Houston Casualty Company v. Prosight Speciality Insurance Company

Background

This federal declaratory-judgment action arose from consolidated New York state-court personal-injury lawsuits involving an elevator accident at premises owned by New York University Hospitals Center (NYUHC). Tyrone Jadusingh alleged that an elevator-related accident caused him severe injuries. He and Sheila Jadusingh sued NYUHC, and later added Nouveau Elevator Industries, Inc. and Turner Construction Company. The state-court litigation included negligence, New York Labor Law, loss-of-consortium, and medical-expense claims.

NYUHC and Nouveau had an agreement under which Nouveau maintained and repaired the elevators. The agreement required Nouveau to obtain insurance benefiting NYUHC and required Nouveau to defend and indemnify NYUHC for covered claims, except claims resulting from NYUHC’s willful misconduct or negligence. Nouveau obtained a general-liability policy from New York Marine and General Insurance Company. The policy provided coverage for bodily-injury claims and stated that the insurer had a duty to defend an insured against covered lawsuits. The opinion refers to the defendant named in the caption as New York Marine because HCC apparently sued it under the name “Prosight Speciality Insurance Company.”

Houston Casualty Company (HCC), which had been providing a defense to NYUHC and Turner under a policy issued to E-J Electric Industries, Inc., sued New York Marine. HCC alleged that New York Marine’s policy was primary and that New York Marine had failed to defend and indemnify NYUHC. HCC sought declarations concerning NYUHC’s additional-insured status, New York Marine’s duties to defend and indemnify, and HCC’s right to reimbursement.

Remaining issue

The parties resolved the underlying duty-to-defend dispute by agreement, with New York Marine conceding that it had a duty to defend NYUHC. They could not resolve whether New York Marine also had to pay the fees and expenses NYUHC incurred in establishing that duty. The opinion notes that the parties’ briefs did not clarify whether the disputed fees included fees incurred in the federal action as well as fees incurred in the state-court litigation. The court stated that its resolution would apply to both types of fees if both were in dispute.

The parties agreed that New York law governed. HCC relied on New York decisions allowing an insured to recover fees incurred in successfully defending against an insurer’s attempt to avoid its duty to defend. New York Marine relied on decisions stating that an insurer’s duty to defend does not cover affirmative litigation initiated by an additional insured against its own insured.

Court’s analysis

The court relied on New York authority recognizing that an insurer’s duty to defend extends to an action arising from the covered occurrence, including litigation concerning the insurer’s duty to defend. Although the cited leading case involved an insured defending against an insurer’s declaratory-judgment action, the court concluded that fee recovery does not mechanically depend on which party formally filed the action.

The court found that NYUHC was effectively placed in a defensive position because Nouveau and New York Marine repeatedly denied that NYUHC was entitled to a defense. Nouveau denied the duty in its answer to NYUHC’s third-party complaint and sought a declaration against NYUHC. New York Marine later denied the duty in its answer in the federal case. The court found that these denials forced NYUHC to litigate and made the dispute over the duty to defend unavoidable, rather than making NYUHC’s litigation premature or unnecessary.

The court distinguished cases involving affirmative claims unrelated to defending the underlying liability lawsuit, cases involving the anti-subrogation rule, and cases involving requests for independent counsel during a joint defense. It held that those authorities did not address an insured that was forced to initiate successful litigation after an insurer persistently denied its duty to defend.

Disposition

The court held that NYUHC and HCC, which stood in NYUHC’s place, were entitled to the fees incurred in litigating New York Marine’s duty to defend. The court denied HCC’s request to file a reply and New York Marine’s request to file a sur-reply. It directed the clerk to terminate the motion pending at docket 37 and close the case. The opinion did not state a specific fee amount.