September 2025 New York Insurance Coverage Update

Southern District Denies Motion To Dismiss Breach Of Implied Covenant Claim But Dismisses Punitive Damages Claim

The insured manufactured products in the 1980s that may have contained asbestos and was named in thousands of asbestos-related bodily injury lawsuits. With the help of an insurance archeologist, the insured searched for insurance policies covering the years implicated by the lawsuits. The insured located copies or secondary evidence of primary and umbrella policies, including an umbrella policy issued by American Home Assurance Company. AIG, American Home’s parent company, acknowledged the existence of the policy in 2006 and 2007, but later disputed its existence. In 2011, the insured sent AIG secondary evidence of the policy. In response, American Home’s claims administrator advised it was unable to find a copy of the policy to confirm its existence. The insured requested information as to the scope of AIG’s search and its document retention policy. American Home’s administrator responded in part and continued to deny the existence of the policy and any coverage obligation under it.

The insured filed an action against American Home, asserting three causes of action – the first for a declaration of coverage under the American Home policy; the second for breach of contract for American Home’s alleged wrongful refusal to defend and indemnify the insured in the asbestos lawsuits; and the third for breach of the implied covenant of good faith and fair dealing for American Home’s alleged intentional, reckless, or negligent destruction of the American Home policy, alleged failure to maintain or to comply with a document retention policy, and alleged misrepresentations regarding the existence of the policy, among other things. American Home moved to dismiss the insured’s third cause of action for breach of the implied covenant as duplicative of its second cause of action for breach of contract. In the alternative, American Home moved to strike the insured’s demand for punitive damages from its third cause of action. The Southern District of New York denied American Home’s motion to dismiss the breach of implied covenant claim because the facts underlying the insured’s breach of contract claim “are materially different from the allegations supporting the breach of implied covenant claim” and, thus, the claims are not duplicative. The court, however, granted American Home’s motion to strike the insured’s punitive damages claim because the insured did not sufficiently allege “conduct directed at the public” and punitive damages are not for a private contract dispute. [Taco, Inc. v. American Home Assur. Co., No. 24-cv-07041 (JAV), 2025 U.S. Dist. LEXIS 162676 (S.D.N.Y. Aug. 21, 2025).]

Southern District Finds Obligation To Obtain Liability Insurance “As Will Protect” General Contractor Satisfies Requirement To Procure Additional Insured Coverage

A store owned by The Gap, Inc., sustained damage when water leaked from valves installed as part of work performed to the store’s HVAC system. Gap filed a lawsuit against its general contractor, James Hunt Construction Co., Inc., and Hunt impleaded its subcontractors responsible for the HVAC work. Ohio Security Insurance Company, the insurer for Hunt, tendered Hunt’s defense and indemnity to the subcontractors and their insurers, Utica First Insurance Company and Travelers Indemnity Company. Both insurers denied coverage, Ohio sued, and the parties filed competing motions for summary judgment. The Southern District of New York found that Hunt did not qualify as an additional insured under the Utica policy, which includes as an insured any organization that the named insured is required by written contract to name as an additional insured, provided the written contract “[b]ecome[s] effective during the policy period.” The court held that this language is “clear and unambiguous,” requiring the written contract between Hunt and Utica’s named insured to come into effect during the Utica policy period. Because the written contract was made a year before the policy period incepted, the court found that Hunt did not qualify as an additional insured under the policy. The court, however, found that Hunt qualified as an additional insured under the Travelers policy, which includes as an insured any organization that the named insured agrees in a written contract to include as an additional insured under the policy. The court held that the named insured’s agreement in a written contract to obtain liability insurance “as will protect” Hunt is an agreement to include Hunt as an additional insured under the named insured’s policy. Accordingly, the court found that Travelers has a duty to defend Hunt in the Gap lawsuit, but a determination as to indemnity is premature. [Ohio Sec. Ins. Co. v. Utica First Ins. Co., No. 24-cv-3971 (AS), 2025 U.S. Dist. LEXIS 155276 (S.D.N.Y. Aug. 12, 2025)].