Articles Posted in New York

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It is axiomatic that in order to obtain insurance coverage a policyholder must first establish that a claim falls within a policy’s insuring agreement before coverage under the policy is triggered. iStock-687501466-engineering-300x200For construction claims brought under CGL policies, that frequently means showing that the damages at issue constitute “property damage” caused by an “occurrence” (where “occurrence” is generally defined as “an accident”). While this requirement may often seem like a simple factual question, in the context of a subcontractor’s faulty workmanship, the analysis has proven more difficult. Where alleged faulty work causes damage only to the insured’s own work product, is the property damage accidental?

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iStock-534547898-hard-hats-300x200In a previous blog post, we addressed blanket additional insured endorsements, and the circumstances under which Company A could become an additional insured under Company B’s policy, even where Company B failed to add Company A to the policy. In that same vein, a New York trial court granted additional insured status to entities that did not even contract with the named insured, but were referenced in the named insured’s subcontract. Owners and General Contractors should take note of this decision, as it creates the potential for insured status even where there is a lack of contractual privity.

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We put lights on the front of trains so we can see them approaching in a tunnel. And we buy insurance for the accidents that occur despite such precautions. General contractors try to manage their project risks by taking precautions to avoid accidents, but they also require subcontractors to name them as “additional insureds” on their general liability or project-specific insurance should an accident happen. Suppose you’ve done that. An accident follows: Your subcontractor injures a person on the project site as a result of your own workers’ failure to warn. You’re covered, right? Better slow down.

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The vaults of the world’s financial capital are getting stronger locks. On March 1, 2017, new “first-in-the-nation” cybersecurity regulations of the New York Department of Financial Services (DFS) went into effect to protect consumers and the financial system from cyber attacks. While the regulations apply to covered finance and insurance companies, their influence is likely to be felt beyond the companies targeted initially. For this reason, it’s important that all companies with cybersecurity risks understand how the new DFS regulations work, and the insurance coverage issues they may raise.

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New York is a tricky forum for policyholders pursuing insurance coverage claims. In particular, New York jurisprudence has long failed to recognize and address causes of action for bad faith. Historically, insureds seeking to impose extracontractual liability have been required to meet the high bar of showing “egregious tortious conduct” and “a pattern of similar conduct directed at the public generally.” Contract-based claims invoking good faith and fair dealing often fared no better, with courts routinely dismissing insureds’ bad faith claims because they viewed them as “duplicative” of the policyholders’ underlying claims for breach of the insurance contract.

In 2008, a glimmer of hope emerged from New York’s highest court. In Bi-Economy Market, Inc. v. Harleysville Insurance Co., the court recognized a policyholder’s right to recover consequential damages in excess of policy limits where (1) the damages were the direct result of improper claims handling, and (2) the damages were foreseeable by the parties at the time of contracting. Although this decision did not create a bad faith cause of action, it did provide policyholders with a potential avenue to recoup consequential damages where the insurer violated its implicit contract-based covenant of good faith and fair dealing.

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Over time, New York’s courts have erected multiple barriers to policyholders seeking to recover insurance for long-tail, progressive injury claims—such as environmental or asbestos liabilities—that can implicate multiple policies over multiple policy terms. Now, in a New York minute, just weeks after hearing oral argument, the Empire State’s highest court leveled the playing field by endorsing the “all sums” and “vertical exhaustion” approach to allocation advocated by a policyholder, at least as to policies containing “non-cumulation” and “prior insurance” provisions.

New York City skyline with urban skyscrapers at sunset.

In In re Viking Pump, Inc., New York’s Court of Appeals did not overrule its 2002 decision in Consolidated Edison Co. of New York v. Allstate Ins. Co., which had applied pro rata allocation where the non-cumulation clause argument was not raised, but the court made clear that pro rata allocation is not the default rule in New York. Rather, the specific wording of the triggered policies will control, and can require allocation on an all-sums basis. This is a huge win for policyholders with New York liabilities and a further endorsement, by a prestigious court, of the “all sums” approach to allocation.

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