An insurer obligated to defend its insured typically has a duty to defend against all claims in a lawsuit against its insured, even where certain specific claims are not covered by the policy. Where more than one insurer covers the same or overlapping risks, however, disputes may arise over allocation of defense costs among the triggered insurance policies. These disputes become more difficult to resolve where a claimant alleges certain claims that are covered by one policy and other claims covered only by a second policy issued by a different insurer. To determine how to allocate defense costs between these policies, courts examine the risks covered by the policies and the other insurance clauses to determine if one policy is excess to the other and to provide guidance as to how, or if, the insurers must share the costs.
Two recent Appellate Division, First Department, decisions have made predicting how courts will resolve disputes over allocation of defense costs more challenging because they appear to adopt different approaches to allocation disputes involving overlapping insurance. In Sport Rock Int’l Inc. v. American Cas. Co. of Reading, Pa.,1 a decision issued in May 2009, the First Department held that where two primary policies cover the same risk but one has an other insurance clause that makes it excess, the duty to defend in the policy with the excess other insurance clause will not be triggered until the other primary policy is exhausted, even if some of the claims alleged against the insured are potentially covered only by the policy with the excess other insurance clause.
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