Traub Lieberman Attorneys Meryl R. Lieberman and Craig Rokuson Obtain Summary Judgment For A Liability Carrier Holding That Denial Was Timely and Proper Under New York Insurance Law §3420

Traub Lieberman Straus & Shrewsberry LLP partner Meryl R. Lieberman and senior associate Craig Rokuson recently obtained summary judgment for a liability insurance carrier in the United States District Court for the Southern District of New York. The coverage case involved the timeliness of a denial based on the liability carrier’s Action Over Exclusion, which barred coverage to all insureds and additional insureds for a bodily injury suffered by the employee of the named insured. The complaint in the underlying action was silent as to the identity of the underlying plaintiff’s employer. The insurance carrier appointed defense counsel to defend the named insured pursuant to a partial disclaimer, and upon obtaining an affidavit and an affirmation filed by the underlying plaintiff and his counsel, respectively, the insurance carrier denied a duty to defend. The denial of the duty to defend was copied to all parties in the underlying litigation.

The Court first held that the Action Over Exclusion applied to bar coverage to all insureds, rejecting defendants’ argument that because the plaintiff was allegedly injured in a car accident 2 years prior to the date of loss, the exclusion was inapplicable. Because a car accident taking place prior to the inception of the policy would not be otherwise covered in the first place, there was no possibility of coverage if either theory (the workplace accident alleged in the complaint, or the prior car accident) were true.

As to the named insured, the Court rejected the defendants’ argument that the insurance carrier had received prior notice, stating that testimony from the retail broker was equivocal and ultimately debunked. The Court also rejected the defendants’ arguments that the insurance carrier could have disclaimed coverage based on facts known to it outside of the underlying lawsuit, which is prohibited by the New York Court of Appeals’ decision in Fitzpatrick v. American Honda. Instead, it was necessary and prudent for the insurance carrier to wait for evidence intrinsic to the pending litigation before denying coverage. Finally, the Court found that the insurance carrier’s partial disclaimer was not a reservation of rights, and instead, disclaimed indemnity coverage.  Further, even if the partial disclaimer were not a valid disclaimer, the insurer was unable to disclaim a duty to defend until it was presented with intrinsic facts confirming the plaintiff’s employment.

As to the purported additional insureds who were parties to the lawsuit, the Court held that the insurance carrier disclaimed coverage to these parties prior to their seeking coverage, making the insurance carrier’s denials “timely as a matter of law.”