A long-standing insurance coverage dispute involving Massachusetts Bay Insurance Company (MBIC), Hanover Insurance Group, and several other insurers has reached its conclusion, with the court ruling that MBIC and Hanover must bear the full liability for a $21 million judgment. The case, which stemmed from a severe construction accident in Brooklyn, tested the limits of indemnification obligations, policy notice requirements, and horizontal exhaustion principles.
The dispute arose from a 2016 construction accident at a property owned by 2939 LLC. A worker employed by Bulson Management, the contractor hired for renovations, suffered life-altering spinal injuries after falling from scaffolding. Under New York's strict Scaffold Law, liability for the incident extended beyond the contractor to include the property owner, 2939 LLC, as well as the tenant, Borgo Guglielmo LLC, doing business as Industria Superstudio.
MBIC and Hanover, which insured Borgo/Industria, initially provided legal defense for all parties, including 2939 LLC. However, when the court in the underlying personal injury case issued a $21 million judgment against 2939, Borgo/Industria, and Bulson, MBIC and Hanover paid $16 million of that amount but sought reimbursement from 2939’s own insurers - Seneca Insurance Company and Great American Insurance Company.
The key issue in the case revolved around whether 2939 LLC was entitled to coverage under MBIC and Hanover’s policies, and whether its own insurers had any obligation to contribute. MBIC and Hanover argued that their policies should only cover up to $5 million, the minimum insurance required under the lease agreement between 2939 and Borgo/Industria.
However, the court ruled against MBIC and Hanover, determining that 2939 was entitled to full indemnification from Borgo/Industria, meaning MBIC and Hanover were responsible for the entire amount paid. The court rejected their argument that the lease only required limited coverage, stating that the lease set a minimum insurance requirement but did not cap liability.
Seneca and Great American successfully avoided any obligation to reimburse MBIC and Hanover. The court found that Seneca was not liable because it had not received timely notice of the claim, which was a clear violation of its policy terms. The delay in notifying Seneca - more than three years after the accident - was deemed prejudicial, as it deprived the insurer of the opportunity to participate in legal strategy, settlement discussions, and potential defenses.
Great American also avoided liability due to policy language stating its coverage was excess to all other applicable insurance. The court found that MBIC and Hanover’s policies had to be fully exhausted before Great American’s coverage could even be considered, making any claim for reimbursement moot.
Additionally, the court ruled that MBIC and Hanover were stopped from denying coverage to 2939 LLC because they had undertaken its defense for more than four years without reserving their rights. Under New York law, insurers who assume a defense without reservation cannot later deny coverage, even if they later determine that coverage should not have been provided.
Ultimately, the court dismissed MBIC and Hanover’s claims with prejudice, affirming that they were fully responsible for covering the judgment. This ruling reinforces key principles for insurers, particularly regarding the importance of reserving rights early in a coverage dispute, adhering to notice requirements, and understanding indemnification obligations under contractual agreements.
For insurance professionals, this case highlights the necessity of clear policy terms, timely claims handling, and the risks associated with defending insured parties without a firm coverage determination. It also underscores the importance of coordinating coverage across multiple policies to avoid unexpected financial exposure.
