Liability Insurer Must Pay Its Insured’s Legal Fees, NY County Court Holds February 25, 2010

In Cooper Square Associates LP v.  Atlantic Mut. Ins. Co., a decision that was handed down by a New York County trial court on February 9 (and reported in tomorrow’s edition of the New York Law Journal), the plaintiff-landlord contended that since they were named on their tenant’s insurance policy as an additional insured, Atlantic Mutual was obligated to defend them against a personal injury lawsuit that was brought. Atlantic refused to do so on the grounds that there was evidence that the plaintiff in the underlying personal injury lawsuit was not injured at Cooper Square’s premises.

Citing New York’s long-established precedent that an insurer’s obligation to defend an insured (or, as in this case, an additional insured) is broader than its obligation to indemnify them, the Court stated as follows:

“If the claims asserted, though frivolous, are within the policy coverage, the insurer must defend irrespective of the ultimate liability …  A declaration that an insurer is without obligation to defend a pending action could be made ‘only if it could be concluded as a matter of law that there is no possible factual or legal basis on which [the insurer] might eventually be held to be obligated to indemnify [the insured] under any provision of the insurance policy.’  Servidone Const Corp. v. Security Ins Co of Hartford, 64 NY2d 419, 423-424 (1985).”

Under the circumstances, Atlantic’s refusal to defend Cooper Square was clearly improper, and the plaintiff was entitled to recover from Atlantic the costs it incurred in defending the underlying personal injury action from the date that it tendered its defense of that case to Atlantic.

This case is further proof of why it may pay to fight an insurer’s disclaimer of coverage.

Jonathan Cooper is a New York Business Litigation and New York Commercial Litigation Lawyer with a focus on New York breach of contract and New York business fraud claims before the Nassau, Queens, Brooklyn, Bronx, Westchester and Suffolk County courts of New York State. For more information, feel free to contact his Long Island office at 516-791-5700.

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