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A PLAINTIFF’S STIPULATED SETTLEMENT WITH THE INSURED ACCOMPANIED BY A COVENANT NOT TO EXECUTE THE JUDGMENT AND AN ASSIGNMENT OF THE INSURED’S CLAIMS AGAINST THE INSURER IS NOT A “RELEASE;” THE INSURER STILL HAS A DUTY TO INDEMNIFY (FIRST DEPT).

The First Department, reversing (modifying) Supreme Court, in a full-fledged opinion by Justice Kapnick, determined defendant insurer had a duty to indemnify plaintiffs under a policy issued to a bar sued by plaintiffs for using plaintiffs’ images without their consent. Plaintiffs had entered a settlement agreement with the bar which included a consent judgment in which plaintiffs agreed to forgo execution of the judgment in consideration for the bar’s assignment of its rights against the insurer. The insurer agued the settlement agreement constituted a release, extinguishing its obligation to indemnify. The First Department, in a matter of first impression, held the agreement was not a release and the insurer still had a duty to indemnify:

In New York, the legal ramifications of a general release in the context of an insured/insurer relationship are clear; a general release in favor of an insured abolishes any present or future duty of indemnification on the part of the insurer … . However, it appears that no New York precedent exists on the issue presented here: whether the insurer’s liability is maintained where, in settlement, a consent judgment is entered that incorporates an assignment of the insured’s rights against the insurer coupled with a covenant not to execute on the judgment. * * *

We conclude … that a stipulated judgment … accompanied by a covenant not to execute and an assignment of claims can be enforced against an insurer. Geiger v Hudson Excess Ins. Co., 2025 NY Slip Op 04609, First Dept 8-7-25

Practice Point: Here the plaintiffs settled with the insured in return for the assignment of the insured’s claims against the insurer. In a matter of first impression, the First Department held that the covenant not to execute the judgment against the insured (included in the settlement agreement) was not a “release” which extinguished the insurer’s duty to indemnify. The duty to indemnify remains.

 

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