Case Summary: Scottsdale Insurance Company v The City of New York

Outline:

• Facts
• Courts Ruling
• Why Does The Case Matter for Claims Handling
• Practice Takeaways

(click on links to advance to the sections)

---

The Appellate Division, First Department unanimously affirmed an order requiring a contractor’s insurer to continue defending the City of New York and to pay the City’s attorneys’ fees. It did so even though no single written contract expressly required the City to be named as an additional insured. The decision is a sharp reminder that coverage obligations can arise from permits and can be locked in by delay.

---

⚡️ What Happened:

• A contractor obtained a DOT permit to perform work in New York City.
• The permit required the contractor to name the City as an additional insured on certain policies.
• The contractor accepted the permit, performed the work, and issued a certificate of insurance listing the City as an additional insured.
• After an underlying negligence action was filed, the plaintiff insurer defended the City for nearly three years.
• Close to trial, the insurer disclaimed coverage and sought a declaration that it owed no duty to defend or indemnify the City and that coverage was capped at $1 million.
• The City counterclaimed, seeking a declaration of coverage and attorneys’ fees.

The First Department relied on this principle to hold that the DOT permit—accepted and acted upon by the contractor—formed part of a binding agreement requiring additional insured coverage.

---

📝 Court’s Ruling:

• Duty to Defend Affirmed: The DOT permit, certificate of insurance, and contractor’s performance collectively created a binding obligation to name the City as an additional insured.
• Estoppel Applied: By defending for approximately three years before disclaiming, the insurer prejudiced the City, which relied on coverage in controlling its defense and pursuing settlement.
• No $1 Million Cap: The insurer never pleaded a policy limit defense. In any event, incorporated Highway Rules required the City to receive the same $6 million limits as the contractor.
• Attorneys’ Fees Awarded: Because the City prevailed after being forced into a defensive posture by the insurer’s declaratory judgment action, recovery of fees was proper.

---

🧭 Why This Case Matters for Claims Handling:

• Permits Matter: Coverage obligations can arise from regulatory permits, even without a traditional contract.
• Certificates + Conduct Count: Courts will look beyond formal agreements to how the parties actually operated.
• Late Disclaimers Are Dangerous: Defending for years can estop an insurer from later denying coverage, especially on the eve of trial.
• Policy Limits Must Be Pleaded Early: Failure to raise limits in the pleadings can forfeit the argument entirely.
• Fee Exposure Is Real: Wrongly disclaiming can lead not only to defense obligations, but also attorneys’ fees.

---

Key Legal Takeaways:

• A binding insurance obligation may be formed from multiple writings, including permits and certificates.
• Acceptance of a permit and performance of work can equal assent to insurance conditions.
• Estoppel applies where a late disclaimer prejudices the insured’s right to control its defense.
• Additional insureds may be entitled to the same policy limits as the named insured.
• Insurers risk fee-shifting when they unsuccessfully litigate to escape coverage.

---

▌ Practice Takeaway: For claims professionals and litigators, this case underscores the need to analyze permits, certificates, and defense history early. If you defend first and ask questions later, New York courts may hold you to that decision, with expanded limits and attorneys’ fees attached.

---

👉 Explore more New York decisions affecting claims handling, motion practice, and litigation strategy at New York Civil Law — Case Summaries & Legal Updates. Clearly Explained

Photo Credit to Ashkan Forouzani