A New York State appellate court recently held that a CGL insurer was entitled to contribution from the insured's D&O insurer for its equitable share of the defense costs incurred by the CGL insurer in defending two underlying actions against the insured that included causes of action that were not covered under the CGL policy, but were covered by the D&O policy. Fieldston Property Owners Ass’n, Inc. v. Hermitage Ins. Co., Inc., 2009 N.Y. Slip Op. 01429 (N.Y.A.D. Feb. 26, 2009).

In Fieldston, the insured provided notice of the two underlying actions to its CGL insurer and its D&O insurer, each of which actions contained a single cause of action for injurious falsehood that was covered under the CGL policy. The remainder of the causes of action were potentially covered under the D&O policy. The CGL insurer accepted the defense of both actions under a full reservation of rights. Although the D&O insurer did not dispute that its D&O policy provided coverage, it refused to contribute to the defense of the actions on the ground that its D&O policy's "other insurance" clause rendered its coverage excess to that provided by the CGL Policy. The court dismissed, with prejudice, the first underlying action in its entirety. As to the second underlying action, the court dismissed certain of the causes of action, including the injurious falsehood claim that was covered under the CGL Policy. The CGL insurer then demanded that the D&O insurer assume the defense of the second underlying action and subsequently filed a declaratory judgment action to recoup the D&O insurer's equitable share of the costs incurred defending the causes of action (other than the injurious falsehood claim) potentially covered under the D&O policy.

The trial court granted summary judgment in favor of the D&O insurer and the CGL insurer appealed. On appeal, the D&O insurer argued that, although some of the causes of action in the underlying actions were covered by its D&O policy, its "other insurance" clause rendered it an excess insurer and the CGL insurer a primary insurer, which “has a duty to defend without any entitlement to contribution from an excess insurer.” Therefore, the D&O insurer asserted that it was absolved of its duty to defend notwithstanding the fact that a number of causes of action were potentially covered under its D&O policy.

The appellate court disagreed, reversing the trial court's summary judgment in favor of the D&O insurer and granting summary judgment in favor of the CGL insurer, holding that the CGL insurer was entitled to contribution from the D&O insurer for its share of defense costs, other than those incurred in connection with the injurious falsehood claims. The court reasoned that because the CGL and D&O policies did not provide concurrent coverage, the "other insurance" clause was inapplicable to the risks of the other losses (including defense costs) that could result from causes of action that were not insured under the CGL policy. Therefore, according to the court, with respect to the risks that fell outside of the CGL Policy and within the scope of coverage provided by the D&O Policy, the D&O policy provided primary coverage.

For a copy of the decision, please click here.