New York Insurance Coverage Law Update – December 2021 | Rivkin Radler LLP


New York Court of Appeals Says Restitution Payment Under SEC Rules Not Precluded as Sanction Imposed by Law

The Securities and Exchange Commission (SEC) has alleged that Bear Stearns facilitated late and deceptive market-timing trading practices by its clients in connection with the purchase and sale of mutual fund stocks. Bear Sterns sought to cover with its insurers a portion of its settlement with the SEC under policies providing coverage for “losses” that Bear Sterns was required to pay in connection with any government investigation into violations of laws or of regulations. The policies defined “loss” as including certain types of damages, but not “fines or penalties imposed by law.” Bear Sterns argued that $140 million of its “restitution” settlement payment (which was to be deposited into a “fair fund” to compensate mutual fund investors allegedly harmed by the business practices) came from estimates of the client’s gain and the investor’s detriment and, therefore, was not an uncovered “penalty imposed by law”. The New York Court of Appeals agreed, finding that a reasonable insured purchasing a policy covering losses for wrongful acts would have understood the term “penalty” to refer to “non-compensatory and purely punitive monetary penalties”. The Court of Appeal found that the insurers failed to establish that the payment fell within the policies’ exclusion for “penalties imposed by law” and that the lower court erred in granting summary judgment to the insurers on this basis. [J.P. Morgan Sec. Inc. v. Vigilant Ins. Co., 2021 N.Y. LEXIS 2519 (N.Y. Nov. 23, 2021).]

The first department argues that the tenant’s insurer owes the landlord additional insured coverage when the plaintiff fell through the cellar door used by the tenant

The claimant fell through an outside cellar door while delivering bread to the tenant’s restaurant in his rented premises. The plaintiff sued the owner, who was insured by Seneca Insurance Company. Seneca requested additional insured coverage for the owner under the renter’s policy with the New York Marine and General Insurance Company, which covered bodily injury “resulting from the ownership, maintenance, or use of the part of the premises rented” to the tenant. The Appeals Division, First Department upheld the lower court’s decision finding that New York Marine had a primary duty to defend and indemnify the owner. The court held that contrary to New York Marine’s assertion, the exterior staircase used by the tenant to enter and exit its space was implicitly part of the leased premises. Further, the court found that the accident necessarily arose out of the tenant’s “use” of the rented premises since the plaintiff was walking through the cellar door to deliver items for the tenant’s business when the accident occurred. is produced. [71 Lafayette Ave. LLC v. New York Mar. and Gen. Ins. Co., 199 A.D.3d 603 (1st Dep’t Nov. 30, 2021).]

The Fourth Department argues that the maintenance company’s removal of items from the home and placing them in a dumpster is not “theft” under the homeowner’s insurance policy.

The insured defaulted on his mortgage, left his house and declared bankruptcy. Geddes Federal Savings and Loan hired a maintenance company to inspect, secure and maintain the property, and they emptied the house and placed items in a dumpster on the front lawn. The insured applied for cover under his home insurance policy with Liberty Mutual, which declined cover on the grounds that the loss was not theft (a covered peril). On appeal, the Appellate Division, Fourth Department agreed with the insurer that “‘the average insured of ordinary intelligence’ would not believe that the employees of the maintenance company committed theft by removing objects from applicant’s home and placing them in dumpsters on the front lawn.” However, the court found a factual issue justifiable for the trial as to whether “one or more unknown persons entered the residence before it was cleaned by the maintenance company and stole the items which, according to the plaintiff, were missing”. [Purisk v. Liberty Mut. Ins. Grp. Inc., 2021 N.Y. App. Div. LEXIS 6332 (4th Dep’t Nov. 12, 2021).]


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