The Appellate Division, First Department in Federated Dep’t Stores, Inc.  v. Twin City Fire Ins. Co. recently wrestled with the proporiety of the insurer’s  ultimate disclaimer of coverage once it learned of the true facts regarding a contract between a department store (which was claiming that it had additional insured status) and a specialty vendor that created displays in the department store.  The issue was whether an insurer may be estopped from disclaiming coverage when it undertook the defense of a putative additional insured based on the additional insured’s incorrect representations regarding facts necessary to trigger coverage and without additional investigation. The First Department held that the insurer’s assumption of the defense without knowledge of the true facts would not estop an insurer from successfully disclaiming coverage upon learning of the true facts.

The case is extremely fact-intensive, so you will be best served to analyze the decision.

Disclaimer:  My firm represented the insurer in this appeal.