HERE IN THIS PERSONAL INJURY ACTION, BASED ON PLAINTIFF’S ALLEGATION HE WAS AN INDEPENDENT CONTRACTOR WORKING FOR THE INSURED EMPLOYER, THE INSURER WAS OBLIGATED TO DEFEND THE EMPLOYER; INSTEAD THE INSURER DISCLAIMED COVERAGE AND PLAINTIFF TOOK A DEFAULT JUDGMENT AGAINST THE EMPLOYER; ON APPEAL, THE INSURER WAS FOUND LIABLE FOR THE DEFAULT JUDGMENT UP TO THE POLICY LIMITS (FOURTH DEPT).

The Fourth Department, reversing (modifying) Supreme Court, determined defendant insurer was obligated to defend plaintiff’s personal injury action against plaintiff’s employer, Lipinski. Plaintiff alleged he was an independent contractor. The insurer disclaimed coverage on the ground plaintiff was an employee entitled to workers’ compensation. But, because of plaintiff’s allegation he was an independent contractor, the insurer was obligated to defend: The insurer was therefore obligated to pay the damages assessed in the default judgment against Lipinski up to the policy limits:

An insurer’s “duty to defend is exceedingly broad and an insurer will be called upon to provide a defense whenever the allegations of the complaint suggest . . . a reasonable possibility of coverage” … . “If, liberally construed, the claim is within the embrace of the policy, the insurer must come forward to defend its insured no matter how groundless, false or baseless the suit may be” … . Here, the complaint in the underlying personal injury action alleged that plaintiff was an employee of Lisinski but also included the alternative allegation that plaintiff was an independent contractor. Thus, defendant was required at least to provide Lisinski with a defense … . Instead, defendant disclaimed coverage on the ground, inter alia, that plaintiff was an employee and therefore a policy exclusion precluded coverage inasmuch as plaintiff would be covered by a workers’ compensation claim. * * *

An insurer’s “duty to defend is exceedingly broad and an insurer will be called upon to provide a defense whenever the allegations of the complaint suggest . . . a reasonable possibility of coverage” … . “If, liberally construed, the claim is within the embrace of the policy, the insurer must come forward to defend its insured no matter how groundless, false or baseless the suit may be” … . Here, the complaint in the underlying personal injury action alleged that plaintiff was an employee of Lisinski but also included the alternative allegation that plaintiff was an independent contractor. Thus, defendant was required at least to provide Lisinski with a defense … . Instead, defendant disclaimed coverage on the ground, inter alia, that plaintiff was an employee and therefore a policy exclusion precluded coverage inasmuch as plaintiff would be covered by a workers’ compensation claim. Shattuck v Dryden Mut. Ins. Co., 2026 NY Slip Op 03538, Fourth Dept 6-5-26

Practice Point: Consult this decision for insight into the risks taken by an insurer which wrongfully refuses to defend the insured and disclaims coverage. Plaintiff procured a default judgment against the insured and sued the insurer directly. The insurer was liable for the default judgment up to the policy limits.