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Denial By “Exclusion” Or “Lack Of Inclusion”

October 9, 2012

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In <em>Max Specialty Ins. Co. v. WSG Investors et al.</em>, a federal judge sitting in the Eastern District of New York recently issued a decision that limits when it is necessary to issue a disclaimer of coverage.  In the underlying action, an employee of WSG Investors, LLC fell off of a ladder while working on an exterior scaffold.  After the worker brought a Labor Law action in state court, Max Specialty Insurance Co. brought a declaratory judgment action in federal court seeking a declaration that it was not obligated to defend and indemnify WSG or any of the other defendants.
Max Specialty’s policy was written to only include two classes of coverage: “interior carpentry” and “dry wall or wallboard installation.”  Max Specialty argued that the exterior work was not covered under its policy.  As a defense, the defendants did not dispute that the loss was not covered under the classes of coverage.  They simply contended that they were entitled to coverage due to Max Specialty’s failure to issue a timely disclaimer.  The defendants viewed the creation of classes of coverage as an exclusion to cover only “interior carpentry” and “dry wall or wallboard installation.”
Using contract principles and citing to the lack of ambiguity in the policy the court held that when the policy as written could not have covered the liability in question under any circumstance (lack of inclusion), there is no insurance and therefore, no obligation to disclaim liability under New York Insurance Law §3420(d)(2).
Thanks to Michael Nunley for his contribution to this post.
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