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November 30, 2010

Truth is Stranger than Life Insurance

The Appellate Division, Fourth Department, recently affirmed a Supreme Court holding granting summary judgment to the insurer of a nightclub concerning an altercation by the plaintiff with an employee of the nightclub. Nahshon Aaron Council vs. Utica First Insurance Company, App. Div. 4th Dept, October 1, 2010.

Plaintiff obtained a default judgment against a nightclub. Thereafter, plaintiff commenced a direct action against the nightclub's insurer seeking a declaration that the insurer was obligated to defend and indemnify its insured.

In the underlying action, the plaintiff alleged that he suffered an "assault" and that the nightclub was "negligent." As a result, the Appellate Division found that there was a duty on the part of the insurer to defend the nightclub based on the basic rule that "an insurer will be called upon to provide a defense whenever the allegations of the complaint 'suggest . . . a reasonable possibility of coverage' . . ."

On the duty to indemnify issue, the Court noted that plaintiff testified at a hearing for the default judgment, that he was injured when he was "tackled" by a bouncer at the nightclub. Regardless of the fact that the plaintiff alleged that he was injured as a result of negligence, the Court noted that "the record demonstrates that the attack was an unprovoked assault, and thus the event falls within the 'Assault and Battery' exclusion of the nightclub's insurance policy with defendant***." The Court further found that the insurer was not "estopped" from asserting that its insured acted intentionally by virtue of the finding of negligence in the underlying action. "Because the judgment was entered on default, the issue of negligence was not actually litigated in that action, and the finding of negligence therefore has no collateral estoppel effect***."

This case is significant in view of the facts and circumstances of the underlying claim. Frequently, where the liability insurer disclaims defense and indemnity to its insured, the plaintiff obtains a default judgment against the insured, and then proceeds directly against the insurer under the provisions of §3420 of the Insurance Law. This case underscores the fact that where a default judgment is obtained against an insured, a finding of negligence which is not actually litigated, does not collaterally estop the insurer from contesting that issue in the ensuing declaratory judgment action by the injured party.

If you require further information regarding the information presented in this Legal Alert and its impact on your organization, please contact any of the members of the Practice Area.

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