New York Insurance Coverage Law Update - January 2022

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New York Enacts Comprehensive Insurance Disclosure Act

On December 31, 2021, New York’s Governor Hochul signed into law the Comprehensive Insurance Disclosure Act, that requires defendants, third-party defendants, and defendants on cross-claims and counterclaims (the “disclosing party”) to produce copies of all primary, umbrella and excess insurance policies that may satisfy part or all of a judgment (and certain other insurance information) within 60 days of answering. Any information required by the Act that was not previously provided in pending cases must be provided by March 1, 2022. In addition to policies, the producing party must produce applications, contact information for the person(s) responsible for adjusting the claim, the amounts currently available under the policies, and certain information about erosion of limits.  The disclosing party and its counsel must certify as to the accuracy of the information provided, and the disclosing party is obligated to make reasonable efforts to update the information within 30 days of receiving information rendering the prior disclosure inaccurate or incomplete in whole or in part. The details of the Act’s current obligations may be found at https://www.nysenate.gov/legislation/bills/2021/s7052. The New York State Legislature is considering an amendment that may narrow the disclosing party’s obligations under the Act which may be found at https://nyassembly.gov/leg/?default_fld=&leg_video=&bn=S07882&term=2021&Summary=Y&Text=Y.

Second Circuit Holds That Covid-19 Related Business Losses Not Covered

10012 Holdings, Inc. d/b/a Guy Hepner suspended operations at its art gallery to comply with government restrictions on nonessential businesses due to the COVID-19 pandemic, and then sought coverage for its business losses under its business property insurance policy with Sentinel Insurance Company.  Sentinel denied coverage because the insured did not suffer direct physical loss of or physical damage to its property or property within its vicinity as the policy required.  The insured argued that the policy’s reference to “physical damage” or “physical loss” included the loss of use of property as a result of the suspension of business operations, but the United States Court of Appeals for the Second Circuit disagreed.  In finding that the insured could not recover under its policy, the court stressed that New York courts applying New York law have “soundly rejected the argument that business closures … due to New York State Executive Orders constitute physical loss or damage to property.”  [10012 Holdings, Inc. v. Sentinel Ins. Co., 2021 U.S. App. LEXIS 38270 (2d Cir. Dec. 27, 2021).]

Second Circuit Finds That Liability Limits In Facultative Reinsurance Certificates Did Not Cap Reinsurer’s Obligation To Pay Defense Costs

Global Reinsurance issued facultative reinsurance certificates to Century Indemnity under which Global agreed to indemnify Century for losses and litigation expenses Century might incur in connection with commercial liability policies issued by Century to Caterpillar Tractor Company.  Century sought reinsurance payments from Global for amounts paid by Century under the Caterpillar policies, and Global sought a declaration that the policy limits of the reinsurance certificates capped Global’s reinsurance obligations as to both indemnity and defense costs.  By way of certification, the Second Circuit asked the New York Court of Appeals whether “New York law imposed a rule of construction or a strong presumption that a reinsurance certificate’s liability limit caps the reinsurer’s liability with respect to both indemnity and defense costs regardless of whether the underlying policy is understood to cover defense costs in excess of the policy’s liability limit,” and the New York Court of Appeals answered “no”.  On remand, the district court held that the reinsurance certificates did not cap Global’s obligation to pay its proportionate share of Century’s defense costs, and the Second Circuit affirmed.  The Second Circuit explained that its decision was based on the unambiguous “follow form” clauses in the reinsurance certificates, which made Global’s reinsurance subject to the same terms and conditions of the underlying Century policies, as well as the testimony of Century’s experts confirming that a strong presumption of concurrency prevailed in the reinsurance market at the time the certificates were issued. [Global Reins. Corp. of Am. v. Century Indem. Co., 2021 U.S. App. LEXIS 38397 (2d Cir. Dec. 28, 2021).]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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