Cordial Greens Country Club, Inc. v. Aetna Cas. and Sur. Co., 41 N.Y.2d 996 (1977)
An insurer’s duty to defend is broader than its duty to indemnify, and a determination of whether coverage exists under a policy may be premature until the underlying tort action is resolved.
Summary
Cordial Greens Country Club was sued for personal injuries. Two insurance companies, Aetna and another, both potentially provided coverage. Each insurer argued the other was responsible, and both also suggested exclusions in their policies might negate coverage. The Court of Appeals held that both insurers had a duty to defend Cordial Greens in the underlying personal injury suit, as the duty to defend is broader than the duty to indemnify. The question of which insurer, if either, ultimately had to pay any judgment would be determined after the underlying tort case was resolved, based on the facts established at trial. This case emphasizes the principle that coverage questions should be resolved based on facts established in the underlying action, especially when the duty to defend is triggered.
Facts
Cordial Greens Country Club was the defendant in a personal injury lawsuit.
Two insurance companies, Aetna Casualty and Surety Company and another unnamed insurer, potentially provided coverage to Cordial Greens.
Both insurers disclaimed responsibility for defending and indemnifying Cordial Greens, each arguing that the other’s policy covered the claim.
Each insurer also asserted that exclusions within their respective policies might preclude coverage altogether.
Procedural History
The lower courts likely addressed the issue of which insurance company, if either, was obligated to defend and indemnify Cordial Greens.
Aetna appealed the lower court’s decision to the Court of Appeals of New York.
The Court of Appeals modified the lower court’s order.
Issue(s)
1. Whether an insurer’s duty to defend its insured is triggered when the allegations in the complaint suggest an occurrence within the policy’s coverage, even if there is a potential question of ultimate coverage.
2. Whether the determination of which insurer, if either, is liable to pay any judgment can be made before the resolution of the underlying personal injury action.
Holding
1. Yes, because the duty to defend is broader than the duty to indemnify, and is triggered by allegations that potentially fall within the policy’s coverage.
2. No, because the determination of liability to pay any judgment should be based on the facts as determined in the underlying action.
Court’s Reasoning
The Court of Appeals relied on established New York law that the duty to defend is broader than the duty to indemnify. The court noted that even if the allegations in the complaint could potentially fall outside the coverage of both policies due to exclusions, the initial determination of coverage should not be made until the facts of the underlying personal injury action were established.
The court cited several cases supporting the principle that the duty to defend is triggered by the allegations in the complaint, even if ultimate coverage is uncertain: “Each policy, however, has a clause that requires the insurer to defend based on the allegation of an occurrence within the coverage, and it is well established that the duty to defend is much broader than the duty to pay”.
The Court reasoned that deferring the coverage determination until after the underlying trial would allow the court to make a more informed decision based on the actual facts of the case. Any issues of waiver or estoppel related to coverage could also be addressed at that later time.
The practical impact is that insurance companies cannot avoid their duty to defend based on preliminary coverage questions; they must provide a defense until the facts of the underlying case clarify the scope of coverage. This protects insured parties from bearing the initial costs of litigation when coverage is potentially applicable.