Insurer must indemnify school after vague denial is refused

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Insurer must indemnify school after vague denial is refused

The insurer based its denial on concerns that a bus driver involved in an accident may have been an employee and that the school may have owned the bus.

The U.S. Court of Appeals panel held that Philadelphia Indemnity Insurance Co.’s vague refusal to cover Yeshivat Beth Hillel of Krasna under a general liability insurance policy did not comport with New York law requiring a “high degree of specificity” regarding such determinations.

The U.S. Court of Appeals for the Second Circuit ruled that Philadelphia Indemnity Insurance Co.’s (PHLY) vague refusal to cover a Brooklyn school under a general liability insurance policy did not comport with New York law requiring a “high degree of specificity” regarding such determinations. Subsequently, the court ordered the Pennsylvania-based insurer to indemnify Yeshivat Beth Hillel of Krasna in a lawsuit by the parents of a child who was severely injured after being hit by a bus carrying its students.

According to the ruling, Philadelphia investigated Yeshivat’s claim after the child’s parents, Rami and Olivia Garber, sued the school. The company then sent a “reservation of rights letter” informing Yeshivat that the policy might not cover its claim.

Philadelphia sued Yeshivat three years later in Brooklyn federal court, seeking a declaratory judgment that it had no duty to defend or indemnify Yeshivat from the Garbers’ claims. Its denial was based on concerns that the bus driver may have been a school employee and that Yeshivat may have owned the bus.

However, the Second Circuit’s five-page summary order noted that neither of those circumstances “came to pass” and said that the denial did not meet the standards laid out under state law.

Insurer “knew or should have known” all facts

“The record shows that Philadelphia knew or should have known of all the material, relevant facts underlying the claim for which it sought to disclaim coverage,” the ruling stated. “The letter was therefore not an effective denial of coverage, even though it reaffirmed that the policy at issue was a ‘general liability policy, not an auto policy.’”

The panel included Judges Barrington D. Parker, Raymond J. Lohier Jr. and Steven J. Menashi.

Jack Glanzberg, who represented Yeshivat, said the court’s decision was ”in line with the long-standing principle in New York that a carrier has to timely disclaim coverage and to do so with specificity.”

“Philadelphia’s arguments did not sway the lower court on no less than three occasions, and it came as no surprise that the Second Circuit was unconvinced as well,” said Glanzberg of the Aboulafia Law Firm in White Plains.

The Garbers’ attorney, Joshua Kelner, said in a statement that he and his team were “very gratified” the Second Circuit’s ruling meant that “coverage would be available for a horribly injured child.”

“This affirms under New York law that an insurer cannot avoid coverage unless it disclaims with a high degree of specificity,” said Kelner of Kelner & Kelner in Manhattan.

Attorneys for Philadelphia did not immediately respond to requests for comment. Philadelphia was represented by Christopher Bradley of Marshall Conway Bradley Gollub & Weissman.

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