McCarter English LLP on New York Insurance Department Opinion No. 08-10-07: An Insurers Duty to Defend Under a Directors and Officers Insurance Policy

McCarter English LLP on New York Insurance Department Opinion No. 08-10-07: An Insurers Duty to Defend Under a Directors and Officers Insurance Policy

 
The Office of General Counsel for the New York State Insurance Department (Department) recently rejected an insurance carrier’s proposed policy language for a directors and officers liability insurance policy (D&O Policy) that placed the duty to defend on the insured, in Opinion No. 08-10-07, 2008 NY Insurance GC Opinions LEXIS 230 (NY Insurance GC Opinions 2008). In this commentary, Steven Weisman and Cynthia Morrison of McCarter & English, LLP, examine an insurer’s current duty to defend in New York and how the proposed policy language would have modified the existing duty.
 
The commentary sets out the proposed policy language that the carrier had sought approval for. The authors then explain why the Department rejected the proposed language. “The Department concluded that requiring the insured to defend to the carrier’s satisfaction or to obtain all of the required approvals from the carrier resulting in the carrier trying to disclaim coverage for an otherwise covered claim, would run contrary to Insurance Law § 3420, which establishes that the insurer be directly responsible for paying claims on behalf of the insured.” In addition, the commentary states that “by placing the duty on the insured, the proposed Policy inappropriately conditions defense cost coverage on the insured taking charge of the defense.”
 
The commentary explains how the proposed policy language would have actually limited an insured’s control over its defense of a claim. The carrier had asserted that imposing the duty to defend on a carrier negatively impacted an insured’s ability to control its defense of a covered underlying liability claim. The commentary states that the opposite may occur. “Requiring the carrier to defend the insured against claims that may be covered under a D&O Policy may provide insureds with greater economic certainty without eroding an insured’s control of its defense.”
 
The commentary examines the advantages to placing the duty to defend upon insurers, including that “Placing the duty to defend on the carrier may reduce disputes between carriers and their insureds concerning the timing of payments and reimbursement of defense costs.” The commentary concludes “that carriers, admitted in New York, must issue D&O Policies to New York insureds that include a duty to defend their insureds.”
 

Subscribers can access the complete commentary on lexis.com. Additional fees may be incurred. (approx. 5 pages)