Who’s on First or Which Insurer Owes a Defense and Indemnity

Risk Transfer Device Works for City of New York

When insurers dispute over which one owes defense and indemnity to an insured they both insured the result is almost always disappointing. Litigation between insurers should never reach the court of appeal since they are both professional insurers with supposedly knowledgeable staff and management who should be able to amicably resolve the dispute.

In Valley Forge Insurance Company, et al. v. ACE American Insurance Company, 2015-08959, 2018 NY Slip Op 02665, Supreme Court Of The State Of New York Appellate Division, Second Judicial Department (April 18, 2018) the rule was proved in its breach and two insurers fought through trial and appeal.

THE DISPUTE

In an action for a judgment declaring, among other things, that the defendant ACE American Insurance Company is obligated to reimburse the plaintiff Valley Forge Insurance Company for costs expended in defending and settling an underlying personal injury action entitled Cunha v City of New York, the plaintiffs appeal.

Defendant ACE American Insurance Company appealed the order that declared that it was obligated to reimburse the plaintiffs for costs expended in defending and settling the underlying personal injury action.

FACTS

Severino Cunha was injured while working on a roadway excavation project in Brooklyn. The City of New York had hired Cunha’s employer, JLJ Enterprises, Inc., as the prime contractor, and HAKS Engineers, P.C. (hereinafter HAKS), to perform engineering inspection services in connection with the project. Cunha commenced an action to recover damages for personal injuries against the City, and the City commenced a third-party action for contractual and common-law indemnification against HAKS. The City and HAKS settled with Cunha, but proceeded to trial in the third-party action. After a trial eventually the Court of Appeals determined that the City was entitled to 100% indemnification from HAKS.

INSURANCE

HAKS had a primary commercial general liability policy with the plaintiff Valley Forge Insurance Company (hereinafter Valley Forge), an excess commercial general liability policy with the plaintiff Transportation Insurance Company (hereinafter Transportation), and a professional liability for design professionals policy with the defendant ACE American Insurance Company (hereinafter ACE). Valley Forge and Transportation sued  ACE, HAKS, and the City, seeking a declaration that the plaintiffs were not obligated to defend or indemnify HAKS, and that ACE was obligated to reimburse Valley Forge for the costs that it expended in defending and settling the underlying action on behalf of HAKS.

MOTIONS FOR SUMMARY JUDGMENT

ACE sought reimbursement of the payments that it made to settle the underlying action on behalf of HAKS. HAKS then moved for summary judgment against ACE, seeking a declaration that ACE was obligated to defend and indemnify HAKS. In April 2009, the Supreme Court (trial court) issued an order granting HAKS’s motion.

ACE thereafter moved for summary judgment dismissing the complaint and granting its counterclaim for contribution from Valley Forge, and the plaintiffs cross-moved for summary judgment dismissing ACE’s counterclaim and for a declaration that ACE was obligated to reimburse Valley Forge for the costs that it expended in defending and settling the underlying action.

TRIAL COURT DECISION

The Supreme Court (trial court) denied ACE’s motion, and granted the plaintiffs’ cross motion. On December 19, 2016, the court entered a judgment declaring that ACE was required to reimburse the plaintiffs for costs expended in defending and settling the underlying action.

ANALYSIS

In an insurance coverage case, the insurer bears the burden of establishing that the claimed policy exclusion defeats the insured’s claim to coverage by demonstrating that the exclusion relied upon is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case.

Here, the plaintiffs established that there was no coverage under the Valley Forge policy since the “professional services” exclusion was applicable to the claims asserted in the underlying action. The claims asserted by Cunha in the underlying action arise out of HAKS’s “supervisory, inspection, architectural or engineering activities,” and, thus, fall within the professional services exclusion under the Valley Forge policy and the E&O coverages provided by ACE.

Accordingly, the Supreme Court properly awarded judgment in favor of the plaintiffs, declaring that ACE was obligated to reimburse Valley Forge for costs expended in defending and settling the underlying action.

Further, the Supreme Court providently exercised its discretion in declining to award prejudgment interest to the plaintiffs.

ZALMA OPINION

Exclusions are designed to limit the exposure of an insurer to its insured. In this case the insurer Valley Forge proved that its “professional services” exclusion applied without question and that it owed nothing to its insured and ACE, the E&O insurer did. Why the two insurers did not resolve the dispute and insisted on summary judgment and appeals is beyond reason and a waste of litigation expenses.


© 2018 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Mr. Zalma’s books available as Kindle books or paperbacks at Amazon.com can be reached at http://zalma.com/zalma-books/

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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