The New York State Court of Appeals (New York’s highest court) has agreed to hear re-argument on K2 Investment Group LLC v. American Guarantee & Liability Insurance Company, 2013 N.Y. LEXIS 1461 (N.Y. June 11, 2013). In K2, the Court held that a liability insurer that declined to provide a defense to its insured on the basis that the liability alleged was not covered might waive all policy defenses if it was later held that a defense should have been supplied.

The grant of re-argument appears to be a recognition by the Court that it overlooked its prior holding in Servidone Constr. Corp. v. Security Ins. Co., 64 N.Y.2d 419 (1985), that a Court cannot “[enlarge] the bargained for coverage as a penalty for breach of the duty to defend.” The decision in K2 markedly diverges from the rule pronounced by Servidone and the 30 years of following case law.

It is expected that the decision to reconsider the K2 ruling should result in a clarification presumably consistent with the holding in Servidone.