Breach of Cooperation Clause Shields Carrier From Duty to Indemnify
The cooperation clause in an insurance policy is an essential part of the insurance bargain. If the policyholder does not cooperate in the reporting or investigation of a claim, the coverage the policyholder paid for may be lost. In a recent case, a policyholder whose employees lied to investigators was found to have breached the cooperation clause and the insurer was relieved of its duty to indemnify the policyholder.
In Greater New York Mutual Insurance Co. v. Utica First Insurance Co., 2019 NY Slip Op 04041 (N.Y. App. Div. 1st Dep’t May 23, 2019), a fire caused damage to a building and to property of various tenants in the building. The insurers for the owner/manager and the tenants paid their insureds and sought recovery from the insurance carrier of the alleged tortfeasor whose employees allegedly caused the fire through negligent use of a torch to perform roof repairs. The insurance companies for the owner and tenants obtained default judgments against the alleged tortfeasor after its insurer disclaimed coverage and did not defend it in the underlying actions.
The insurer for the alleged tortfeasor moved for summary judgment based on its disclaimer and lost at the motion court. The Appellate Division reversed and granted summary judgment for the alleged tortfeasor’s insurance company. The appellate court found that the insurer had no duty to indemnify the alleged tortfeasor because the alleged tortfeasor had failed to make fair and truthful disclosures in reporting the incident, which the court held constituted a breach of the cooperation clause as a matter of law. As the court described, the alleged tortfeasor’s employees lied to the insurance company investigators about not having used torch on the roof.
The court held that the alleged tortfeasor’s failure to cooperate with the insurer’s investigation relieved the insurance company of its duty to indemnify. Notably, the court did not have to reach issues concerning the applicability of the policy’s roofing and willful violation exclusions.