New York Insurance Law Update

October 31, 2018 | Insurance Coverage

Stop Work Order Deemed Insufficiently Coercive Or Adversarial To Be A “Suit”

After excavation work began on a property in Manhattan, the New York City Department of Buildings issued a stop work order to the construction manager and property owners because of damage to an adjacent building. The construction manager and owners sought a defense from the commercial general liability insurer of the excavation company, arguing that the stop work order was a covered “suit” seeking “damages” because of “property damage.” The court ruled that the stop work order was insufficiently “coercive” or “adversarial” to constitute the functional equivalent of a “suit.” The court noted that the construction manager and owners were not directed to perform remediation work and were not advised that they were facing a lawsuit or imminent financial consequences for failing to comply with the stop work order. In the court’s opinion, the stop work order was more like “an invitation to voluntary action”. Accordingly, the court concluded that the insurer did not have to defend the stop work order. [Aspen Specialty Ins. Co. v. Zurich Am. Ins. Co., 2018 NY Slip Op 32328(U) (Sup.Ct. N.Y. Co. Sep. 18, 2018).]

Insureds Not Entitled To Coverage For SEC Disgorgement Payment, First Department Rules

In 2006, the Securities and Exchange Commission notified Bear Stearns that it intended to bring civil proceedings seeking monetary sanctions of $720 million. Bear Stearns agreed to settle by paying, among other things, “disgorgement in the total amount of $160,000,000.” Bear Stearns’ professional liability insurers denied coverage and Bears Stearns sued.  The Appellate Division, First Department, ruled that the SEC disgorgement was an “uninsurable penalty” and not a covered “loss” as defined by the insurance policies. The disgorgement, the First Department explained, was a “punitive sanction intended to deter.” In its opinion, to allow a wrongdoer to pass on its loss to insurers – “thereby shielding the wrongdoer from the consequences of its deliberate malfeasance” – undermined this goal and violated the “fundamental principle” that no one should be permitted to take advantage of his or her own wrong. [J.P. Morgan Sec., Inc. v. Vigilant Ins. Co., 2018 N.Y. Slip Op. 06146 (1st Dep’t Sep. 20, 2018).]

Insurer Failed To Disclaim As Soon As “Reasonably Possible,” Second Department Concludes 

The plaintiffs, alleging that they were injured in a motor vehicle accident on July 28, 2008, sued the owner and operator of the other vehicle. The defendants’ insurer sent letters dated December 20, 2010 advising them of their responsibility to cooperate in the investigation and defense of the action. On January 20, 2011, the insurer disclaimed coverage based on the defendants’ failure to cooperate. The plaintiffs obtained a judgment against the defendants and sued the insurer. The trial court granted the insurer’s motion for summary judgment, and the plaintiffs appealed. The Appellate Division, Second Department, reversed, finding the insurer’s disclaimer of coverage untimely. According to the appellate court, the insurer had sufficient information to support its disclaimer of coverage on the basis of noncooperation as of September 20, 2010 at the latest, when one of the defendants affirmatively refused to cooperate and the other missed multiple deposition dates and could not be located. Accordingly, the court concluded, the insurer did not disclaim coverage as soon as “reasonably possible” within the meaning of Insurance Law § 3420(d)(2). [Robinson v. Global Liberty Ins. Co. of N.Y., 2018 N.Y. Slip Op. 06128 (2d Dep’t Sep. 19, 2018).]

Insurer Had Duty To Defend Additional Insureds Where Facts Established Reasonable Possibility Of Coverage, First Department Rules

An underlying personal injury action was filed against Alma Tower, LLC and Vordonia Contracting & Supplies Corp., and they filed third-party actions against S&S HVAC Corp., the subcontractor for whom the injured claimant was working.  S&S’s insurer filed a declaratory judgment action, arguing that it had no duty to defend Alma and Vordonia as additional insureds under S&S’s policy because the injury was not proximately caused by S&S.  The trial court held that the insurer was obligated to defend Alma and Vordonia in the underlying personal injury action. The Appellate Division, First Department, affirmed, reasoning that Alma and Vordonia “demonstrated  that [the insurer] had actual knowledge of facts establishing a reasonable possibility of coverage.”  The First Department also denied the insurer’s request for a stay pending resolution of its separate action to rescind the policy, reasoning that the policy was still in effect when the underlying action was filed.   [Indian Harbor Ins. Co. v. Alma Tower LLC, 2018 N.Y. Slip. Op. 07064 (1st Dep’t Oct. 23, 2018).]

Share this article:

Related Publications

Get legal updates and news delivered to your inbox