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Chen v. Insurance Co. of State of PA

December 11, 2020 • Posted By Scott J. Laird • Insurance Coverage

The Court of Appeals recently issued a decision in Chen v. Insurance Co. of State of PA, ---N.E.2d ----, 2020 WL 6875983 (N.Y. 2020),  which addressed an excess insurer's obligation to pay interest on an underlying personal injury judgment after the primary policy was voided. The Court of Appeals affirmed the lower Court decision in an AIG unit's favor. 

The Supreme Court granted summary judgment in favor of Plaintiff Jin Ming Chen (Chen) in the amount of $2.3M with approximately $396,000.00 in prejudgment interest. Chen had been injured in a work-site accident and sued the general contractor, Kam Cheung Construction Inc. (KCCI).

 KCCI maintained a primary general liability insurance policy of $1M with Arch Specialty Insurance Co. (Arch). KCCI also maintained an excess insurance policy of $4M with AIG. During the lower court proceeding, Arch was successful in establishing that its insured, KCCI, had made certain material misrepresentations on its application and the primary policy was voided. Arch soon after withdrew as counsel for KCCI.

 Chen then filed suit against AIG. After the parties submitted proposed judgments, the Supreme Court accepted AIG's proposed judgment of $1.3M. AIG promptly paid the $1.3M. Chen then appealed to the Appellate Division, which went on to affirm the Supreme Court's ruling. 

 At issue in Chen's appeal was the interest that had accrued on the judgment he obtained in the underlying personal injury matter. Chen argued that AIG "was obligated to pay all prejudgment and postjudgment interest on the entire underlying personal injury award based on its "Ultimate Net Loss" provision, which plaintiff interprets as saddling [AIG] with all covered losses over the Arch Policy's $1 million liability limit."

 The Court of Appeals rejected Chen's argument that AIG was liable for all interest on the judgment. AIG argued that its policy did not "drop down" to cover any unpaid monies that were not covered by Arch, given the fact that the primary policy was voided. Chen relied on the policy's "follow form" provision, which indicated that the excess policy issued by AIG would follow the terms of the Arch policy. 

 The Court of Appeals found that the language of the two policies, the AIG policy covered only losses in excess of those that would have been paid by Arch.

 The Court of Appeals held that "[t]he fact that the Arch policy was voided does not warrant a different reading of the plain language of the two policies, although it unfortunately resulted in a coverage gap that included both the $1 million liability limit of the Arch policy and certain interest covered in the Arch Supplementary Payments provision. Notably, however, the tortfeasor, [KCCI], remains liable for this component of the loss, which is appropriate given that the tortfeasor's own misrepresentations caused the gap in coverage."

For more information, please contact Scott J. Laird, Esq., at