New York Insurance Coverage Law Update

August 31, 2016 | Insurance Coverage

“Sewage” Is Pollutant Under Pollution Exclusion, New York Federal Court Rules

Families residing near Love Canal sued Roy’s Plumbing, Inc., alleging that its negligence had led to the discharge of hazardous chemicals onto their property and into their homes. Roy’s sought coverage from its insurer, arguing that its policy’s total pollution exclusion did not apply because at least some of the injuries alleged in the underlying lawsuits were the result of sewage, not hazardous waste.  The court ruled that the exclusion applied, reasoning that the “polluting” character of the “contaminated sediment” and “myriad” of  “hazardous chemicals” gave rise to the underlying litigation. [Cincinnati Ins. Co. v. Roy’s Plumbing, Inc., No. 13‐CV‐1000S (W.D.N.Y. June 10, 2016).]

Insurers Could Not Require Bear Stearns To Obtain Their Consent To Settle Because Court Found They Had Effectively Disclaimed Coverage

After Bear Stearns settled Securities and Exchange Commission and New York Stock Exchange regulatory proceedings predicated on allegations that it had facilitated deceptive market timing and late trading activities, it sought indemnification from its insurers. The insurers argued that Bear Stearns was not entitled to indemnification because it had not obtained their consent to settle.  The court found that the insurers had effectively disclaimed coverage prior to Bear Stearns’ settlement with the SEC. As a result, the court ruled that Bear Stearns was excused from the obligation to obtain its insurers’ consent prior to settling and was entitled to enter into a reasonable settlement. [J.P. Morgan Sec. Inc. v. Vigilant Ins. Co., 2016 N.Y. Slip Op. 26226 (Sup. Ct. N.Y. Co. July 7, 2016).]

Class Action Claims Against NASDAQ Stemming From Facebook’s IPO Fell Within Policy’s “Professional Services” Exclusion, Southern District Decides

Retail investors in Facebook filed a class action lawsuit against NASDAQ in the aftermath of Facebook’s troubled initial public offering (“IPO”) on the NASDAQ stock exchange. One of NASDAQ’s insurers contended that another insurer, ACE American Insurance Company, had to provide indemnity coverage to NASDAQ under its D&O policy in connection with the litigation. ACE argued that the class action fell within the “professional services” exclusion of its policy. The court first ruled that retail investors in a company, such as Facebook, listed on a stock exchange, such as NASDAQ, were “unambiguously” customers or clients of the exchange for purposes of the exclusion. The court then determined that the class action complaint alleged that NASDAQ had failed to adequately render professional services on behalf of its customers. Accordingly, it concluded that the “professional services” exclusion applied to preclude indemnity.  The court, however, found that ACE had a duty to defend pending the court’s determination of no coverage. [Beazley Ins. Co., Inc. v. Ace American Ins. Co., No. 15-cv-5119 (JSR) (S.D.N.Y. July 12, 2016).]

Insurer May Seek EUO Before Receiving Provider’s Claim Form, First Department Rules

Balgobin Manoo was allegedly injured in an automobile accident, received treatment from Active Care Medical Supply Corporation, and executed an assignment of benefits in favor of Active Care. Manoo’s no‐fault insurer requested an examination under oath (“EUO”) to confirm the facts and circumstances of Manoo’s loss and his treatment. Manoo did not appear for the EUO, and the insurer sought a declaration that it was not obligated to pay Active Care’s claim. The trial court denied the insurer’s summary judgment motion, reasoning that it had not submitted proof that it received Active Care’s NF‐3 claim form. The Appellate Division, First Department, reversed, holding that the insurer was entitled to request an EUO before receiving Active Care’s NF‐3 claim form and, therefore, it could properly deny Active Care’s claim based on Manoo’s failure to appear. [Mapfre Ins. Co. of N.Y. v. Manoo, 2016 N.Y. Slip Op. 04446 (1st Dep’t June 9, 2016).]

Court Reforms Umbrella Policy After Finding That Insurer Failed to Comply With Insurance Law § 3425

For years, the insured maintained his primary automobile insurance policy and umbrella policy with the same insurance company.  After he switched his primary auto policy to another insurer, his umbrella insurance company increased the underlying primary limits that the insured needed to maintain. The insured did not raise his limits and, when he was involved in an accident, his umbrella insurer told him that there was a gap in his coverage due to his failure to increase his limits. The insured sued, and the court reformed the umbrella policy to be excess of the insured’s original, lower primary limits. The court reasoned that New York Insurance Law § 3425 requires an insurer to notify a policyholder, at least 45 days before the end of the coverage period, of its intention to condition renewal “upon change of limits or elimination of any coverages,” and to provide a specific reason for so conditioning renewal. The court held that the umbrella insurer failed to comply with this notice requirement because it did not tell its insured that the required underlying primary limits were being increased. [Gotkin v. Allstate Ins. Co., 2016 N.Y. Slip Op. 05359 (2d Dep’t July 6, 2016).]

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