New York Law Review

Tag: other insurance clause

  • Fieldston Prop. Owners Assn., Inc. v. Hermitage Ins. Co., Inc., 14 N.Y.3d 232 (2010): Primary Insurer’s Duty to Defend Entire Action

    Fieldston Prop. Owners Assn., Inc. v. Hermitage Ins. Co., Inc., 14 N.Y.3d 232 (2010)

    When a complaint against an insured contains at least one claim potentially covered by a primary insurance policy, the insurer has a duty to defend the entire action, precluding any duty of an excess insurer where its policy provides excess coverage when “any Loss arising from any claim” is covered by other insurance.

    Summary

    This case involves a dispute between two insurers, Hermitage (CGL policy) and Federal (D&O policy), over the cost of defending Fieldston against two lawsuits. Hermitage argued Federal should contribute to defense costs, claiming Federal’s D&O policy covered most claims. The Court of Appeals held that because Hermitage’s CGL policy potentially covered one claim (injurious falsehood) in each lawsuit, Hermitage had a primary duty to defend the entire action. Federal’s D&O policy’s “other insurance” clause made its coverage excess since Hermitage’s policy covered at least one claim. Thus, Hermitage bore the entire defense cost, illustrating the broad duty to defend.

    Facts

    Hermitage issued a CGL policy to Fieldston, and Federal issued a D&O policy. Chapel Farm sued Fieldston in federal court, alleging “injurious falsehood” and other claims. Hermitage defended Fieldston under a reservation of rights, arguing Federal’s D&O policy was primary. After the federal suit was dismissed, Villanova (formerly Chapel Farm) sued Fieldston in state court with similar claims. Hermitage again defended under a reservation of rights, seeking reimbursement from Federal. The state court dismissed the injurious falsehood claim, and Federal then assumed the defense.

    Procedural History

    Two declaratory judgment actions were filed to determine the insurers’ responsibilities. In the first action (federal lawsuit), the Supreme Court ruled Hermitage was primary. In the second action (state lawsuit), the Supreme Court found neither insurer had proved their position as a matter of law. The Appellate Division reversed both rulings, holding Federal was required to contribute to defense costs. The Court of Appeals reversed the Appellate Division, reinstating the Supreme Court’s initial ruling on the federal case and granting summary judgment to Federal on the state case.

    Issue(s)

    Whether Hermitage’s primary duty to defend against the injurious falsehood claim triggers a primary duty to defend against all causes of action in the complaints, precluding any obligation by Federal under its “other insurance” clause.

    Holding

    Yes, because under the terms of Federal’s D&O policy, there existed “other insurance” (Hermitage’s CGL) that covered the “loss” arising from the defense of the underlying actions; when a policy has a clause making it excess to other valid insurance, the insurer is not required to contribute to a defense already covered by another policy.

    Court’s Reasoning

    The court emphasized that an insurer’s duty to defend is broader than the duty to indemnify and is triggered when a complaint alleges any cause of action that creates a reasonable possibility of recovery under the policy. The court quoted Fitzpatrick v American Honda Motor Co., 78 NY2d 61, 65 (1991), stating that the duty to defend “arises whenever the allegations in a complaint state a cause of action that gives rise to the reasonable possibility of recovery under the policy.” The court further explained, quoting Town of Massena v Healthcare Underwriters Mut. Ins. Co., 98 NY2d 435, 443 (2002), that if “ ‘ any of the claims against an insured arguably arise from covered events, the insurer is required to defend the entire action.’ ” The court reasoned that because Hermitage’s CGL policy potentially covered the injurious falsehood claim, it had a duty to defend the entire action. Federal’s D&O policy had an “other insurance” clause that made its coverage excess when any loss was covered by another policy. “Loss” included “Defense Costs.” Therefore, Hermitage had the primary duty to defend without contribution from Federal. The Court stated, “If the policies were drafted using different language, we might hold differently, but we may not judicially rewrite the language of the policies at issue here to reach a more equitable result”. The court prioritized the plain language of the insurance contracts, even if the result appeared inequitable.

  • General Motors Acceptance Corp. v. Nationwide Insurance, 4 N.Y.3d 451 (2005): Allocation of Defense Costs Between Primary and Excess Insurers

    4 N.Y.3d 451 (2005)

    When two insurance policies provide primary coverage to the same insured, and one is considered excess only because of an “other insurance” clause, defense costs should be shared proportionally based on policy limits if the excess insurer voluntarily assumes the defense.

    Summary

    General Motors Acceptance Corporation (GMAC) leased a vehicle to Sabin, who caused an accident. Both Nationwide (Sabin’s insurer) and Fireman’s Fund (GMAC’s insurer) had primary policies. Nationwide initially defended GMAC but then tendered the defense to Fireman’s, who accepted while reserving the right to seek contribution for defense costs. After settlement, Fireman’s sued Nationwide for full reimbursement of defense costs. The New York Court of Appeals held that because both policies were primary (despite the “other insurance” clause), and Fireman’s voluntarily assumed the defense, defense costs should be shared equally given the identical policy limits.

    Facts

    John Sabin leased an SUV from GMAC, requiring him to obtain insurance and name GMAC as an additional insured.
    Sabin procured a primary policy from Nationwide with $100,000/$300,000 limits and a duty to defend.
    GMAC had a primary policy from Fireman’s Fund with similar limits and a duty to defend, but an “other insurance” clause making it excess to any other collectible insurance.
    GMAC also had an excess “umbrella” policy from Fireman’s Fund with a $9,000,000 limit that only required defending if no other primary insurance applied.
    Sabin caused a serious accident, and lawsuits were filed against GMAC.
    Nationwide initially defended but tendered the defense to Fireman’s due to high potential liability.
    Fireman’s accepted the defense, reserving the right to seek contribution from Nationwide for defense costs.
    Fireman’s settled the main action for $4.5 million, contributed $3.3 million of its policy limits, and Nationwide contributed its $100,000 limits.

