Insurer Ordered to Provide Defense Where Consideration of Facts Outside the Complaint Suggested a "Reasonable Possibility of Coverage"

On October 1, 2015, Justice Bransten of the New York County Commercial Division issued a decision in General Star Indemnity Co. v. Telomerase Activation Sciences, Inc., 2015 NY Slip Op. 31850(U), ruling that an insurer was obligated to provide a defense to its insured where the allegations of the complaint brought against the insured, and consideration of additional facts outside the complaint, suggested a "reasonable possibility" of coverage.

In General Star Indemnity, the insured, Telomerase Activation Sciences, Inc. ("TASI"), was sued under Section 349 of the General Business Law for alleged "deceptive acts and practices" in marketing an anti-aging product called TA-65 – specifically, failing to disclose that "use of TA-65 was associated with malignant tumor formation." TASI sought coverage for the lawsuit under a General Commercial Liability Policy that covered claims alleging "bodily injury." The insurer brought suit for a declaratory judgment that it was not obligated to defend the underlying lawsuit and the parties cross-moved for summary judgment on the coverage issue. The court granted TASI's cross-motion for summary judgment and ordered the insurer to defend the lawsuit.

Justice Bransten first explained the scope of an insurer's duty to defend under New York law, which is broader than the duty to indemnify:

An insurer's duty to defend is liberally construed and is broader than the duty to indemnify, in order to ensure an adequate defense of the insured. An insurer has an obligation to defend whenever the allegations of the complaint suggest a reasonable possibility of coverage or if facts outside the complaint suggest that the claim is within the scope of the relevant insurance policy. Thus, an insurer can avoid its obligation to defend only where there
is no possible factual or legal basis on which an insurer's duty to indemnify under any provision of the policy could be held to attach.

Moreover, if any of the claims against an insured arguably arise from covered events, the insurer is required to defend the entire action. It is immaterial that the complaint against the insured asserts additional claims which fall outside the policy’s general coverage.

(Citations omitted.)

Applying these standards, Justice Bransten rejected the insurer's argument that “the claims brought in the Underlying Action are not for 'bodily injury,'" but are instead "solely for violations of New York General Business Law Section 349." The Court explained:

An insurer can avoid its obligation to defend only where there is no possible factual or legal basis on which an insurer’s duty to indemnify under any provision of the policy could be held to attach. The Egan Complaint alleged that Egan was diagnosed with prostate cancer in September 2011, sometime after he started using TA-65. The Egan Complaint also alleges that TASI failed to warn consumers that malignant tumor formation may be a side-effect of using TA-65. The Egan Complaint also alleges that TASI failed to warn consumers that malignant tumor formation may be a side-effect of using TA-65.

In New York, courts may also consider facts outside the complaint to determine whether an insurer has a duty to defend. In this case, the facts suggest Egan is Claiming "bodily injury." For example, the claim form TASI sent to General Star on October 18, 2011 states that "the claimant is alleging that the product 'TA-65' Caused or acerbated her cancer." Not only does this suggest "bodily injury," it suggest General Star had actual knowledge of the fact. Further, during his Deposition, Egan was asked, "What" are your claims as to your actual damage in this lawsuit, this lawsuit we're here for today?" Egan responded, in part, "My damages are TA-65 exacerbated my cancer . . . ." Such statements create more than a reasonable possibility that Egan's claim is for "bodily injury."

(Citations omitted).

This decision illustrates the broad scope of the insurer’s duty to defend under New York law. See our Client Q&A post on this topic, by Schlam Stone partner Bradley Nash, here.