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The Appellate Division, Fourth Department, Addresses The Distinction Between An Insurer’s Duty To Defend And Its Duty To Indemnify

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  • Posted on: Aug 2 2019

Insurance policies typically provide that the insurer will “defend” its insured in the event of a lawsuit and “indemnify” its insured against liability resulting therefrom.  The insurer’s duty to defend, however, is broader than its duty to indemnify.  Seaboard Surety Co. v. Gillette Co., 64 N.Y.2d 304 (1984).  Simply stated, an insurer may be obligated to provide a defense to a lawsuit even though it may be relieved of the obligation to indemnify its insured from any judgment rendered in that lawsuit.

In Seaboard, the insurer brought an action against its insured seeking a declaratory judgment that it had no duty to defend or indemnify with respect to an action brought against the insured.  In describing the distinction between the duty to defend and the duty to indemnify, the Seaboard Court stated that:

Where an insurance policy includes the insurer’s promise to defend the insured against specified claims as well as to indemnify for actual liability, the insurer’s duty to furnish a defense is broader than its obligation to indemnify. The duty to defend arises whenever the allegations in a complaint against the insured fall within the scope of the risks undertaken by the insurer, regardless of how false or groundless those allegations might be. The duty is not contingent on the insurer’s ultimate duty to indemnify should the insured be found liable, nor is it material that the complaint against the insured asserts additional claims which fall outside the policy’s general coverage or within its exclusory provisions. Rather, the duty of the insurer to defend the insured rests solely on whether the complaint alleges any facts or grounds which bring the action within the protection purchased.  Though policy coverage is often denominated as “liability insurance”, where the insurer has made promises to defend it is clear that the coverage is, in fact, litigation insurance as well.  As such, so long as the claims asserted against the insured may rationally be said to fall within policy coverage, whatever may later prove to be the limits of the insurer’s responsibility to pay, there is no doubt that it is obligated to defend.

Seaboard, 64 N.Y.2d 310 -11 (citations, some quotation marks and brackets omitted).  The Seaboard Court found that summary judgment in favor of the insurer relieving it of its duty to defend was not established because “[a] declaration that there is no obligation to defend could now properly be made only if it could be concluded as a matter of law that there is no possible factual or legal basis on which the insurer might eventually be held to be obligated to indemnify the insured under any provision of the insurance policy.”  Seaboard, 64 N.Y.2d 312 (citations, quotation marks and some brackets omitted).

On July 31, 2019, the Appellate Division, Fourth Department, addressed these issues in Pixley Dev. Corp. v. Erie Ins. Co.  The plaintiff in Pixley, a landlord that was named as an additional insured on a tenant’s insurance policy, brought an action in which it sought a declaratory judgment that Erie was obligated to defend and indemnify it in a personal injury suit commenced by a delivery person that slipped on ice on a “delivery driveway” while delivering supplies to Pixley’s tenant.  Pixley moved for summary judgment and the insurer cross-moved for summary judgment dismissing Pixley’s complaint.  Supreme court denied Pixley’s motion and granted the insurer’s cross-motion.  The Fourth Department modified by “denying the cross-motion in part and reinstating the complaint against [the insurer]” and declaring that the insurer “is obligated to defend plaintiff in the underlying personal injury action.”

Under the operative lease, tenant’s premises “was defined as ‘a ground floor store … together with … the right to use the driveway designated for delivery purposes in common with other tenants.’”  Tenant was also required to pay common area maintenance charges and was “obligated to provide ‘for the benefit of Pixley, a comprehensive liability policy of insurance protecting Pixley against any liability whatsoever, occasioned by accident, on or about the Premises, or any appurtenances thereto.’”  (Emphasis in original, brackets omitted.)

Tenant obtained the required policy.  The additional insured endorsement, however, only named Pixley as an additional insured “only with respect to liability arising out of the ownership, maintenance or use of that part of the premises leased to [tenant] and shown in the Schedule.’” On supplemental declarations, the policy “identified the leased premises only by its address.”

The Court found that Pixley established that “the use of the delivery driveway was included in the scope of the demised premises, and there are triable issues of fact whether [tenant] assumed some responsibility for maintenance of that area, including snow removal.”  (Citations, internal quotation marks and brackets omitted.)  The delivery driveway was necessary for ingress and egress and, therefore, was part of the license provided by the lease.  Finally, the Court thought it relevant to its determination that the “claims arguably arise out of that part of the premises leased to [tenant] are that the lease required [tenant] to procure insurance against any liabilities on or about the demised premises or any appurtenances thereto and required [tenant] to pay its proportional share of the common area costs’ incurred in operating and maintaining the subject property.”  (Emphasis in original, citations and internal quotation marks omitted.)

Because the Fourth Department found that “the allegations of the personal injury complaint and the terms of the policy create a reasonable possibility that the tort plaintiff’s claims are covered under the terms of the policy,” it was established that the insurer had a duty to defend Pixley in the personal injury lawsuit.

The Court, however, found that Pixley failed to establish as a matter of law that that it would “ultimately be entitled to indemnification from [the insurer].”  Therefore, supreme court properly denied such relief to Pixley.

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