New York Insurance Coverage Law Update - May 2021

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WDNY Follows Other New York Courts Holding That COVID-19 Losses Are Not Covered

The insured operated a martial arts and fitness business in Buffalo, New York, that sustained losses in revenue when its business closed due to the COVID-19 pandemic and related executive orders. The insured sought coverage under its commercial property policy.  The United States District Court for the Western District of New York held that the insured’s allegations that the virus became widespread and governmental orders led to business closures by sharply reducing occupancy fell short of the requirements of a “direct physical loss or damage” to the insured premises to trigger the business income coverage.  As to the  insured’s claim for civil authority coverage, the court sympathized about the devastating impact of the pandemic on businesses, but held that the insured had not “provide[d] specific, non-general allegations that document a direct physical injury to property (not theirs) that gave rise to the civil authority orders.”  The court concluded that the absence of a virus exclusion in the insured’s policy “does not increase the available coverage”.  [Kim-Chee LLC v. Phila. Indem. Ins. Co., 2021 U.S. Dist LEXIS 78241 (WDNY April 23, 2021).]

EDNY Finds That New York Insurance Law § 3420(d) Did Not Preclude One Insurer From Raising A Priority Of Coverage Defense Against Another Insurer

State National Insurance Company settled a personal injury action against its named insureds and filed a declaratory judgment action on its own behalf and as subrogee of its insureds against Mt. Hawley Insurance Company seeking additional insured coverage under an excess policy issued by Mt. Hawley.  Mt. Hawley had disclaimed but did not expressly raise as a defense that the State National policy, as a primary policy, must be exhausted before the Mt. Hawley policy would apply.  On summary judgment, State National argued that Mt. Hawley could not rely upon its priority of coverage defense because it failed to timely disclaim on this basis pursuant to New York Insurance Law § 3420(d).  The United States District Court for the Eastern District of New York disagreed for several reasons, including because it is “well-settled” that § 3420(d) “does not apply to claims between insurers, [regardless of] whether those claims are for contribution or for full defense and indemnity.” The court observed that the “plain language” of that provision refers only to “the insured and the injured person or any other claimant,” not to another insurance company. [State Natl. Ins. Co. v. Mt. Hawley Ins. Co., 2021 U.S. Dist. LEXIS 60375 (E.D.N.Y. Mar. 29, 2021).]

Intentional Infliction Of Emotional Distress From Cyber-Bullying Not A Covered “Occurrence”, Court Holds

The minor son of Allstate’s insureds allegedly cyber-bullied two classmates, and the classmates’ parents sued on their behalf on various grounds including negligence and intentional infliction of emotional distress.   Allstate defended the insureds and their son under their homeowners policy, but disclaimed coverage after all the claims were dismissed except the claim against the son for intentional infliction of emotional distress.  A declaratory judgment action ensued, and the United States District Court for the Eastern District of New York held that Allstate had no duty to defend or to indemnify, reasoning that there was nothing “fortuitous” about the son’s alleged actions or the resultant harm.   The court further held that Allstate no longer had any coverage obligation by virtue of the policy’s exclusion for bodily injury “intended by, or which may reasonably be expected to result from the intentional or criminal acts or omissions of, any insured person.”  [Allstate Vehicle & Prop. Ins. Co. v. Mars (2021 U.S. Dist. LEXIS 71472 (E.D.N.Y. April 12, 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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