The Critical Difference Between Insurance Policies and Regular Contracts in New York
Over 3 years ago, we wrote about why it may pay to fight your insurer's disclaimer of coverage under NY law. One of the principal reasons for doing so is that even if it turns out that the claim you were sued for turns out to be a loser, or even a stretch as to whether the claim is covered under that particular insurance policy, your insurer is still obligated to defend you against the claim. More important, under these circumstances, the insurance company must defend your interests even if a court ultimately decides that they are not obligated to indemnify you for this claim.
As New York's courts have put it, "Under New York law, an insurer's duty to defend is broader than its duty to indemnify. Ruder & Finn Inc. v. Seaboard Surety Co., 422 N.E.2d 518, 521 (N.Y. 1981) ("It is a well-established legal principle that the duty of an insurer to defend is broader than its duty to pay."). If "any of the claims against an insured arguably arise from covered events, the insurer is required to defend the entire action"; it is "immaterial that the complaint against the insured asserts additional claims which fall outside the policy's general coverage." Town of Massena v. Healthcare Underwriters Mut. Ins. Co., 779 N.E.2d 167, 170 (N.Y. 2002) (internal citations and quotations omitted). Insurers may thus be required to defend against intentional torts that they cannot be required to indemnify. See Pub. Serv. Mut. Ins. Co., 425 N.E.2d at 814-15."
This is a critical distinction from indemnity provisions in contracts between two regular parties that aren't insurance companies, because in those circumstances, the indemnitor's duty to defend is substantially narrower, as its "duty to defend its contractual indemnitee is no broader than its duty to indemnify." Inner City Redevelopment Corp. v. Thyssenkrupp Elevator Corp., 913 N.Y.S.2d 29, 30(1st Dep't 2010); see also Bellefleur v. Newark Beth Israel Med. Ctr., 888 N.Y.S.2d 81, 84 (2d Dep't 2009).
This is an important reminder why you should never take an insurer's disclaimer at face value; even if it turns out that the insurer is not obligated to indemnify you, you may be able to save a signficant amount of money you would otherwise spend defending the action.