Duty
to Defend
|
New York's Highest Court Vacates Controversial 2013
Ruling and Rejects Minority "Coverage by Estoppel" Rule
K2 Inv. Group, LLC v American Guar.
& Liab. Ins. Co., 2014 N.Y. LEXIS 201 (N.Y. Feb. 18, 2014)
The New York Court of Appeals issued a rare reversal of its own
prior ruling that an insurer found to have breached the duty to defend will
be estopped from later relying upon potentially applicable coverage
exclusions to deny coverage for indemnification. The New York Court of
Appeals' 2013 ruling in K2 Inv. Group v. American Guar. & Liab. Ins.
Co. ("K2-I") held that an insurer found to have
wrongfully failed to defend may be liable to pay up to its policy limits even
if the policy contains an exclusion that would otherwise exclude coverage for
indemnification. The K2-I holding represented a significant
departure from
which had refused to adopt this minority paradigm often referred to as the
"coverage by estoppel" rule.
|
Bad
Faith - Sandy Claims Handling
|
New
York Trial Court Rejects Bad Faith Claims Handling Claim in Superstorm Sandy
Litigation
Orient Overseas Assoc. v. XL Ins. Am.,
Inc., 2014 N.Y. Misc. LEXIS 867 (N.Y. Sup. . Feb. 26, 2014)
The New York Supreme Court ruled after recognizing a split in
New York law that an insurer's alleged and
alleged refusal to pay does not give rise to a separate cause of action based
on bad faith claims in the context
of a Superstorm Sandy first-party coverage dispute.
The owner
of a building damaged by
Sandy sought coverage under multiple policies providing coverage through a
quota share program. The owner alleged that the insurer's
misrepresentations during the claims process and
to pay gave rise to a separate cause of action for bad faith, particularly
since other insurers in the quota share had paid under the same policies.
|
Voluntary
Parting Exclusion - Fraudulent Conduct
|
Voluntary Parting Exclusion Bars
Coverage for Losses Caused By Voluntarily Parting with Property, Even Where
Losses Resulted from Fraudulent Scheme or False Pretense.
Martin, Shudt, Wallace, DiLorenzo &
Johnson v. Travelers Indem. Co. Conn., 2014 U.S. Dist. LEXIS 14323
(N.D.N.Y Feb. 5, 2014)
A New York
Federal District Court ruled that a business owner's policy excluded coverage
for funds lost after the insured deposited a forged check and forwarded the
proceeds to a third party.
The
insured brought the declaratory judgment action alleging bad faith and breach
of contract after the insurer disclaimed coverage for a loss. The loss
in question arose from a check in the amount of $95,000 made payable to the
insured, to be held in escrow, that was subsequently wired to a
third-party. Shortly thereafter, the insured was notified that the
check was forged and the insured was charged the amount of the check.
After submitting the loss to the insurer, the insurer denied coverage
pursuant to the Voluntary Parting excluded any loss caused by or resulting from "[voluntary
parting with any property."
|
Professional
Liability - Direct Action
|
Court Finds Injured Party Does Not Have
Standing to Pursue Insurer Directly
Commonwealth Land Title Ins. Co. v. Am.
Signature Servs., Inc., 2014 U.S. Dist. LEXIS 22172 (E.D.N.Y. Feb. 20, 2014)
The Eastern District of New York
dismissed an injured party's complaint against an insurer on the basis that
such a right at common law and the injured party failed to meet the
pre-conditions set forth in N.Y. Insurance Law § 3420.
A title insurance business sought
coverage under its professional liability carrier for a suit alleging, inter
alia, the insured failed to record various real estate documents
exposes them to potential liability in excess of $10 million. The
insurer filed suit seeking rescission of the policy and, in the alternative,
a declaration that the policy does not provide coverage for the underlying
plaintiff's claim.
|
Bad
Faith - Rescission
|
Insurer Delay in Seeking Rescission is
Not Bad Faith, But May Be Relevant to Estoppel Defense
Nova Cas. Co. v. Col-Mor Apts., Inc.,
2014 U.S. Dist. LEXIS 2522 (D.N.J. Jan. 9, 2014)
A policyholder argued that
acted in bad faith by pursuing policy rescission after participating in the
policyholder's defense for two years. The District Court dismissed the bad
faith counterclaim, finding that an insurer who pays its insured's defense
costs cannot thereby be prevented from pursuing its due process right to
argue for policy rescission.
The insurer sought an injunction
rescinding a property and liability insurance policy issued by it to ,
a New Jersey partnership that owned and operated apartment complexes. It
argued that the policyholder -- who sought coverage in relation to tenants'
claim that it knowingly provided them with tainted drinking water -- secured
coverage by concealing knowledge that one of its properties was radioactively
contaminated. The insurer's rescission claim occurred after it had paid part
of the policyholder's defense costs pursuant to a reservation of rights
letter.
|
Fraud
Prevention Act - Duplicative Payments
|
Insurer Allowed to Pursue Fraud
Prevention Act Claim; Policyholder Ordered to Repay Insurer for Duplicative
Sums Recouped from Third Party
AIG Cas. Co. N.Y. v. Walsh, 2014 N.J. Super. . LEXIS 283 (App. . Feb. 12, 2014)
The New Jersey Appellate Division found
that an insurer was entitled to reimbursement of indemnification payments
made to policyholders who received independent payment for their losses from
a third party. Since the insureds allegedly
the third party payment, the appellate panel reversed a trial court ruling
and allowed the insurer to pursue a claim under the Fraud Prevention Act
claim.
The insurer issued a policy covering the
insureds' yacht. Damage to the yacht's engine occurred within the policy
period, and the insurer provided the insureds with an indemnification payment
pursuant to the policy. The insureds subsequently learned that the engine
manufacturer would pick up the entire cost of the replacement engine and its
installation. The insurer eventually learned of the third party payment and
demanded that the insureds refund the money they received under the policy.
The insureds refused.
|
Applicability
of Policy Exclusions
|
Insurer Policy Reformation Claim Survives Summary
Judgment Motion
Indian Harbor Ins. Co. v. NL Envtl.
Mgmt. Servs., 2014 U.S. Dist. LEXIS 23240 (D.N.J. Feb. 25, 2014)
An insurer filed this declaratory
judgment action seeking a ruling that an entity claiming additional insured
status is not entitled to coverage and the policy should be reformed to
reflect the same. The issue before the Court was whether the relevant
policy exclusions applied to the additional insured even though the
exclusions did not identify the additional insured entity by name.
Applying New York law, a New Jersey Federal District Court ruled that summary
judgment was premature since more evidence was needed to evaluate the
legitimacy of the insurer's policy reformation claim.
|
Bad
Faith - Attorney's Feels
|
Policyholder's Claims for Bad Faith and
Counsel Fees Rejected
Johnson v. Am. Corp., 2014 N.J. Super. . LEXIS 372 (App. . Feb. 26, 2014)
A policyholder claimed bad faith and
sought attorney's fees from its insurer after an excess insurer contributed
to a settlement resolving an underlying matter. In rejecting both claims, the
New Jersey Appellate Division ruled that a bad faith claim requires more than
simple negligence, and that an excess insurer cannot be required to pay
attorney's fees where its policy had not been triggered prior to settlement
of the underlying claim.
An employee of the insured was injured while working. He sued
the insured, arguing that the company committed an intentional wrong in
refusing to maintain its equipment in proper working order. One of the
policyholder's insurers, who provided workers' compensation coverage and $1
million in employment liability coverage, defended against the suit. The
insured also was covered by a $4 million umbrella liability policy from an
excess insurer.
|
|
|
|
|