City of New York v. Harleysville Insurance Company

Background

The City of New York brought this insurance-coverage action seeking a declaration that Harleysville Insurance Company is obligated to defend the City in two underlying personal-injury actions: Banerjee v. City of New York et al. and M.M. ex rel. Calderon v. City of New York et al. The court was addressing whether additional disclosures related to those underlying actions were discoverable in the coverage case.

Harleysville argued that it was entitled to the additional discovery. The City argued that discovery should be limited to the contracts, insurance policies, and tender correspondence involving the underlying actions. Judge Ronnie Abrams had referred the case to Magistrate Judge James L. Cott for general pretrial supervision, including this dispute.

Court’s reasoning

The court stated that it was not deciding whether Harleysville had waived its “products-completed operations hazard” defense. The court also noted that Harleysville’s disclaimer letters indicated that it had already reviewed information about the underlying claims and materials from its insured.

The court explained that, under New York law, an insurer’s duty to defend generally is determined by comparing the allegations in the underlying complaint with the operative insurance policy. The duty arises when the allegations suggest a reasonable possibility of coverage. The court further explained that an insurer generally may not rely on facts learned outside the “four corners” of the underlying complaint. A narrow exception may apply when extrinsic evidence unrelated to the merits of the underlying action plainly places the claim outside the policy’s coverage.

The court concluded that the discovery Harleysville sought was extrinsic evidence overlapping with the merits of the underlying actions. The principal issue was whether the allegations in those complaints triggered a duty to defend, not what later discovery in those actions might show. The court also rejected the argument that deciding the duty to defend would be premature before the requested discovery was produced.

Disposition

The court denied Harleysville’s request for additional discovery. The order did not decide whether Harleysville owed the City a defense, whether the products-completed operations hazard defense was waived, or the ultimate coverage issues.