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Keywords

contractdamagesappealmotioncorporationgood faith
damagesmotioncorporationsustained

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New York State Urban Development Corp. v. VSL Corp., 738 F.2d 61

Facts

VSL Corporation operated the Roosevelt Island tramway and was sued by the New York State Urban Development Corporation for damages related to its work. VSL retained the law firm Gold, Farrell & Marks for defense but later faced issues with its insurers, Northbrook and Zurich, regarding coverage and defense costs. Northbrook refused to defend VSL, claiming the UDC claims were outside its policy coverage, leading to a third-party action by VSL against Northbrook. The court ultimately ruled that Northbrook was obligated to provide a defense and ordered the insurers to determine their respective duties.

VSL operated and maintained the Roosevelt Island tramway for the New York State Urban Development Corporation (UDC). The UDC brought an action against VSL on May 15, 1981 in the Supreme Court of the State of New York, County of New York, for damages allegedly sustained in connection with certain work performed by VSL on the tramway.

Issue

Whether Northbrook's designation of independent counsel satisfied its obligations to VSL under New York law, and whether the order requiring the two insurers to share defense costs was appealable.

The sole question here is whether VSL or Northbrook may designate independent counsel.

Rule

Under New York law, an insurer is required to provide a defense when there is a conflict of interest, and the insured is entitled to independent counsel. The terms of the insurance contract govern the selection of counsel unless contrary to public policy.

Under New York law, an insurer is required to provide a defense in such circumstances and the insured is entitled to be represented by independent counsel.

Analysis

The court found that Northbrook's designation of Buckley, Treacy as independent counsel met its obligations under the insurance policy, as VSL had rejected Northbrook's offer to allow it to submit a list of acceptable firms. The court noted that Northbrook acted in good faith and that the independent counsel was experienced and had no prior dealings with Northbrook, thus ensuring VSL's right to independent representation was preserved.

Under the circumstances, Northbrook's designation of Buckley, Treacy according to the policy's provisions satisfied its obligations to provide independent counsel for VSL.

Conclusion

The court affirmed the denial of VSL's motion for contempt and granted Northbrook's cross-motion for substitution of counsel, while dismissing the appeal regarding the allocation of defense costs.

The order of the district court denying VSL's motion for contempt and granting Northbrook's cross-motion for substitution of counsel is affirmed.

Who won?

Northbrook prevailed in the case as the court upheld its designation of independent counsel and denied VSL's contempt motion, finding that Northbrook acted within its rights under the insurance policy.

Northbrook was required to provide a defense for VSL. He ordered Northbrook and Zurich to decide between themselves how they would discharge their respective duties to defend.

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