The New York Court of Appeals rattled insurers Tuesday when it punished American Guarantee & Liability Insurance Co. for violating its duty to defend by holding the insurer could no longer rely on policy exclusions to avoid covering an underlying judgment, making clear that such breaches will come with heavy consequences.
According to Bill Passannante, the co-chair of Anderson Kill & Olick PC's insurance recovery group, Tuesday's ruling doesn't mark a sea change in New York law, but it would still benefit policyholders. It warns insurance counsel and claims handlers to proceed cautiously when receiving a claim for defense coverage, he said.
Some jurisdictions have gone even further than New York and awarded attorneys' fees and multiplied damages to policyholders who were wrongly denied a defense, according to Passannante.
"To have the Court of Appeals to say that the breach of the duty to defend is severe enough that there will be a consequence is another important reaffirmation of the defense obligation," Passannante said.
Read the full story: NY Strikes Fear Into Insurers Waffling On Defense Coverage