In Polarome International, Inc., v. Greenwich Insurance Company and Zurich Insurance Company, the New Jersey Appellate Division reaffirmed that insurers may disclaim coverage during the course of an underlying lawsuit when discovery reveals the claim is not covered.
Plaintiff was sued by employees exposed to toxic torts over a number of years, and plaintiff’s insurers accepted the defense under a reservation of rights. During the underlying litigation, the insurers disclaimed coverage after obtaining information that the alleged losses occurred outside the policy period. The Appellate Division held that an insurer may use extrinsic facts to go beyond the pleadings to determine that there is no coverage, and that an insurer is only estopped from withdrawing from a defense that it initially assumed if the insurer was aware of evidence indicating that the claim was not covered and failed to notify its insured promptly that it was reserving its right to withdraw.
Thanks to Mendel Simon for his contribution.