The New York Supreme Court's Appellate Division, while dismissing a complaint against several professional liability insurers and reinsurers on forum non conveniens grounds, has noted in dicta that if the case had remained in New York state court, it would have sustained an interim award of defense costs, pending resolution of the insurers' attempt unilaterally to rescind the underlying policy. Ghose v. CNA Reinsurance Co. Ltd., 20070 WL 2493379 (N.Y. App. Div. Sept. 6, 2007).
The defendants had underwritten a directors and officers liability insurance policy issued to a Bermudian company. After investors sued the company's directors and officers in Australia, the insurers notified the directors and officers that they were considering rescinding the policy because of misrepresentations in the company's prospectus and a policy renewal application. One of the company's officers then filed an action against the insurers in New York state court for a declaratory judgment, and one officer moved for partial summary judgment as to his right to reimbursement of defense costs, which the trial court granted.
In dismissing the complaint on forum non conveniens grounds, the appellate court observed in dicta that if the complaint had not been dismissed, the court would not have disturbed the interim award of defense costs. Citing Federal Insurance Co. v. Kozlowski, 792 N.Y.S.2d 397, 401-02 (N.Y. App. Div. 2005), the court explained that "New York law requires that a judicial order is a condition precedent to the cessation of payment for defense costs in circumstances where a claim has already been made." The court further noted that, "[e]ven if we were to accept underwriters' arguments that Bermuda law applies, we would conclude that the affidavit of the expert submitted by them, and the authority contained within, does not show that under Bermuda law, an insurer can unilaterally rescind a policy after a claim has been made."