New York Insurance Coverage Law Update

March 1, 2016 | Insurance Coverage

Prisoners’ Class Action Constituted Multiple Occurences, Court Of Appeals Rules

A proposed class action lawsuit was filed against a county in upstate New York after it implemented a policy of strip-searching every prisoner admitted into its jail. The county’s insurer agreed to provide a defense, subject to policy limits and the deductible for personal injury damages. The parties agreed to settle for $1,000 for each plaintiff – slightly more than 800 in total. The county contended that it owed its insurer only one deductible because there had been only one occurrence. New York’s highest court, the Court of Appeals, disagreed. The Court found that the policies were clear that they covered “personal injuries to an individual person as a result of a harmful condition.” Because the harm each plaintiff had experienced was as an individual, each of the strip searches constituted a “single occurrence,” the Court concluded. [Selective Ins. Co. of Am. v. County of Rensselaer, 2016 N.Y. Slip Op. 01001 (N.Y. Feb. 11, 2016).]

Court Finds That No-Fault Insurer’s Lack-Of-Coverage Defense Was Not Subject To Preclusion

A health care provider timely submitted claim forms to recover assigned no-fault benefits from the Motor Vehicle Accident Indemnification Corporation (MVAIC). MVAIC sent verification requests to the wrong address and, after the provider sued, the trial court ruled that MVAIC was precluded from arguing that the provider had not filed a “notice of intention to make claim” form, as required to trigger coverage. The appellate court reversed, ruling that MVAIC’s defense of lack of coverage was not subject to preclusion because MVAIC did not have a duty to notify the claimant that the notice had not been timely submitted. [Apollo Chiropractic Care, P.C. v. MVAIC, 2016 N.Y. Slip Op. 50212(U) (App.Term 2d Dep’t Feb. 23, 2016).]

Court Rejects Late Disclaimer Based On Policy Exclusion

New York City was an additional insured under a CGL policy that excluded abuse or molestation, but contained an endorsement restoring such coverage if reported within 60 days of the policy’s expiration.  More than 60 days after the policy expired, the City notified the insurer of such a claim under the policy. More than six months after it received the City’s notice, the insurer disclaimed based upon the exclusion for abuse and molestation. The court ruled that the disclaimer was ineffective, reasoning that the claim was “eliminated from coverage by the exclusion but not added back in by the endorsement, and thus required a [timely] disclaimer.”  The court also rejected the insurer’s argument that the policy’s premises limitation endorse-ment provided a basis to decline coverage, concluding that the City’s alleged acts of negligence had been “incidental to” the “use” of the premises designated in the limitation. [City of New York v. Granite State Ins. Co., 2016 N.Y. Slip Op. 01124 (1st Dep’t Feb. 16, 2016).]

Failure To Provide Timely Notice Of Lawsuit Dooms Coverage – Even In Absence Of Prejudice To Insurer

A general contractor provided timely notice to its liability insurer of an alleged accident involving a subcontractor’s employee but did not notify the insurer of the lawsuit that was subsequently filed. The contractor’s policy was issued before a showing of prejudice was required by New York statute.  Even though the insured provided timely notice of the accident, the court ruled that the insurer had no obligation to provide coverage based upon the insured’s failure to give timely notice of the lawsuit, without requiring a showing of prejudice.   The court distinguished earlier cases involving S.U.M. coverage because a liability insurer is “unlikely to obtain pertinent information through other means.”   [Kraemer Bldg. Corp. v. Scottsdale Ins. Co., 2016 N.Y. Slip Op. 01233 (3d Dep’t Feb. 18, 2016).]

Appellate Court Rules That Insureds’ Alleged Negligent Handling Of Electronic Data Was Not A Claim For “Property Damage”

A computer network used by the operators of fast food restaurants to store customer credit card information was hacked. A bank sued the operators, alleging that they had failed to exercise reasonable care in safeguarding the cardholders’ information.  The bank’s claims were based on losses due to theft and misuse of electronic data and/or electronic vandalism at the restaurants. The court held that the operators’ insurer had no duty to defend or to indemnify them under their liability policy because the claims were not for “property damage” and were excluded from coverage.  The court noted that the policy defined “property damage” as “physical injury to tangible property” or “loss of use of tangible property that is not physically injured,” but the policy stated that “electronic data is not tangible property” and excluded “[d]amages arising out of the loss of … electronic data.”  [Rvst Holdings, LLC v. Main St. Am. Assur. Co., 2016 N.Y. Slip Op. 01230 (3d Dep’t Feb. 18, 2016).]

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