A recent New York Appellate Division decision is a breath of fresh air for policyholders. In State of New York Insurance Department Liquidation Bureau v. Generali Insurance Co., the Appellate Division, First Department, found that insurance companies had to cover all shares of defense and settlement costs related to lead paint claims, and could not pro-rate the costs to the policyholder, even when there were significant periods of time in which the policyholder had no insurance. 

 

In discussing the Generali decision, the author writes: “The decision should have great impact on policyholders who are negotiating with their insurers regarding any sort of payments – defense or indemnity. Insurers, particularly when the applicable state law calls for pro rata allocation, take the position that the policyholder must pay portions of defense costs based on the fraction of time where the policyholder had not bought insurance. But this case establishes law in New York that the policyholder is not responsible for paying any defense or indemnity costs, without regard to the unavailability of coverage in certain years. Rather, the insurers must divide defense costs by equal shares, and indemnity costs by a fraction that looks to the number of months they were on the risk and that of existing insurance coverage in total.”

 

Godes also notes that the Generali decision is a great victory for policyholders “because the court refused to require policyholders to pay any defense costs, even in light of periods not covered by insurance. Therefore, when policyholders negotiate coverage-in-place or claims handling agreements, they should cite this case as supporting a refusal to be assigned shares of defense costs, without regard to uncovered periods.”

 

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