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.

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In a big victory for a property owner who brought a breach of insurance contract lawsuit against their insurance company (State Farm), New York’s highest court held invalid State Farm’s disclaimer of coverage for the building owner’s claims that they sustained damage to the foundation when improper excavation work that was done on the immediately adjacent lot caused the earth beneath the plaintiff’s building to slide away.  In its disclaimer, State Farm argued that they were not required to pay on the claim because the insurance policy contained a provision that excluded coverage for any claim arising out of ”earth movement,” such as the shifting, contracting or sinking of earth, including from earthquake or erosion.

Conversely, the plaintiff apartment building asserted that this exclusion was at best vague, and in any event inapplicable to these facts, because unlike the examples in the policy describing “earth movement,” this case involved a contractor’s purposeful excavation of property. In affirming the trial and appellate courts’ finding for the plaintiff, the Court of Appeals adhered to the general rule that “all ambiguties in a contract must be construed against the drafter,” which in this context, is the insurer. Thus, since the specific type of claim in this case was not clearly and unambiguously excluded from coverage, State Farm was obligated to pay the claim. A copy of the Court’s opinion can be read by clicking on this link.

This story is yet another example (see our other blog) of why you should never accept an insurer’s disclaimer or denial of coverage at face value; it may pay to fight them.

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