    Procedural History

    Fireman’s and GMAC sued Nationwide to recover all defense costs.
    The Supreme Court granted summary judgment to Fireman’s and GMAC, ordering Nationwide to reimburse all defense costs.
    The Appellate Division affirmed.
    The New York Court of Appeals reversed.

    Issue(s)

    Whether an excess insurer, whose primary policy is deemed excess only due to an “other insurance” clause, is entitled to full reimbursement of defense costs from another primary insurer when it voluntarily assumes the defense of a shared insured.

    Holding

    No, because where two primary policies exist, and one is excess only due to an “other insurance” provision, and the excess carrier voluntarily assumes and manages the defense, an allocation of defense costs based on primary policy limits is appropriate. The court ordered a 50-50 split of costs because both policies had identical limits.

    Court’s Reasoning

    The court reasoned that a primary insurer has the primary duty to defend its insured. While an excess insurer may participate in the defense, it has no obligation to do so.
    Fireman’s had two policies: a primary policy deemed excess by the “other insurance” clause and a true excess policy. By accepting the defense, Fireman’s triggered its duty to defend under the primary policy.
    The court emphasized that Fireman’s reservation of rights put Nationwide on notice that it was not relieved of its policy obligations and would likely be liable for a share of the defense costs.
    Premiums for primary insurance are higher because they contemplate the cost of defending potential lawsuits. Relieving a primary insurer of this duty would be a windfall.
    The court stated that requiring both insurers to contribute equally is consistent with the reasonable expectations of an ordinary businessman. “[I]nsurance contracts be interpreted ‘according to the reasonable expectation and purpose of the ordinary businessman when making an ordinary business contract’.”
    The court rejected a rule requiring an equitable allocation between primary and excess insurers in all circumstances. The key was the coincidental primary coverage, the assumption of the defense by Fireman’s Fund, and the reservation of rights. The presence of both policies with primary coverage with a duty to defend and the voluntary assumption of the defense costs was the deciding factor in requiring each party to split the costs.

  • Great Northern Ins. Co. v. Mount Vernon Fire Ins. Co., 92 N.Y.2d 682 (1999): Interpreting ‘Similar Coverage’ in CGL Policies

    92 N.Y.2d 682 (1999)

    The phrase “similar coverage for ‘your work’” in the excess coverage provision of a commercial general liability (CGL) policy refers to first-party property coverage, not third-party liability coverage.

    Summary

    This case addresses the interpretation of an “other insurance” clause in a Commercial General Liability (CGL) policy. A carpenter was injured while working at Selby’s apartment. Selby had a homeowner’s policy with Great Northern, and her contractor, Monier, had a CGL policy with Mount Vernon. Both policies covered the loss, but they disagreed on which was primary. The Mount Vernon policy was primary except when the other insurance was “Fire, Extended Coverage, Builder’s Risk, Installation Risk or similar coverage for ‘your work.’” The court held that “similar coverage for ‘your work’” refers to first-party property coverage, not third-party liability coverage like Selby’s homeowner’s policy; therefore, Mount Vernon’s CGL policy was primary.

    Facts

    John Hlavaty, a carpenter, was injured while renovating Linn Howard Selby’s cooperative apartment. Hlavaty was an independent contractor working for William Monier Construction Company, the general contractor hired by Selby. Monier agreed to defend and indemnify Selby for injuries arising from the construction work and obtained a CGL policy from Mount Vernon Fire Insurance Company, naming Selby as an additional insured. Selby also had a homeowner’s policy with Great Northern Insurance Company.

    Procedural History

    Great Northern and Selby sued Mount Vernon in federal court to determine coverage responsibilities. The District Court held both policies were excess to each other, requiring pro rata sharing of costs. The Second Circuit Court of Appeals certified a question to the New York Court of Appeals regarding the interpretation of the phrase “similar coverage for ‘your work’”. The New York Court of Appeals accepted the certified question.

    Issue(s)

    Whether the phrase “similar coverage for ‘your work’” in the excess coverage provision of the “other insurance” clause of a commercial general liability policy renders that policy’s coverage excess to the third-party liability coverage provided by a homeowner’s policy.

    Holding

    No, because the phrase “similar coverage for ‘your work’” in the CGL policy refers to first-party property coverage and not third-party liability coverage provided by a standard homeowner’s insurance policy.

    Court’s Reasoning

    The court reasoned that the phrase “similar coverage for ‘your work’ ” must be interpreted within the context of the enumerated coverages (Fire, Extended Coverage, Builder’s Risk, Installation Risk) listed in the Mount Vernon policy’s “other insurance” clause. These enumerated coverages are all forms of first-party property insurance, which protect against loss or damage sustained by an insured to its own property. “First-party coverage pertains to loss or damage sustained by an insured to its property; the insured receives the proceeds when the damage occurs.” The court distinguished this from third-party coverage, which protects against claims made by third parties against the insured. The Great Northern homeowner’s policy, while a hybrid policy, primarily provided third-party liability coverage for Hlavaty’s injuries. Because the Mount Vernon policy was designed to be excess only to policies providing first-party property coverage for commercial work, the court held that the Great Northern homeowner’s liability coverage was not “similar coverage” within the meaning of the Mount Vernon policy. The court cited cases from other states and industry interpretations supporting its conclusion. As stated by the court, “Thus, read within the context of the enumerated coverages, we interpret ‘similar coverage for your work” to mean first-party property coverage for commercial work.’”