In Liberty Mut. Fire Ins. Co. v. National Cas. Co., the plaintiffs, ADESA and Louis Amelia, were granted judgment declaring that National was required to defend and indemnify them with respect to several personal injury lawsuits. Subsequently, National settled several of the underlying lawsuits, which exhausted its $1 million insurance policy. It thereafter refused to reimburse plaintiffs for defense costs incurred after the policy was exhausted based on its policy language that provided that its duty to defend ends when the limits of insurance have been exhausted by payment of judgments or settlements. However, New York Insurance Department Regulation 60-1.1(b) requires that an automobile liability insurer pay all defense costs until a case ends and does not excuse an insurer from providing a full defense even after payment of the policy limit. The court held that the conflict between the policy provision and the regulation rendered the policy provision unenforceable. The court further emphasized the general rule that when policy language conflicts with a regulation or is less generous to the insured, it is unenforceable and is superseded by the regulation.
Thanks to Gabe Darwick for his contribution to this post.