Category: Insurance policies

New York High Court Refuses to Enforce Policy Provision That Would Nullify Coverage

On By coveragelawIn Insurance policies, New York High CourtLeave a comment

Property insurance policies typically include a clause limiting the time (one to two years) after a loss within which the insured may sue the insurer. Generally, those clauses are enforced by the courts, and lawsuits commenced by insureds after the limitations period expires are dismissed. New York’s highest court, however, recently refused to enforce a contractual statute of limitations where the insured was unable to commence suit before the two-year limitation period expired. See Executive Plaza, LLC v. Pierless Insurance Company, (Feb. 13, 2014).

In addition to the two-year limitation period, the insurance policy in Executive Plaza also contained a clause that allowed for the recovery of “replacement cost,” but only after the damaged property is actually repaired or replaced. A fire destroyed the insured’s building, and it could not be reasonably replaced within two years. The insurer denied coverage based on the two-year limitation period.

Although New York courts had previously enforced even shorter limitations periods, the Executive Plaza Court refused to enforce the two-year limitations period because the insured was not able to commence suit before the limitations period expired. “A ‘limitation period’ that expires before suit can be brought is not really a limitation period at all, but simply a nullification of the claim.”

This case serves as an important reminder that insurance policies (and, indeed, all contracts) must be interpreted and applied in a reasonable manner. Insurance policy provisions, even if clear and unambiguous, should not be enforced if it will render coverage valueless.

Questions? Contact Lee Epstein at Weisbrod Matteis & Copley PLLC.

On the Defensive: Excess Insurers and the Duty to Defend

On By coveragelawIn Insurance policies, Insurers, Umbrella Insurance PoliciesLeave a comment

When one thinks of excess insurance (and who doesn’t) the duty to defend is probably not the first thing that crosses the mind.  The duty to defend is typically associated with primary insurance, not excess insurance that provides coverage above underlying layers of primary or other excess insurance.  Not all excess insurance is the same, however, and certain excess insurance policies, especially excess umbrella insurance policies, expressly impose a duty to defend on the excess insurer.

Umbrella insurance policies have been referred to as “hybrid” policies because an umbrella policy “combines the characteristics of both a primary and a following form excess policy.”   An umbrella insurance policy typically promises to defend occurrences covered by the terms of the umbrella policy, but not the underlying primary policy.  That duty to defend is set forth in the Defense Settlement provision of certain umbrella policies.

Beyond defense coverage for occurrences not covered by underlying insurance, some umbrella insurance policies also promise to defend the policyholder upon the exhaustion of underlying insurance.  Courts have focused on three policy provisions in determining that umbrella excess insurers have such a duty to defend:  (1) Underlying Insurance; (2) Retained Limit-Limit of Liability; and (3) Assistance and Cooperation.

Starting with the last provision first, an Assistance and Cooperation provision in an excess insurance policy with no duty to defend will typically provide that the insurer “shall not be called upon to assume charge of the settlement or defense of any claim, suit or proceeding….”  Assistance and Cooperation clauses in umbrella policies that include a duty to defend provide differently, as follows:

Except as provided in Insuring Agreement II (Defense, Settlement) or in Insurance Agreement VI (Retained Limit-Limit of Liability) with respect to the exhaustion of the aggregate limits of underlying policies listed in Schedule A, or in Condition J [Underlying Insurance] the company shall not be called upon to assume charge of the settlement or defense of any claim made or proceeding instituted against the insured; but the company shall have the right and opportunity to associate with the insured in the defense and control of any claim or proceeding reasonably likely to involve the company.  In such event the insured and the company shall cooperate fully.

Thus, pursuant to this form of the Assistance and Cooperation clause, the insurer is obliged to defend pursuant to the three provisions identified in the clause.  As discussed above, the Defense Settlement provision requires the umbrella insurer to defend claims covered by the umbrella policy, but not the underlying insurance policy.  Pursuant to the remaining two provisions, the umbrella insurer is obliged to defend upon the exhaustion of underlying insurance.

As for the effect of the Underlying Insurance provision, one court concluded that the plain terms of the provision imposed defense obligations:
“All three policies contain a clause imposing an obligation to assume charge of and pay for [the policyholder’s] defense under certain circumstances.  Specifically, [the Underlying Insurance provision of] the policies provide:

If underlying insurance is exhausted by any occurrence, [the Excess Insurer] shall be obligated to assume charge of the settlement or defense of any claim or proceedings against the insured resulting from the same occurrence, but only where this policy applies immediately in excess of such underlying insurance without the intervention of excess insurance of another carrier.

Accordingly, by its plain terms, the policies impose defense obligations upon the insurers where the immediately underlying insurance has been exhausted by a single occurrence.”
The Eighth Circuit Court of Appeals also relied on the Underlying Insurance provision in concluding that the insurance policy expressly imposed defense obligations on the insurer.

The Retained Limit-Limit of Liability provision provides, in pertinent part, that the excess policy “shall continue in force as underlying insurance,” in the event of “exhaustion” of the aggregate limits of liability of the underlying policies.  In accordance with this language, an excess insurer must function as a primary insurer upon exhaustion of the underlying primary policy.   Of course, functioning as a primary insurer includes the assumption of the duty to defend that was previously shouldered by the primary insurance before the exhaustion of the primary policy.

Accordingly, it would be a mistake to blindly assume that an excess insurance policy contains only a duty to indemnify, and no duty to defend.  As always, the policy language controls, and policyholders should not hesitate to take advantage of all of the benefits the duty to defend offers.

Questions? Contact Lee Epstein at Weisbrod Matteis & Copley PLLC.