Plus Fundamental Points to Insurance Coverage that All Businesses Need to Know
A team led by Shareholders Lee Epstein and Jeffrey Cohen of Flaster Greenberg’s Insurance Counseling and Recovery Practice Group claimed an important victory for client, Extreme Residential Corp. In granting summary judgment, the court held that Extreme Residential was entitled to an insurer-provided defense in an underlying wrongful death action. Berkley Ins. Co. v. Prime Ins. Co., 20 CV 2249 2023 U.S. Dist. LEXIS 123656; 2023 WL 4595513 (E.D.N.Y., July 18, 2023)
This insurance coverage dispute arose in the aftermath of a construction crane accident that resulted in the death of an Extreme Residential employee. The decedent’s estate launched a wrongful death action against several parties -- but not Extreme Residential -- some of whom were additional insureds under a commercial liability insurance policy issued to Extreme Residential by Prime Insurance Company. The additional insureds then sued Extreme Residential for indemnification. Prime subsequently initiated a declaratory judgment action against Extreme Residential and the additional insureds contending that it had neither a duty to defend or to indemnify any of those parties.
A federal court sitting in the Eastern District of New York held that Prime had a duty to defend both Extreme Residential and the additional insureds.
In support of its ruling, the court stated: “The claims in the underlying action contain facts or allegations that bring them potentially within the Prime Policy and Prime has failed to demonstrate that the exclusions it relied on to disclaim coverage are subject to no other reasonable interpretation.” While that ruling was not unexpected (Prime’s corporate designee had admitted that the claims asserted Extreme fell potentially within the coverage of the Prime Policy), two additional rulings underscored two unique aspects of New York insurance law.
First, the court held that Prime was precluded from relying on its policy exclusions due to its failure to timely disclaim coverage in accordance with New York Insurance Law §3420(d)(2). That law requires insurers to disclaim coverage under liability insurance policies for deaths or bodily injuries arising out of accidents “as soon as reasonably possible.”
Insurers that fail to disclaim in a timely manner, are precluded from relying on policy exclusions to deny coverage. In this case, “Prime issued its disclaimer of coverage to Extreme Residential on March 11, 2020 – approximately 224 days after Prime became aware of the [underlying] accident, 187 days after Extreme Residential’s counsel sent a report to Prime concerning the accident, 163 days after Prime had retained coverage counsel to assist in its evaluation of all potential claims, and thirty days after Prime allegedly learned of the underlying action.” As a result, the court concluded that, “Prime’s delay in disclaiming coverage to Extreme Residential is unreasonable as a matter of law.”
Second, the court awarded Extreme Residential the attorney fees and costs it incurred in defending against Prime’s declaratory judgment action. New York law, like most jurisdictions, follows the American Rule under which a prevailing party ordinarily may not recover attorney’s fees from the losing party. A well-established exception to that Rule in New York is found when an insured, who is “cast in a defensive posture by the legal steps an insurer takes in an effort to free itself from its policy obligations,” prevails on the merits of the coverage action. Because Extreme Residential prevailed on the merits of the duty to defend issue, it was entitled to recover the attorney fees and costs it incurred in defending against Prime’s declaratory judgment action.
In all, this case underscores two fundamental insurance coverage points: (1) liability insurance is designed to protect policyholders from accidents, and (2) insurers can and should be held liable for purposefully delaying their disclaimers and placing their policyholders in a defensive posture.
