Case Update: New York August 2007
LIABILITY INSURANCE – DENIAL OF COVERAGE – DECLARATORY JUDGMENT
In Lang v. Hanover, 3 N.Y.3d 350, 787 N.Y.S.2d 211 (2004) the Court of Appeals held that no interested party can bring an action against a carrier unless the claim against the insured has been brought to judgment. There had been authority in the past that although no direct action to enforce a claim could be brought against a carrier without a judgment, interested parties such as plaintiffs and codefendants could initiate coverage declaratory judgment action to test the validity of a disclaimer. This is no longer permitted. However, the Court warned: “Finally we note that an insurance company that disclaims in a situation where coverage may be arguable is well advised to seek a declaratory judgment concerning the duty to defend or indemnify the purported insured. If it disclaims and declines to defend in the underlying lawsuit without doing so, it takes the risk that the injured party will obtain a judgment against the purported insured and then seek payment pursuant to Insurance Law Sec. 3420. Under those circumstances, having chosen not to participate in the underlying lawsuit, the insurance carrier may litigate only the validity of its disclaimer and cannot challenge the liability or damages determination underlying the judgment.” [MORE]