HNRK Coverage Corner
On June 29, 2018, Justice Grossman of the Putnam County Supreme Court issued a decision in Nationwide Mut. Fire Ins. Co. v. Oster, 2018 NY Slip Op 51018(U), awarding attorneys' fees to an insured in a declaratory judgment action commenced by the insurance company, explaining:
New York has followed the rule that an insured may not recover in an affirmative action to determine its rights, but may do so, where, as here, the insured has been "cast in a defensive posture by the legal steps an insurer takes in an effort to free itself from its policy obligations (see Johnson v. General Mutual Ins. Co., 24 NY2d 42; Glens Falls Ins. Co. v. United States Fire Ins. Co., 41 AD2d 869 [3rd Dept. 1973] aff'd. on opn, 34 NY2d 778 [1974])." Mighty Midgets v. Centennial Ins. Co., 47 NY2d 12 (1979). This holding is in contrast with the so-called American Rule — that absent a contractual provision or statutory basis for recovery, each party is responsible for their own attorneys' fees. In Johnson, supra, the insured was permitted to recover costs of defending the action, but could not recover the costs of a cross-claim against the insurer, nor could the injured party recovery its costs. The exception is one of policy, and it is not lightly expanded. However, some courts have recognized the recovery also includes not only the costs and expenses of a defense to the insurer's actions, but also the costs and defenses of the counterclaim to assert the right to coverage. Admiral Ins. Co. v. Weitz & Luxenberg, P.C., 2002 WL 31409450 (SDNY October 24, 2002); Lancer Ins. Co. v. Saravia, 40 Misc 3d 171, 177 (Sup.Ct. [Kings] 2013). The Second Department has made its position clear:
"[A]n insured who is 'cast in a defensive posture by the legal steps an insurer takes in an effort to free itself from its policy obligations,' and who prevails on the merits, may recover an attorney's fee incurred in defending against the insurer's action" (Insurance Co. of Greater NY v. Clermont Armory, LLC, 84 AD3d 1168, 1171, 923 N.Y.S.2d 661, quoting U.S. Underwriters Ins. Co. v. City Club Hotel, LLC, 3 NY3d 592, 598, 789 N.Y.S.2d 470, 822 N.E.2d 777 [internal quotation marks omitted]; see Mighty Midgets v. Centennial Ins. Co., 47 NY2d 12, 21, 416 N.Y.S.2d 559, 389 N.E.2d 1080; Johnson v. General Mut. Ins. Co., 24 NY2d 42, 298 N.Y.S.2d 937, 246 N.E.2d 713). " 'It is well settled than an insurer's responsibility to defend reaches the defense of any actions arising out of the occurrence, and defense expenses are recoverable by the insured, including those incurred in defending against an insurer seeking to avoid coverage for a particular claim.'" (RLI Ins. Co. v. Smiedala, 77 AD3d 1293, 1294-1295, 909 N.Y.S.2d 263, quoting National Grange Mut. Ins. Co. v. T.C. Concrete Constr., Inc., 43 AD3d 1321, 1322, 843 N.Y.S.2d 877 [internal quotation marks omitted]). "Moreover, 'an insured who prevails in an action brought by an insurance company seeking a declaratory judgment that it has no duty to defend or indemnify the insured may recover attorneys' fees regardless of whether the insurer provided a defense to the insured'" (RLI Ins. Co. v., 77 AD3d at 295, 909 N.Y.S.2d 263, quoting U.S. Underwriters Ins. Co. v. City Club Hotel, LLC, 3 NY3d at 598, 789 N.Y.S.2d 470, 822 N.E.2d 777)."
