In an article published in this newspaper,1 we questioned whether the initial New York Court of Appeals decision in K2 Investment Group v. American Guarantee & Liability Ins.,2 or K2-I, was radical in its broad pronouncement that “[w]hen a liability insurer has breached its duty to defend its insured, the insurer may not later rely on policy exclusions to escape its duty to indemnify the insured for a judgment against him.”3 We also highlighted that, in the course of hearing argument and issuing this holding, the Court of Appeals had essentially recast the issue on appeal, from how a default judgment against the insured affects the applicability of exclusions for the duty to indemnify, to whether the insurer can even raise those exclusions after breaching its duty to defend.
Some immediately argued that K2-I ignored the court’s previous holding in Servidone Const. Corp. v. Security Ins. Co. of Hartford4—namely, that “an insurer’s breach of [its] duty to defend does not create coverage.”5 Others disagreed, writing that the K2-I holding was consistent with established law.6 We took a middle ground and suggested that K2-I could be viewed as an incremental step, but we also highlighted the difference between the issue actually appealed with the issue actually decided. As our article went to press, reargument had been requested in K2-I. What has happened since then is that the Court of Appeals executed a double reverse.
