Primary CGL Insurer Precluded from Recouping Defense Costs of Uncovered Claims from Excess D&O Insurer
In Fieldston Property Owners Assn., Inc. v. Hermitage Ins. Co., 2011 NY Slip Op 01361 (Feb. 24, 2011), the New York Court of Appeals held that a CGL carrier was not entitled to reimbursement of defense costs from a D&O insurer that afforded concurrent coverage for the loss; the CGL carrier was primary insurance under the “other insurance” clauses of the respective policies notwithstanding that the CGL policy covered only one of several causes of action alleged in the underlying actions.
The coverage dispute arose from allegations that the policyholder had made “false statements and fraudulent claims” with respect to another’s “right to access its property from” adjacent public streets for the purpose of a construction project. A suit for damages was filed against the policyholder in federal court that asserted several causes of action, including “injurious falsehood,” and a state court action was later filed alleging additional counts based on the same operative facts.
The policyholder was insured under a CGL policy issued by Hermitage and a D&O policy issued by Federal, and some of the events alleged in the complaint occurred during both policy periods. Thus, the policies partially overlapped. Both policies had “other insurance” clauses, pursuant to which Federal’s policy was excess to other coverage available for the loss. Hermitage demanded that Federal defend the actions because none the counts, except for “injurious falsehood,” were covered under Hermitage’s CGL policy. Instead, the counts involved allegations covered by Federal’s D&O policy. Federal refused to provide coverage for defense costs, and two declaratory judgment actions seeking reimbursement of defense for the federal and state court actions ensued.
An appellate court concluded that Hermitage was entitled to reimbursement for Federal’s equitable share of defending the federal and state court actions, except for costs related to the injurious falsehood claims. The appellate court reasoned:
“With the possible exception of the injurious falsehood claims, all the other losses (including defense costs) that could result from the other causes of action are not insured under the CGL policy but at least some of them are insured under the D&O policy. Accordingly, the ‘other insurance’ clause [in the D&O policy] is inapplicable to the risks of all other such losses, and the D&O policy thus provides primary coverage with respect to some of those risks. In other words, putting aside that possible exception, the CGL and D&O policies do not provide concurrent coverage as they do not insure against the same risks.”
The Court of Appeals disagreed and reversed, holding that Hermitage was not entitled to reimbursement for defense costs from Federal. Based on the broad duty to defend and the possibility that at least one of the claims asserted in the underlying actions was covered under Hermitage’s CGL policy, the court concluded that Hermitage had a duty to defend both actions in their entirety. Therefore, since there was “other insurance” under the terms of D&O policy that would cover defense costs for the two actions, Hermitage was obligated to defend both actions without contribution from Federal. The court did acknowledge that the result reached by the appellate court might be more equitable, but declined to rewrite the policies to reach that result.
