause in a fire insurance policy that reduces the insurance carrier’s total liability to a percentage of a covered loss is enforceable under New York law. [Quaker Hills, LLC v. Pacific Indemn. Co., Nos. 11-3670 (Lead) 11-3780 (XAP) (2d Cir. Aug. 29, 2013).]

Court Finds that Insured’s Late Notice Was Not Excused By A Reasonable Belief in Nonliability Because He Had Not Investigated Water Leak

After an insured sought coverage from his insurance company for a lawsuit alleging that a water and sewer leak from his building had damaged an adjoining property, the insurer moved for summary judgment, arguing that the insured had failed to provide timely notice of his claim. The insured responded that his late notice should be excused because he had a reasonable belief in his nonliability. The court granted the insurer’s motion, determining that the insured’s delay in providing notice was not reasonable given his “utter lack of investigation” as to the “cause of the water damage.” The court also decided that it was “not reasonable” for a “sophisticated owner of property” to rely upon his tenant to resolve the damage allegedly caused to the adjoining property. [Castlepoint Ins. Co. v. Fried, 2013 N.Y. Slip Op. 31814(U) (Sup. Ct. N.Y. Co. Aug. 6, 2013).]

Court Says Default Declaration Judgment Against Provider Bars Subsequent Suit Against Insurer to Recover Assigned No-Fault Benefits 

A medical provider sued an insurer to recover assigned first-party no-fault benefits for injuries its assignor allegedly sustained in a motor vehicle accident. The insurer previously brought a declaratory judgment action against the provider and its assignor with respect to this accident and others, and a default declaratory judgment was entered in the insurer’s favor. The insurer moved for summary judgment in the provider’s action, and the court granted the motion, finding that the default declaratory judgment against the provider should be given res judicata effect. [Eagle Surgical Supply, Inc. v. AIG Indem. Ins. Co., 2013 N.Y. Slip Op. 51441(U) (App. Term 2d Dep’t Aug. 21, 2013).]

Finding that Texas Law Applied Under New York’s Choice of Law Rules, Court Dismisses Action Against Insurers 

Lapolla Industries filed an action in a federal district court in New York seeking a declaration that its insurers were obligated to defend and indemnify it in connection with a personal injury action pending in that court. The insurers contended that Texas law applied and that their policies did not cover the action against Lapolla under Texas law. The court first observed that no single state was the location of the insured risk because the risks insured by the policies were worldwide and Lapolla had been sued in New York and in other jurisdictions. The court then ruled that Texas law governed, stressing that Lapolla’s domicile was in Texas, and noting that the policies were issued there and referred specifically to Texas law. Under Texas law, it concluded, there was no coverage for the suit against Lapolla in New York. [Lapolla Industries, Inc. v. Aspen Specialty Ins. Co., No. CV 12-5910 (E.D.N.Y. Aug. 19, 2013).]