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Criteria for Denial of Coverage Based Upon Noncooperation of the Insured Party Explained/Default Judgment In Favor of Defendant American States Re: Other Defendants Did Not Preclude, Under the Doctrine of Collateral Estoppel, Plaintiff’s Direct Action Against American States

The Second Department determined a question of fact existed about whether the “noncooperation-of-an-insured-party” rationale for denying coverage applied.  The court noted that a prior default judgment in favor of defendant American States re: other defendants did not preclude, under the doctrine of collateral estoppel, plaintiff’s direct action against American States:

American States prevailed in that declaratory judgment action against the defendants in the underlying action which determined that American States is not obligated to defend and indemnify the defendants in the underlying action. However, those orders were entered upon the underlying defendants’ default, and thus, did not collaterally estop the plaintiff from bringing the instant, direct action against American States pursuant to Insurance Law § 3420(a)(2) … . …

The noncooperation of an insured party in the defense of an action is a ground upon which an insurer may deny coverage, and may be asserted by the insurer as a defense in an action on a judgment by an injured party pursuant to Insurance Law § 3420(a)(2) … . In order to establish a proper disclaimer based on its insured’s alleged noncooperation, an insurer is required to demonstrate that “it acted diligently in seeking to bring about its insured’s cooperation, that its efforts were reasonably calculated to obtain its insured’s cooperation, and that the attitude of its insured, after the cooperation of its insured was sought, was one of wilful [sic] and avowed obstruction'” … . The insurer has a “heavy” burden of proving lack of cooperation … . Here, the submissions of the American States defendants were insufficient to sustain their prima facie burden on the cross motion for summary judgment, with respect to American States. West St Props LLC v American States Ins Co, 2015 NY Slip Op 00751, 2nd Dept 1-28-15

 

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