Daniel Zemann, Jr. and Portia Reid Defeat Appeal to Second Circuit

September 3, 2012

Daniel Zemann, Jr. and Portia Reid defeated an appeal to the United States Court of Appeals, Second Circuit in the matter of Preferred Construction, Inc. and Nova Casualty Company v. Illinois National Insurance Company, an insurance coverage action involving the application of the anti-subrogation rule in the context of excess insurance and the duty to defend.

The coverage action arose out of an underlying Labor Law claim by an employee of the insured subcontractor, Preferred Construction, against the owners and general contractor of a construction project. Nova Casualty Company, as Preferred's primary insurer, provided a defense to the owners and general contractor in the Labor Law action. The owners and general contractor then filed a Third-Party Complaint against Preferred for contractual indemnity. In an attempt to avoid the constraints of the anti-subrogation rule, the Third-Party Complaint only sought contractual indemnity for amounts in excess of the primary policy limits. When Illinois National declined to defend Preferred against the third-party action, Preferred and Nova commenced a separate declaratory judgment action against Illinois National.

Mr. Zemann and Ms. Reid, on behalf of Illinois National Insurance Company, immediately moved for summary judgment on the basis that the condition precedent to triggering the excess coverage, exhaustion of the primary policy, had not been met. They prevailed in the Southern District of New York and the coverage action was summarily dismissed. Plaintiffs appealed to the Second Circuit Court of Appeals, which affirmed the lower court's ruling. In its decision, the Second Circuit adopted London Fischer's arguments and noted that requiring Illinois National to defend in these circumstances would “eviscerate the general rule that the excess insurer may elect to participate in an insured’s defense to protect its interest, [but] has no obligation to do so.”