Here's yet another example of why it often pays to fight an insurance company's disclaimer of coverage.

In a decision that was handed down last week, New York's Appellate Division, Second Department (which oversees Brooklyn, Queens, Nassau, Suffolk, Westchester and Richmond Counties) held that Burlington Insurance Company, which issued a commercial general liability insurance policy to Guma Construction Company, was obligated to defend Guma in a personal injury action where it is claimed that they had caused this claimant's injury through their negligent construction, alerations, demolition and repair work. More specifically, the plaintiff alleged that Guma had improperly removed piping, and negligently used torches in course of its work, which proximately caused the plaintiff's injuries.

Since the insurance policy also contained an endorsement which limited the coverage to claims that arose out of  "Garbage, Ash or Refuse Collecting" (the areas of work which Guma had written on their application for insurance), Burlington disclaimed coverage on the grounds that this particular Brooklyn-based personal injury lawsuit did not fall within the ambit of coverage afforded by the policy.

Importantly, however, the Appellate Court affirmed the lower court's finding that Burlington was obligated to defend its insured, Guma, in the underlying accident case because the plaintiff's claims "suggested a reasonable possibility of coverage, and that Burlington consequently had a duty to defend it."

Although it remains distinctly possible, and even likely, that Burlington may not be obligated to indemnify Guma against any adverse jury verdict, this decision in Guma's favor is still important because they will not have to pay the legal costs associated with defending the personal injury action.