In a decision being discussed virally all over the Internet, the New York Court of Appeals in K2 Investment Group v. American Guarantee & Liability Ins.1 broadly announced the following in the first sentence of its opinion: "[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."2 Applying this principle, the Court of Appeals affirmed the injured parties' right to recover from the insurer the amount of a default judgment entered against the insured. The court held that, having breached its duty to defend the insured, the insurer could not rely on two exclusions to escape its duty to indemnify, and thus, could not raise these defenses in a direct action suit by the injured parties. How radical is this? As it turns out, very…and not so much.
On the one hand, the court silently rejected a basic principle which it had embraced almost 30 years ago in Servidone Const. v. Security Ins. of Hartford3—namely, that "an insurer's breach of [its] duty to defend does not create coverage."4 On the other hand, the Court of Appeals merely added to an already existing list of scenarios in which the insurer may lose rights that bear on the duty to indemnify.
This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.
To view this content, please continue to their sites.
Not a Lexis Subscriber?
Subscribe Now
Not a Bloomberg Law Subscriber?
Subscribe Now
LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.
For questions call 1-877-256-2472 or contact us at [email protected]
