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Three-year delay in rejecting tender invalidates disclaimer based upon “Intra-Insured” exclusion

QBE Insurance Corporation, et al. v. Public Service Mutual Insurance Company, et al. (Appellate Division, First Department, Jan. 8, 2013)

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A unanimous Appellate Division reversed a lower court decision and held that the defendant insurer has duty to defend and indemnify its additional insured because it unreasonably delayed denying coverage and the exclusion upon which it had disclaimed did not apply to the underlying lawsuit.

The declaratory judgment action was commenced seeking coverage for a building owner which had been sued by the employee of a tenant, who was injured as a result of a fall in the leased premises. When plaintiff tendered the defense and indemnity of its insured to the defendant insurer of the tenant, the defendant neither accepted or rejected for a period of over three years. Eventually, it disclaimed, citing an “Intra-Insured” exclusion. That provision excludes defense and indemnification for any insured against a claim or suit brought by another insured. Plaintiff defended the action, which eventually settled.

Plaintiff’s cross-motion for summary judgment had been denied in the lower court, which found issues of fact. The Appellate Division disagreed. No matter which of multiple tender letters triggered the duty to respond, the disclaimer that was finally issued was untimely. The Court also found that even though the policy provides coverage for third-party liability actions against employees, that did not make the underlying plaintiff an “insured” as meant by the exclusion. Even if the exclusion were ambiguous, any ambiguity would be construed against the drafter – the defendant insurer. Going further, the Court found that the defendant’s policy is primary, based upon the relevant “other insurance” provisions.

AGF&J partner Michael E. Gorelick argued the appeal.