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Court Finds No Defense Duty Due to Damage Claim (NY)

December 13, 2013

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When evaluating whether a lawsuit against an insured triggers a duty to defend, insurers often focus on the complaint's factual allegations of liability.  Recently, in <a href="http://www.nycourts.gov/reporter/3dseries/2013/2013_08112.htm" target="_blank" rel="noopener"><i>Certain Underwriters at Lloyd’s London Subscribing to Policy Number SYN-1000263 v. Lacher &amp; Lovell-Taylor</i></a>, it was determined that the damages alleged in the underlying action brought the claim outside of the scope of coverage of the professional liability policy issued by the plaintiffs.
The Appellate Division, First Department upheld the trial court’s award of summary judgment declaring that the insurer was not obligated to defend or indemnify the defendants in the underlying estate proceeding, and also granted summary judgment on its cause of action for reimbursement of its defense costs.
The complaint in the underlying action claimed that the defendants overbilled their client in the underlying estate proceeding, but they never alleged facts which would have shown that if not for their negligence, they would have obtained a better result.  The Court also focused on the fact that a damage claim for the return of legal fees is not a claim for “damages” in a legal malpractice action as defined by the professional liability policy the insurers issued.
Based on the court’s determination that the insurer did not owe an obligation to defend and indemnify, it is important that insurers evaluate not only the facts of the event which give rise to potential liability for a claim, but also the damages sought, in order to determine whether there is an obligation to provide coverage.
Thanks to Jorgelina Foglietta for her contribution to this post.

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