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HNRK Coverage Corner

Insurer Fails to Establish Non-Cooperation Defense

On September 23, 2019, Justice Scarpulla of the New York County Commercial Division issued a decision in Those Interested Underwriters at Lloyd's, London v. AU Trading LLC, 2019 NY Slip Op 32803(U), denying an insurer’s motion for summary judgment on a coverage defense based on claim of noncooperation by the insured in the investigation of the claim.

The insured, AU Trading, was “engaged in the business of trading and storing various precious metals for nonparty customers.”  Following a burglary at a safe deposit vault, AU Trading made a claim to its insurer (Lloyds) for $2.53 million in stolen gold.  The claims investigation was complicated, in part, by Swiss privacy laws, which impacted AU Trading’s ability to disclosure certain information concerning its customers.  Lloyds eventually commenced a coverage action, arguing that the insured breached its duty to cooperate and the coverage was therefore void. Justice Scarpulla found that Lloyds had failed to establish this coverage defense on summary judgment, explaining:

Underwriters seek a declaration that Defendants materially breached their obligations under the Policy to cooperate with Underwriter's investigation of the claim, thereby voiding coverage under the Policy. In order to establish breach of a cooperation clause, the insurer must show that the insured engaged in an unreasonable and willful pattern of refusing to answer material and relevant questions or to supply material and relevant documents. The insurer must make this showing by a preponderance of the evidence.

The duty of an insured to cooperate with the insurer is satisfied by substantial compliance, and where a delay in compliance is neither lengthy nor willful, and is accompanied by a satisfactory explanation, preclusion of a claim is inappropriate.

Although the [policy] obligates Defendants to provide Underwriters with “all information they require for an evaluation of the loss,” Underwriters have failed to establish as a matter of law that much of the specific information they sought is material and relevant and required to evaluate the loss, or that Defendants have unreasonably refused to produce such information. . . .

Review of the record submitted, including the substantial and extensive correspondence between parties, shows that questions of fact exist as to whether Defendants’ conduct constitutes an “unreasonable and willful pattern” of noncooperation. The record reflects numerous communications and meetings between the parties and that Defendants produced numerous records; Defendants also maintain that they intended to cooperate and provide all information that was reasonably required for the Investigation and that they hired [attorneys] in an attempt to cooperate with Underwriters and comply with their demands. In any event, the record suggests that Underwriters and [the insurer’s claims adjuster] are also at least partially responsible for delaying the Investigation.

To get paid for a covered loss, insureds have to satisfy certain conditions, such giving notice of the claim and cooperating with the insurer’s claims investigation.  As this decision illustrates, these obligations are not boundless.  Insurers cannot manufacture roadblocks to coverage by making unreasonable demands for information, and then invoking the policy’s “cooperation” provision as a basis to deny coverage.

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