New York Insurance Coverage Law Update

Second Circuit Finds Duty To Defend Alleged Advertising Injury Claim

Buyer’s Direct Inc. asserted that a slipper manufactured by High Point Design, LLC, infringed on Buyer’s Direct’s design patent. High Point sought a declaratory judgment that its slipper did not infringe, and Buyer’s Direct counterclaimed for patent and trade dress infringement. High Point sought defense and indemnification from its insurer, which disclaimed coverage. The United States Court of Appeals for the Second Circuit ruled that the insurer owed High Point a duty to defend. The court found that Buyer’s Direct’s counterclaim allegation that it was injured by High Point’s “offering” the allegedly infringing slippers “for sale,” coupled with Buyer’s Direct’s discovery demands seeking information relating to advertisements for High Point’s slipper, triggered the insurer’s duty to defend. The court opined that the discovery constituted “extrinsic evidence that supports interpreting the counterclaim’s allegation of ‘offering for sale’ to include a claim for damages due to advertising.” The Second Circuit concluded that the insurer’s duty to defend arose when High Point provided the insurer with Buyer’s Direct’s discovery demands. [High Point Design, LLC v. LM Ins. Corp., No. 16-1446-cv (2d Cir. Dec. 19, 2018).]

Amount Of Damages Recoverable In Bad Faith Action Not Limited By Claimant’s Death, New York Federal District Court Holds

An injured claimant sued the insured, and a jury awarded her more than $3.3 million in compensatory damages, more than the insured’s policy limits. The award included damages for future pain and suffering and for future medical expenses. The insurer asked the United States District Court for the Eastern District of New York to declare that it did not have to make payments in excess of its limits and that it did not act in bad faith. The insured assigned her rights against her insurer to the injured claimant who asserted a bad faith counterclaim against the insurer. After the injured claimant died and an administrator was named for her estate, the insurer moved to limit any damages on the bad faith claim to damages incurred before the claimant’s death. The insurer argued that any obligation to make monthly payments to the injured woman for future pain and suffering and future medical expenses terminated upon her death. The district court decided that the death of the claimant did not limit the estate’s ability to recover bad faith damages, even though New York law terminates a personal injury defendant’s obligation to pay future damages installments upon the claimant’s death. The court reasoned that the insured would be able to recover the full amount of the judgment from the insurer, and the estate should be able to pursue the full amount of the excess judgment based on “basic principles of assignment”. [Government Employees Ins. Co. v. Saco, Nos. 12-CV-5633 (NGG) (ST); 15-CV-634 (NGG) (ST) (E.D.N.Y. Dec. 11, 2018).]

Additional Insured’s Refusal To Replace Its Counsel With Counsel Selected By Insurer Did Not Absolve Insurer Of Duty To Defend, New York Federal District Court Rules

An employee of Preferred Builders, Inc., alleged that he was injured while working at a construction site in the Bronx. The employee sued the construction manager, Gilbane Building Company, and Gilbane asserted third-party claims against Preferred. Preferred’s insurer defended Preferred, and Gilbane’s counsel sought additional insured coverage for Gilbane under Preferred’s insurance policy. The insurer indicated it wanted to replace Gilbane’s counsel with counsel of its own choosing. Gilbane’s insurer resisted on the basis that Preferred’s insurer was subject to a potential conflict of interest flowing from its defense of Preferred and its position that Gilbane’s additional insured coverage was limited to bodily injury arising out of Preferred’s work. Gilbane’s insurer sued Preferred’s insurer to recover the costs it incurred to defend Gilbane, and the United States District Court for the Southern District of New York ruled that Preferred’s insurer had a duty to defend Gilbane as an additional insured and that Gilbane’s refusal to use the counsel selected by Preferred’s insurer did not absolve the duty. The court reasoned that the apparent conflict of interest between Preferred’s insurer and Gilbane entitled Gilbane to select its own counsel. The court then ordered Preferred’s insurer to reimburse Gilbane’s insurer for the defense costs, plus interest. [Liberty Mutual Fire Ins. Co. v. Hamilton Ins. Co., No. 17 Civ. 2350 (KPF) (S.D.N.Y. Dec. 11, 2018).]