The New York Court of Appeals granted a rehearing of a coverage decision that has wide ranging implications for the insurance industry. In K2 Investment Group LLC v. American Guarantee & Liability Insurance Co., decided on June 11, 2013, the Court of Appeals rejected American Guarantee’s argument that it was entitled to a trial over whether a policy exclusion applied after it had breached its duty to defend. In new found precedent, the Court of Appeals held that because the insurer had breached its duty to defend, the insurer could not rely on policy exclusions to escape its duty to indemnify. New York Courts had consistently dealt with the duty to defend and the obligation to indemnify separately, but the K2 decision mixed the two, penalizing insurers with an obligation to indemnify if the duty to defend was breached.
On Tuesday, September 3, 2013, the Court of Appeals agreed to re-hear the case at a date to be scheduled. The Court of Appeals gave no explanation to its decision to re-hear, but accepted briefs from the Complex Insurance Claims Litigation Association and the American Insurance Association.