A New York appellate court recently held that a coverage action was not rendered merely “academic” by the dismissal of the underlying property damage action because the insured continued to have a claim for litigation expenses incurred in defense of the underlying action. Judlau Contracting, Inc. v. WestChester Fire Ins. Co., 2007 NY Slip Op. 10493 (N.Y. App. Ct. Dec. 27, 2007).

Judlau, a contractor, was impleaded in a lawsuit involving property damage. It then tendered its defense as an additional insured to two insurance companies providing insurance policies its subcontractor. Both insurers denied coverage and, thereafter, Judlau filed a declaratory judgment action to resolve the coverage issues. The underlying lawsuit was dismissed, leading the trial court in the coverage action to dismiss the declaratory judgment claim as “academic."

On appeal, the court affirmed the dismissal with regard to the first insurer because it found that the Judlau’s late notice was unreasonable as a matter of law. As to the second insurer, however, the court reversed the dismissal. In doing so, the court held that, because Judlau continued to have a claim for litigation expenses incurred in defense of the underlying action, the coverage action therefore was not merely “academic.” The court further found that the second insurer was not entitled to dismissal because it failed to present documentary evidence sufficient to establish that its policy was not implicated by the allegations in the underlying action.

A copy of the complete opinion is available here.