P.J.P. Mechanical Corp., v. Commerce and Industry Ins. Co., 2009 NY Slip Op 04984 (App. Div. June 18, 2009)
The policyholder purchased a commercial general liability policy from the insured which covered work it was performing for the third-party general contractor. A pipe burst in one of the houses that the policyholder worked on and the general contractor alleged it was due to the negligence of the policyholder. No suit was instituted but the general contractor withheld the remaining contract balance owed to the policyholder as an offset for the property damage caused by the burst pipe. The policyholder requested the insurer to assign counsel to help the policyholder recover the contract balance. The insurer refused, alleging that it was not a claim as defined in the insurance policy and the policyholder obtained its own counsel and instituted an action against the general contractor to recover the disputed amount. The general contractor pled as an affirmative defense its right to offset any recovery based on damages sustained as a result of the negligence of the policyholder or its subcontractor. The insurer continued to deny the policyholder’s request for reimbursement of legal fees to recover the contract balance.
The policyholder then filed a declaratory judgment action against the insurer and the insurer moved for summary judgment claiming that the general contractor’s affirmative defense of negligence was not an occurrence as defined in the policy. The Appellate Court held that there is nothing in the policy language that requires a policyholder to either prosecute affirmative claims or reimburse the policyholder for the fees paid its counsel for such affirmative claims. The Appellate Court also held that an affirmative defense is substantially different from a counterclaim and although the insurer had a duty to defend the policyholder against a counterclaim, it did not have that same duty with regard to an affirmative defense. By holding that the setoff does not control essentially eliminate the pleading distinctions between affirmative defenses and counterclaims. Therefore, the insurer did not have a duty to defend the policyholder against the general contractor’s affirmative defense.
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By Richard J. Cohen and Sarah X. Fang
https://www.goldbergsegalla.com/attorneys/Cohen.html
https://www.goldbergsegalla.com/attorneys/Fang.html