Insurance Coverage Update June 2013

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NEW YORK
Duty to Defend - Policy Exclusions
New York's Highest Court Rules Liability Insurer that Breaches Duty to Defend May Not Later Rely on Policy Exclusions to Avoid Duty to Indemnify

K2 Inv. Group, LLC v American Guar. & Liab. Ins. Co., 2013 N.Y. LEXIS 1461 (N.Y. 2013)

The New York Court of Appeals recently held that a liability insurer found to have wrongfully declined to provide a defense to its insured in a legal malpractice action was precluded from invoking its policy exclusions in a later coverage action.
 

Excess Coverage - Underlying Exhaustion
Second Circuit Requires Proper Exhaustion By Payment of Underlying Loss to Implicate Excess Coverage
Mehdi Ali v. Fed. Ins. Co., 2013 U.S. App. LEXIS 11384 (2d Cir. N.Y. June 4, 2013)
 
The Second Circuit agreed with excess insurers in interpreting an exhaustion clause and finds that excess coverage does not attach until liability payments exhaust the underling limits. The central issue on appeal was the interpretation of an exhaustion provision that provided that the excess insurance would apply if the underlying insurance coverage is exhausted "as a result of payment of losses thereunder." The insured argued that the excess liability policies are triggered if their liability reaches the attachment point. The insurer, however, argued that the exhaustion clause speaks to payments and therefore, the policies are triggered when payments reach the attachment point.
 

Contractor Exclusion
Second Department Upholds Insurer's Denial Based on Exclusion for Injury to Contractors and Subcontractors.
 
Essex Ins. Co. v Mondone, 2013 N.Y. App. Div. LEXIS 3734 (N.Y. App. Div. 2d Dep't May 29, 2013)
 
A New York appellate court ruled that an insurer was entitled to judgment as a matter of law that it was not obligated to defend or indemnify its insured in a suit brought by a contractor injured where the insured was also a contractor based on a contractor exclusion.
 

Late Notice
Policyholder's Five-Month Delay in Providing Notice Under Pre-2009 Policy Found Untimely as a Matter of Law
 

Rivera v Core Continental Construction 3, LLC, 2013 N.Y. App. Div. LEXIS 3711 (N.Y. App. Div. 1st Dep't May 28, 2013)

 
The First Department affirmed that policies issued prior to 2009 do not require showing of prejudice under N.Y. Ins. Law. § 3420. As a result, the Court ruled that the insured's delay of five months vitiated coverage irrespective of whether the breach of the notice condition resulted in prejudice.
 
NEW JERSEY

Life Insurance - Suicide Exclusion
Claim Administrator's Decision to Deny Life Insurance Benefits to Decedent's Beneficiary on Basis of Suicide Exclusion Not Arbitrary and Capricious under ERISA
 
Riggs v. Metro. Life Ins. Co., 2013 U.S. Dist. LEXIS 55539 (D.N.J. Apr. 18, 2013)
 
A New Jersey Federal District Court upheld a life insurance claim administrator's decision to deny coverage to a wife whose heavily-medicated husband fatally shot himself. The Honorable Joseph Rodriguez found that even though the policy's definition of "suicide" may have been ambiguous, the declination was not arbitrary and capricious under the restricted standard set forth pursuant to ERISA.

Homeowners Coverage - Business Pursuits Exclusion
Business Pursuits Exclusion in Homeowners Policy Not Applicable Where Babysitting Services Not Motivated by Profit
 
Bay State Ins. Co. v. Jennings, 2013 N.J. Super. Unpub. LEXIS 1180 (App. Div. May 16, 2013)
 
The New Jersey Appellate Division determined under a two-part test that a policyholder who consistently babysat a neighbor's child was not operating a "business" and, thus, the business pursuits exclusion in her homeowners policy did not preclude coverage for injuries sustained while babysitting.