New York Insurance Coverage Law Update

November 1, 2014 | Insurance Coverage

Court Dismisses General Contractor’s “Bad Faith” Claims Against Subcontractor’s Insurer

A general contractor sued a subcontractor’s insurer for additional insured coverage and “breach of the implied covenant of good faith and fair dealing” and breach of its “fiduciary obligations.”  The court dismissed the extra-contractual claims, reasoning that there were no allegations of  “independent breaches of tort duties such as fiduciary duties owing to the plaintiff from [the insurer] which would support a breach of fiduciary duties claim or other tort claim.”  The court also found that it was “implausible” for the plaintiff and the insurer to have had “any mutual contemplations of consequential damages at or prior to the issuance of the policy” especially because the plaintiff, which was “merely an additional insured,” had not contracted with the insurer for coverage. [J. Kokolakis Contracting Corp. v. Travelers, No. 062727/2014 (N.Y. Sup. Ct. Suffolk Co. Oct. 22, 2014).]

Court Adopts Pro Rata Time On the Risk Allocation To Determine Parties’
Indemnification Obligations

Keyspan Gas East Corporation asked a court to rule that Century Indemnity Company was obligated to indemnify it for environmental clean-up costs at two former manufactured gas plants.  The court agreed with Century that it should apply a pro rata time on the risk allocation to determine Century’s indemnification obligations.  It ruled that the formula required the total costs for each site to be multiplied by “a fraction that has as its denominator the number of years in which injury-in-fact [property damage] was occurring and insurance was available, and as its numerator the number of years within that period when the insurance was in effect.”  The court added that for those periods where Keyspan had not purchased insurance when it was available, Keyspan would be allocated its pro rata share.  The court also ruled that Keyspan was “self-insured” and had to bear the pro rata share of costs for the period between 1971 and 1982 when New York law required a pollution exclusion in liability policies to “assure that corporate polluters bear the full burden” of their actions.  [Keyspan Gas E. Corp. v. Munich Reins. Am., Inc., 2014 N.Y. Slip Op. 24306 (Sup. Ct. N.Y. Co. Oct. 17, 2014).]

Court Rules State Attorney General’s Letter And Federal Indictment Years Later Were Precluded Under D&O Policy 

In November 2007, the Maryland Attorney General sent a letter to a vending machine sales company that requested that the company “cease all offers and sales of [its] business opportunity to Maryland residents.”  Nearly five years later, in October 2012, the company’s president was indicted by a federal grand jury in connection with the company’s sale of business opportunities.  The insurer that had issued a D&O policy to the company for the 2010 to 2014 policy period declined to defend the president and he sued.  The court found that the 2007 letter and the indictment arose from the same allegedly wrongful acts and amounted to one claim.  Therefore, it concluded, the claim was made prior to inception of the policy period and was not covered by the D&O policy.  [Weaver v. Axis Surplus Ins. Co., No. 13-CV-7374 (SJF) (ARL) (E.D.N.Y. Oct. 30, 2014).]

Court Decides That Used Car Was Insured As A “Replacement” Auto, Even Though It Had Not Been Registered

Andrew Porter sold his insured truck and put the license plates on a used car he acquired to commute to work.  Before he received the title to the used car, and before he notified his insurer, he was in an accident.  He was sued and sought coverage under the policy he had obtained for the truck.  The court found that Porter had “absolute possession and control” of the used car, including all of the keys.  It then concluded that the used car “fell within the meaning of replacement auto newly acquired by Porter at the time of the accident” and, accordingly, was covered under his existing policy.  [Nationwide Ins. Co. of Am. v. Porter, 2014 N.Y. Slip Op. 07029 (App. Div. 3d Dep’t Oct. 16, 2014).]

Third-Party Contribution Claim Was Not Excluded As Bodily Injury To Family Member

Vincent Turchio’s wife was injured when their boat collided with a bridge owned by New York City, and she sued the city for negligently lighting the bridge.  The city filed a third-party complaint against Mr. Turchio, seeking contribution for his allegedly negligent operation of the boat. Mr. Turchio’s marine insurer disclaimed coverage based upon an exclusion for bodily injury to a family member.  The court ruled that the city’s contribution claim was “legally distinct” from a direct claim by Turchio for bodily injury to his wife and was not excluded under the policy.  [Turchio v. Foremost Ins. Co., No. 14-CV-2685 (JG) (RER) (E.D.N.Y. Oct. 20, 2014).] 

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