New York Insurance Coverage Law Update

Insurers That Defended Building Owner For Years Without Reserving Right To Disclaim Were Estopped From Denying Coverage Just Before Trial, Second Department Decides

In February 2008, a building owner’s insurers agreed to defend and to indemnify the owner in a personal injury action. The insurers learned of a defense to coverage no later than 2009 but continued to defend the owner for almost four more years, without reserving their right to disclaim coverage. In 2013, after jury selection in the personal injury action, the insurers disclaimed coverage on the basis that the owner was not an additional insured at the time of the accident. The owner paid $250,000 to settle the action and then sought declaratory relief to recoup the settlement payment from the insurers. The Supreme Court, Nassau County, granted summary judgment in favor of the owner, and the Appellate Division, Second Department, affirmed. The Second Department agreed that the insurers were estopped from denying coverage under the circumstances. [Mazl Building, LLC v. Greenwich Ins. Co., 2018 N.Y. Slip Op. 03972 (2d Dep’t June 6, 2018).]

Third Department Finds Insurer Not Entitled To Summary Judgment Where Insured Intentionally Assaulted Claimant And Allegedly Failed To Properly Maintain Premises

The claimant was assaulted by her then-boyfriend, and he was convicted of several crimes. The claimant sued him, alleging that he negligently rendered her partially incapacitated and that, after she was in this condition, she tripped and fell due to a defective condition on the property. The
assailant’s insurer disclaimed based on no “occurrence” and intentional acts exclusion in the policy. The Supreme Court, Fulton County, ruled that the insurer did not have to defend or indemnify the insured, but the Appellate Division, Third Department, reversed. The court reasoned that the claimant alleged that, in addition to the injuries she suffered in the assault, she may have suffered additional injuries due to the insured’s negligence in failing to maintain the property.  [State Farm Fire and Casualty Co. v. McCabe, 2018 N.Y. Slip Op. 04416 (3d Dep’t June 14, 2018).]

Second Circuit Affirms $5.8 Million Award To Insured In Email Spoofing Case

In a summary order, the United States Court of Appeals for the Second Circuit affirmed the decision by the United States District Court for the Southern District of New York awarding Medidata Solutions Inc. $5.8 million in damages and interest. The award came after Medidata sought coverage under a computer fraud provision in its insurance policy for losses it suffered when an employee in its accounts payable department wired $4,770,226 to a bank account after receiving an email she erroneously believed to be from Medidata’s president. The district court found that Medidata’s losses were a direct result of “computer fraud” that had been achieved by entry into Medidata’s email system with a spoofed email armed with a computer code that masked the thief’s identity and that changed data from Medidata’s president’s true email address to spoof the email recipient. The Second Circuit agreed, reasoning that the policy’s computer fraud provision covered losses stemming from any “entry of Data into” or “change to Data
elements or program logic of” a computer system. The Second Circuit noted that although no “hacking” occurred, the thief “crafted a computer-based attack that manipulated Medidata’s email system” and implicated its computer system. The Second Circuit also found that the spoofing attack was the proximate cause of Medidata’s loss, concluding that the actions by the Medidata employee to effectuate the transfer were insufficient to “sever the causal relationship” between the spoofing attack and Medidata’s loss. [Medidata Solutions Inc. v. Federal Ins. Co., No. 17-2492-cv (2d Cir. July 6, 2018).]

Excess Coverage Was Not Triggered Where Primary Policy Had Not Been Exhausted

A former officer of the insured company sued its excess insurer to recover legal expenses he had incurred under the company’s liability policy for its directors and officers. The insurer moved to dismiss the complaint, asserting that coverage under the excess policy had not been triggered because the underlying primary policy had not been exhausted. The court granted the motion. The court ruled that excess coverage did not attach until all underlying primary policy limits are exhausted by payment of claims, not by just incurred amounts. The court added that the former officer’s settlement with a primary insurer for a below-limit amount did not exhaust the primary limits unless he absorbed the gap between the settlement amount and the primary policy limit. [Jiang v. Ping An Ins., No. 652260/15 (Sup. Ct. N.Y. Co. July 7, 2018).]