Under the terms of most, if not all, liability insurance policies, the policyholder has a "duty to cooperate" with its liability insurer. Although the specific language of the liability insurance policy will vary, most liability insurance policies require the policyholder to assist in the defense of suits triggering the liability insurer's duty to defend and to assist the insurer in settling such suits and enforcing any right of contribution against third parties. This "duty to cooperate" under liability insurance policies can be contrasted with the broader duty of an insured under most property insurance policies to cooperate in the insurer's investigation of a claim by, for example submitting a sworn proof of claim or appearing for an Examination Under Oath.

New York courts have recognized there are limits on a liability policyholder's duty to cooperate, particularly when an insurer has refused to defend the policyholder or has agreed to defend its policyholder under a "Reservation of Rights" whereby the insurer reserves the right to deny coverage.

How a Conflict of Interest Limits the Duty To Cooperate. To begin with, the duty to cooperate "applies only when the insurer and insured are in a relationship of some trust to each other," one akin to a fiduciary relationship. 14 Steven Plitt et al., Couch on Insurance §199:9 (3d ed. 2019). Courts have found no such trust where insurance companies failed to defend or failed to pay for the defense of underlying claims. In such circumstances, courts have held that cooperation clauses of insurance policies were inapplicable. Id. Otherwise, if the duty to cooperate were not constrained in scope, it would unfairly allow insurance companies access to confidential defense information, since insurers would be able to both demand cooperation from their insureds and simultaneously build their case against coverage. Id.