The New York Court of Appeals, the state’s highest court, recently held that an insurer that breached its duty to defend could not later rely on otherwise applicable exclusions to deny coverage for indemnification.
Coincidentally, on June 11, 2013, the same day the Court of Appeals issued its decision in K2 Investment Group, the United States Court of Appeals for the Second Circuit issued its decision in CGS Industries, Inc. v. Charter Oak Fire Insurance Co. (June 11, 2013, Lynch, G.). In CGS Industries, the Second Circuit followed New York law as it was pre-K2 Investment Group law, finding that, although an insurer breached the policy contract by failing to provide a defense to its insured, it did not owe the insured indemnification. The CGS Industries opinion did not address the issue of bad faith.
For further details on the Court’s ruling, please see our Bad Faith Alert.