September 2024 New York Insurance Coverage Law Update

Southern District Holds Insured Not Entitled To Judgment On Pleadings As To Duty To Defend Because Extrinsic Evidence May Show Duty Is Terminated

Color Techniques, Inc. (CTI) sold ingredients used in cosmetic formulations and was insured by Ironshore Specialty Insurance Company under a series of Environmental Protection Insurance Coverage Package policies. The insurer sued CTI, seeking a declaration that it had no duty to defend or to indemnify CTI in lawsuits against CTI and others alleging injuries from asbestos exposure. The underlying asbestos plaintiffs made broad claims against CTI and dozens of other underlying defendants without distinguishing between them, including that they manufactured and installed asbestos-containing products. CTI’s policies generally excluded asbestos but provided limited coverage for bodily injury from asbestos caused by “your work.” The insurer agreed to defend CTI in the underlying actions because the underlying allegations gave rise to the possibility of coverage, and reserved its right to decline coverage to the extent further information clarified that the actions did not implicate CTI’s work. In the declaratory judgment action, CTI moved for partial judgment on the pleadings as to its insurer’s duty to defend. The insurer maintained that CTI’s motion should be denied because extrinsic evidence showed that CTI’s alleged liability was based on its status as a manufacturer or supplier of products containing asbestos, not CTI’s work. The United States District Court for the Southern District of New York denied CTI’s motion, explaining that the duty to defend is generally triggered under the “four-corners” rule if the underlying allegations potentially fall within the coverage. However, the court stressed that the duty to defend “will end if and when it is shown unequivocally that the damages alleged would not be covered by the policy,” and that one exception to the “four-corners” rule is where “extrinsic evidence unrelated to the underlying merits unambiguously shows that there is no possibility of coverage.”  Applying these principles, the court held that CTI was not entitled to judgment on the pleadings because the insurer’s pleading and the discovery suggested that the underlying plaintiffs were bringing products-liability claims against CTI as a supplier of an allegedly defective product, not claims based on CTI’s work.   The court concluded that “to end its duty to defend, [the insurer] will need to prove, not just plead, with certainty that no claim” of the underlying plaintiffs “falls within” the “coverage” of the policies. [Ironshore Specialty Ins. Co. v. Color Techniques, Inc., 2024 U.S. Dist. LEXIS 136091 (S.D.N.Y. Aug. 1, 2024).]

Southern District Denies Motion For Summary Judgment Based On Insured’s Misrepresentations

 Travelers Casualty Insurance Company of America filed an action seeking rescission of certain policies because of its insured’s misrepresentations in its insurance application and moved for summary judgment. The United States District Court for the Southern District of New York agreed that the insured misrepresented whether it met the Travelers’ eligibility requirements by not performing operations on a list of ineligible operations, and rejected the insured’s argument that the application was ambiguous because the list was broad and could be read as asking only whether the insured was currently engaged in any ineligible operations. The court found questions of fact as to whether the misrepresentations were material, reasoning that to “establish materiality as a matter of law, the insurer must present documentation concerning the underwriting practices, such as underwriting manuals, bulletins, or rules pertaining to similar risks, that show that it would not have issued the same policy if the correct information had been disclosed in the application.” [Travelers Cas. Ins. Co. of Am. v. BRB Constr. Corp., 2024 U.S. Dist. LEXIS 154102 (S.D.N.Y. Aug. 27, 2024).]