New York Law Review

Tag: duty to indemnify

  • Cordial Greens Country Club, Inc. v. Aetna Cas. and Sur. Co., 41 N.Y.2d 996 (1977): Determining Insurance Coverage Obligations Before Underlying Tort Case Resolution

    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.

  • Spoor-Lasher Co. v. Aetna Cas. & Sur. Co., 39 N.Y.2d 875 (1976): Insurer’s Duty to Defend is Broader than Duty to Indemnify

    39 N.Y.2d 875 (1976)

    An insurer’s duty to defend is broader than its duty to indemnify, requiring a defense if there’s any possible factual or legal basis for indemnification under the policy.

    Summary

    Spoor-Lasher Co., a general contractor, sought a declaratory judgment that its insurer, Aetna, was obligated to defend and indemnify it in a third-party action brought by the Poughkeepsie Urban Renewal Agency. The agency’s claim stemmed from damages during a modernization project. The Court of Appeals held that while a determination on indemnification was premature, Aetna had a duty to defend Spoor-Lasher because there was a possible basis for indemnification under the policy’s hold-harmless provision or other provisions. The court emphasized that the duty to defend is broader than the duty to indemnify, serving as a form of “litigation insurance.”

    Facts

    Roe and Kenney sued the Poughkeepsie Urban Renewal Agency for damages incurred during a downtown modernization project. The Agency then filed a third-party claim against Spoor-Lasher Co., the general contractor. Spoor-Lasher, in turn, initiated an action seeking a declaration that its insurer, Aetna Casualty and Surety Co., was obligated to defend it in the third-party action and to cover any potential judgment. The insurance policy included a hold-harmless provision mirroring one in the construction contract between Spoor-Lasher and the Agency.

    Procedural History

    Spoor-Lasher sought summary judgment declaring Aetna’s obligations. Aetna cross-moved for summary judgment, arguing it had no duty to defend or indemnify. The Appellate Division’s order was appealed to the Court of Appeals.

    Issue(s)

    Whether Aetna had a duty to defend Spoor-Lasher in the third-party action brought by the Poughkeepsie Urban Renewal Agency, and whether Aetna had a duty to indemnify Spoor-Lasher for any potential judgment in that action.

    Holding

    1. Yes, Aetna had a duty to defend Spoor-Lasher because there was a possible factual or legal basis upon which Aetna might eventually be obligated to indemnify Spoor-Lasher under a provision of the insurance policy.
    2. No, a determination as to Aetna’s obligation to indemnify Spoor-Lasher was premature and must await the resolution of the underlying claim.

    Court’s Reasoning

    The court reasoned that the obligation to defend is broader than the obligation to indemnify. Even if Spoor-Lasher’s liability might not be based on the hold-harmless provision, there could be other policy provisions that trigger coverage. The court stated, “A declaration that there is no obligation to defend could now properly be made only if it could be concluded as a matter of law that there is no possible factual or legal basis on which Aetna might eventually be held to be obligated to indemnify Spoor-Lasher under any provision of the insurance policy—the duplicate hold-harmless provision or possibly some other provision.” The court found that the record did not allow for such a conclusion. The court noted the duty to defend presents an aspect of “litigation insurance”. (Cf. International Paper Co. v Continental Cas. Co., 35 NY2d 322.) The determination of the duty to indemnify was premature because the basis for Spoor-Lasher’s liability to the Urban Renewal Agency was not yet determined. The court remitted the matter to the Supreme Court for entry of a judgment consistent with its memorandum, compelling Aetna to defend Spoor-Lasher while deferring the indemnification decision.