New York Insurance Coverage Law Update - November 2021

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Second Circuit Holds That General Contractor’s “True Excess” Policy Covers Owner Before Owner’s Primary Policy Because Of General Contractor’s Contractual Indemnity Obligation to Owner

The Long Island Railroad on behalf of the Metropolitan Transit Authority (“Owner”) contracted with a general contractor (“GC”) for a construction project on a railroad bridge; and a subcontractor’s employee was injured on the project and sued the Owner. The Owner’s primary insurer and the GC’s primary insurer paid to settle the case, but the GC’s excess insurer refused to con-tribute, maintaining that its policy was a “true excess” policy and, therefore, the Owner’s primary policy had to be exhausted first. The Owner’s primary insurer filed a declaratory judgment action, and the United States District Court for the Southern District of New York agreed with the GC’s excess insurer, reasoning that the “other insurance” provision in the GC’s excess policy made it a “true excess” policy that was not triggered until the Owner’s primary policy paid its limits. The Second Circuit reversed, holding that the GC’s excess insurer is liable to tender payment before the Owner’s primary insurer because the construction contract obligated the GC to indemnify the Owner for liabilities arising out of the construction project.  The Second Circuit opined that New York’s highest court would not require a separate action to enforce the parties’ indemnity agreement. [Century Sur. Co. v. Metro. Trans. Auth, 2021 U.S. App. LEXIS 29860 (2d Cir. Oct. 5, 2021).]

New York Trial Court Finds Insured’s Four-Year Delay In Providing Notice Excused and Did Not Result In Prejudice To Insurer

The insured, while serving on a condo’s board of managers, allegedly made defamatory statements about another board member. The other board member sued the insured, and all the claims were dismissed except the defamation claim.   Wesco Insurance Company initially de-fended the insured under a policy issued to the condo board for bodily injury, but disclaimed coverage for the defamation claim and filed a declaratory judgment action in 2020.  The insured then sought coverage under a separate policy issued by Greater New York Mutual Insurance Company that covered “personal and advertising injury” including injury from defamation. Greater New York disclaimed coverage based upon the four-year delay between the filing of the suit in 2016 and notice to Greater New York in 2020.  The insured filed a declaratory judgment action against Greater New York and moved for summary judgment which was granted. The Supreme Court, New York County, held that the insured’s late notice was justifiably excused because “there is no reason to believe” she “knew or should have known about” Greater New York’s policy until 2020 when Wesco filed its action, and she had “no reason to look for other coverage” before then because Wesco took over the defense of the underlying action.   The court also found that, despite the delay in notice, Greater New York did not suffer prejudice because “[t]his is a straightforward def-amation case” that turns on whether the defamatory statements were made with the requisite intent, not a personal injury case in which preferred IME doctors or witnesses may no longer be available. [Salvo v. Greater NY Mut. Ins. Co., 2021 N.Y. Slip Op 32045[U] (Sup. Ct., N.Y. Cnty. Sept. 23, 2021).]

Court Declares Insured Collaterally Estopped From Seeking Coverage For Environmental Pollution Claims

Travelers filed a declaratory judgment action seeking a declaration that it did not owe coverage to Northrop Grumman for a natural resources damages claim by the New York State Department of En-vironmental Conservation and a putative class action arising from the dumping of contaminants at Northrop’s facility. Travelers argued on summary judgment that Northrop was collaterally estopped from claiming coverage because it had already been determined in a prior action that the “sudden and accidental” pollution exclusion precluded coverage under Travelers’ policies.  In opposition, Northrop argued that collateral estoppel did not apply because the earlier claims involved remediation while the new claims involved past injury and residual costs or losses, and different contaminants may be at issue. The United States District Court for the Southern District of New York held that Northrop was collaterally estopped from claiming cov-erage because “the same discharge practices” and pollution exclusions were at issue. The court noted that regardless of whether the discharges included any specific contaminant, they did not fall within the “sudden and accidental” exception to the pollution exclusions. In addition, the court found Northrop’s argument that the claims were different “unpersuasive” because it confused claim preclusion with collateral estoppel, which focuses on whether the “same issues are presented in two proceedings”, not on whether they involve identical claims. [Travelers Indem. Co. v. Northrop Grumman Corp., 2021 U.S. Dist. LEXIS 177555 (S.D.N.Y. Sept. 17, 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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