New York Insurance Coverage Law Update

February 1, 2015 | Insurance Coverage

“Contracted Person Exclusion” Bars Coverage For Underlying Personal Injury Action, Federal Court Holds

Omni Build, Inc., the general contractor for a construction project in Brooklyn, New York, hired Zom Corp. as a masonry sub-contractor.  Zom  contracted with Stone Age Equipment for a boom truck to hoist cinder blocks.  A Stone Age employee who allegedly was injured while hoisting a pallet of cinder blocks sued Omni, which notified its insurer. The insurer disclaimed coverage on the basis of the policy’s “Contracted Persons Exclusion,” which excluded coverage for bodily injury sustained by any person employed by any entity that contracted with others on Omni’s behalf for services.  The court found that the exclusion barred coverage to Omni for the underlying action, reasoning that the action involved “bodily injury” to a “person” – the Stone Age employee – who was employed by an “entity” – Stone Age – that “contracted with others” – Zom – “on [Omni’s] behalf for services” – hoisting pallets of cinder blocks on the Brooklyn construction project. [Northfield Ins. Co. v. Omni Build, Inc., No. 13-CV-1719 (FB) (MDG) (E.D.N.Y. Feb. 2, 2015).]

New York Law Does Not Provide Independent Claim For Breach Of Implied Duty Of Good Faith And Fair Dealing, Federal Court Rules

After Spandex House, Inc., was sued, it tendered the action to its insurer. The insurer disclaimed coverage, and Spandex sued for breach of contract and breach of the implied duty of good faith and fair dealing. The insurer moved to dismiss the bad faith claim as wholly duplicative of the breach of contract claim and, therefore, not legally cognizable under New York law. The court granted the insurer’s motion, explaining that New York law does not provide an independent claim for breach of the implied covenant of good faith and fair dealing. [Spandex House, Inc. v. Travelers Property Cas. Co. of America, Inc., No. 14 Civ. 4251 (PAC) (S.D.N.Y. Feb. 6, 2015).]

Bank Employee’s Allegedly Improper Release Of Collateral Did Not Fall Within Fidelity Bond’s Stringent “With Regards To Loans” Standard

A bank asserted that one of its employees had improperly released collateral securing the bank’s loans to the developer of a condominium project, diverting over $5 million to the developer.  The bank sought to recover its loss under a fidelity bond that provided coverage for an employee’s dishonest act with the “manifest intent” to cause the bank to sustain the loss or to obtain financial benefit for the employee.  The court found a question of fact as to whether the employee had such a “manifest intent.”  The court, however, rejected the insurer’s contention that the bank’s claim fell within the bond’s more stringent “with regards to loans” provision, which required both an intent to cause the bank harm and a financial benefit for the offending employee.  The court reasoned that the alleged improper release of collateral was not a new loan.  [Keybank Natl. Assn. v. National Union Fire Ins. Co. of Pittsburgh PA, 2015 N.Y. Slip Op. 00614 (App.Div. 1st Dep’t Jan. 22, 2015).]

Dishonest Acts Exclusion Did Not Bar Coverage For Insured’s Settlement With SEC And NYSE – But Public Policy Might

Bear Stearns reached settlements with the Securities and Exchange Commission and the New York Stock Exchange over allegations that it had facilitated “late trading” by certain of its customers. The settlements required Bear Stearns to disgorge $160  million.  The settlements also included “findings” setting forth Bear Stearns’ alleged malfeasance, although Bear Stearns neither admitted nor denied the findings.  Bear Stearns’ insurers denied coverage for its payments under the settlements, relying upon the policies’ “Dishonest Acts Exclusion” and on the public policy against insurance coverage for monies paid by an insured as a result of intentional harm to others.  The court decided that the exclusion did not apply because it required a “judgment or other final adjudication” establishing guilt of a deliberate act.  The court ruled, however, that the insurers could maintain that public policy barred coverage for Bear Stearns’ payment because one way a policy may be “overwritten is where the insured engages in conduct” with “intent to cause injury.”  [J.P. Morgan Sec. Inc. v. Vigilant Ins. Co., 2015 N.Y. Slip Op. 00462 (App. Div. 1st Dep’t Jan. 15, 2015).]

Claimant’s Failure To Comply with Condition Precedent To Coverage Voids No-Fault Policy

An insurer contended that it was not obligated to pay no-fault benefits that had been assigned to a healthcare provider because the assignors had not appeared for examinations under oath on two occasions, in violation of a condition precedent to coverage.  The court agreed, finding that the policy was void ab initio and that the insurer was not obligated to pay the provider’s claim, regardless of whether it had denied the claim after the 30-day period in which it otherwise was required to respond under the no-fault law.  [Kemper Independence Ins. Co. v. Bell Chiropractic, P.C., 2015 N.Y. Slip Op. 30064(U) (Sup.Ct. N.Y.Co. Jan. 14, 2015).]

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