An often-overlooked 2020 New York federal court decision allows policyholders to potentially recover attorneys’ fees when they bring a declaratory judgment action against an insurance company that has made litigation inevitable by resisting its duty to defend. In Houston Casualty Company v. Prosight Specialty Insurance Company, 462 F. Supp. 3d 443, 444 (S.D.N.Y. 2020), the District Court for the Southern District of New York held that an insurance company’s duty to defend obliges it to pay for attorneys’ fees and costs that an additional insured incurred in attempting to establish the duty to defend at the time the insurance company resisted such a duty.

The Houston Casualty Company case concerned an underlying lawsuit brought against New York University Hospitals Center (NYUHC) by an individual who was injured on its premises. The individual was injured due to a mis-leveled elevator maintained by a New York corporation, Nouveau. NYUHC brought a third-party complaint against Nouveau, as it had agreed to hold NYUHC harmless for any claims or liabilities arising out of the maintenance and repair of elevators on NYUHC’s property.

Houston Casualty Company (HCC) issued a general liability policy to the injured individual’s employer and HCC provided a defense to NYUHC and the construction company on the site, but HCC asserted that the primary obligation to defend these lawsuits belonged to Nouveau’s general liability insurance company, New York Marine (Note: New York Marine was named incorrectly by the plaintiff, HCC, as Prosight in the case). HCC sought declaratory judgments as to NYUHC’s additional insured status; New York Marine’s duty to defend and indemnify NYUHC; and HCC’s entitlement to reimbursement for all amounts paid by HCC, including attorneys’ fees, for the defense of the underlying action. These questions were resolved by agreement of the parties, and New York Marine conceded it had a duty to defend. However, the district court considered one unresolved issue regarding “whether NYUHC is entitled to recover, from New York Marine, the fees and expenses it incurred in attempting, successfully, to establish New York Marine’s duty to defend NYUHC in the consolidated [underlying] lawsuits.” Id. at 449.Continue Reading New York’s exception allowing attorney’s fees for policyholders