New York Insurance Coverage Law Update

May 31, 2017 | Insurance Coverage

Court Rejects Insurers’ Defenses To Coverage For Bear Stearns’ Settlement With SEC

Bear Stearns agreed to pay $250 million to resolve claims by the Securities and Exchange Commission that it had facilitated its customers’ late trading and market timing practices in its performance of clearing services on their behalf.  Of that amount, part was labeled “disgorgement” and another part was deemed a penalty.  Bear Stearns asked the court to order its insurers to indemnify it for the disgorgement payment. The court ruled that the disgorgement payment was a covered “loss” because it represented the gains of Bear Stearns’ customers and not profits for Bear Stearns.  The court also rejected the insurers’ contentions that public policy, and the wrongful act and “personal profit” exclusions, barred indemnification and that the settlement was unreasonable.  [J.P. Morgan Sec. Inc. v. Vigilant Ins. Co., 2017 N.Y. Slip Op. 27127 (Sup. Ct. N.Y. Cty. April 17, 2017).]

Second Circuit Rules That One Policy Providing Additional Insured Coverage Was Excess To Another

A federal district court in New York ruled that an insurance policy issued by Admiral provided primary coverage to certain additional insureds and that the additional insured coverage provided by Liberty was excess.  Admiral appealed to the United States Court of Appeals for the Second Circuit, which affirmed.  The Second Circuit noted that Liberty’s “Other Insurance” provision provided that its additional insured coverage was excess except as to the additional insureds’ “own . . . policies” – which, the Second Circuit said, were those policies on which they were named insureds.  Therefore, the Second Circuit concluded, Liberty’s additional insured coverage was excess to the primary additional insured coverage provided by Admiral’s policy.  [Liberty Ins. Corp. v. Admiral Ins. Co., No. 16-1983-cv (2d Cir. April 25, 2017).]

Exclusion Trumped General Provisions, Third Department Finds

A bar was sued by a patron allegedly injured by the bar’s employee.  The bar’s insurer disclaimed coverage based on the policy’s assault and battery exclusion.  The exclusion stated that it was “subject to the terms contained in the General Liability Coverage,” and provided that “[n]otwithstanding anything contained herein to the contrary,” the policy excluded “claims arising out of any assault, battery, fight, altercation, misconduct or other similar incident.”  The bar sued its insurer, and the trial court granted summary judgment in favor of the insurer.  The Appellate Division, Third Department, affirmed.  The bar argued that the exclusion was ambiguous because the general terms of the general liability coverage provided coverage for reasonable force but the exclusion did not.  The Appellate Division disagreed, ruling that the terms of the general liability coverage applied “except as altered by the words” of the exclusion – which precluded coverage.  [Graytwig Inc. v. Dryden Mut. Ins. Co., 2017 N.Y. Slip Op. 03229 (3d Dep’t April 27, 2017).]

Rescission Of Policy Did Not Strip Arbitrator Of Jurisdiction

Hereford Insurance Company, as subrogee, filed arbitrations against Infinity Indemnity Insurance Company arising out of payments Hereford made in connection with a collision between vehicles they insured.  Infinity argued that it rescinded its policy after the accident so it did not provide coverage on the date of the accident.  The arbitrator rejected that argument and made awards in favor of Hereford.  Infinity asked the Appellate Division, Second Department, to vacate the awards, contending that the arbitrator had no jurisdiction to decide the issue because its policy had been rescinded.  The court rejected Infinity’s contention, noting that the jurisdictional defense was not raised by an application for a stay and, therefore, was waived.  [Matter of Infinity Indem. Ins. Co. v. Hereford Ins. Co., 2017 N.Y. Slip Op. 03177 (2d Dep’t April 26, 2017).]

Endorsement Precluded Coverage For Construction Worker’s Suit Against Property Owner, Federal Court Decides

A contractor’s employee sued the owner of property where he was allegedly injured.  The property owner’s insurer sought a declaration that it had no duty to defend or to indemnify the property owner.  The court ruled in favor of the insurer.  The court explained that the policy’s “independent contractors or subcontractors conditions” endorsement provided that the insurer was not liable for coverage unless the contractor carried insurance that covered the property owner as an additional insured.  The court found that the contractor had no such insurance, and that the mere fact that the property owner had been listed as an additional insured on the contractor’s certificate of insurance was insufficient to confer additional insured status on the property owner.  The court also ruled that the insurer’s disclaimer, which it issued 29 days after it learned of the grounds for disclaiming, was timely.  “Disclaimers issued within one month are timely as a matter of law,” the court concluded.  [American Safety Cas. Ins. Co. v. 385 Onderdonk Ave., LLC, No. 14-CV-3909 (WFK) (RER) (E.D.N.Y. April 7, 2017).]

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