Some state courts award attorneys' fees to a successful insured in a coverage action as a matter of course. See, e.g., New Jersey Court Rule 4:42-9(a)(6) (successful claimant may recover attorneys' fees “in an action upon a liability or indemnity policy of insurance"). However, under the New York Court of Appeals decision in Mighty Midgets v. Centennial Ins. Co., 47 N.Y.2d 12, 21 (1979), attorneys' fees are generally available only when the insurer commences the declaratory judgment action. Separately, there is long-standing authority permitting recovery of attorneys’ fees to a policyholder where the insurance company engages in “such bad faith in denying coverage that no reasonable carrier would, under the given facts, be expected to assert it.” Sukup v. State of New York, 19 N.Y.2d 519, 522 (1967). This standard is hard to satisfy, however: courts have held that if the insurer can demonstrate an “arguable basis” for disclaiming coverage, no fees should be awarded, even if the insured prevails in the lawsuit. See, e.g., Greenberg Eleven Union Free School Dist. v. National Union Fire Ins. Co., 304 A.D.2d 334, 336-37 (1st Dep’t 2003).
- Partner
Bradley Nash represents policyholders in insurance disputes and other parties in complex commercial litigation in state and federal courts in New York and across the country. Brad focuses his practice on insurance recovery for ...
Search Blog
Recent Posts
- Is Carbon a “Pollutant”? — The Supreme Courts of Alaska and Hawaii Receive Certified Questions Regarding Scope of Pollution Exclusions in Liability Policies
- Court Rules That D&O Policy’s “Bump-Up” Exclusion Does Not Apply to Merger Transaction
- Eleventh Circuit Rules Insurer Cannot Recoup Defense Costs Under Duty to Defend Policy
- Federal Court Declines to Exercise Jurisdiction Over Insurer’s Declaratory Judgment Action That Raised “Novel Issue of Ohio Insurance Law”
- Bankruptcy Court Lifts Automatic Stay to Permit Officers of Silicon Valley Bank to Access D&O Coverage
- E&O Policy Exclusion Bars Coverage for Negligence Claim Against Law Firm Arising from Third Party’s Misappropriation of Client’s Funds
- New Jersey Appellate Court Holds That Policy’s War Exclusion Did Not Apply to State-Sponsored Cyberattack
- New York Court Discusses Appellate Division Split Over Recoupment of Defense Costs Under a Duty to Defend Policy
- Delaware Law Governs D&O Policy Issued to Delaware Corporation Doing Business Outside the State
- Ohio Supreme Court Rules Computer Software Cannot Be Subject To “Physical Loss” Or “Physical Damage” Under Insured’s Property Insurance Policy
Popular Categories
- Occurrence/Accident
- Duty to Defend
- Insurance Coverage
- D&O Policies
- Pollution Exclusion
- Policy Exclusions
- CGL Policies
- E&O Policies
- Cyber Coverage
- Additional Insured Endorsement
- Business Interruption Coverage
- Construction
- Bad Faith Claims Handling
- COVID-19
- Indemnification and Advancement
- Damages
- Excess Insurance
- Duty to Cooperate
- Advertising Injury
- Rules of Interpretation
- Related Claims
- Personal and Advertising Injury
- Covered Loss
- Insurance Brokers
- Confict of Laws
- Discovery/Disclosure
- Appraisal
- Attorney Fees
- Assignment of Claims
- Disability discrimination
- Implied Covenant of Good Faith and Fair Dealing
- Notice
- Privilege/Work Product
- Priority of Coverage
- Intellectual Property
- Contracts
- Professional Malpractice
- Intervention/Joinder
- Rescission
- Subrogation
- Settlements
- General Business Law
- Unfair Claims Settlement Practices
Archives
- September 2023
- August 2023
- June 2023
- May 2023
- April 2023
- March 2023
- January 2023
- December 2022
- September 2022
- May 2022
- April 2022
- March 2022
- November 2021
- June 2021
- February 2021
- January 2021
- December 2020
- November 2020
- October 2020
- September 2020
- August 2020
- April 2020
- March 2020
- February 2020
- January 2020
- December 2019
- November 2019
- October 2019
- September 2019
- August 2019
- July 2019
- May 2019
- April 2019
- March 2019
- February 2019
- January 2019
- December 2018
- November 2018
- October 2018
- September 2018
- August 2018
- July 2018
- May 2018
- April 2018
- March 2018
- February 2018
- January 2018