## Facts

- A demolition worker was seriously injured at property owned by Shaya B. Pacific, LLC, and he and his wife sued Shaya Pacific seeking substantial damages.
- Shaya Pacific had primary liability coverage through Certain Underwriters at Lloyd’s of London with a $1,000,000 limit.
- Lloyd’s retained Wilson, Elser, Moskowitz, Edelman & Dicker, LLP to defend Shaya Pacific in the personal-injury action.
- Lloyd’s notified Shaya Pacific that the demand exceeded policy limits and advised it to retain its own counsel regarding excess exposure and to check for and promptly notify any excess insurer.
- Shaya Pacific was found liable by summary judgment under Labor Law § 240(1), leaving only damages for trial.
- Shortly before the damages trial, Wilson Elser tendered the claim to National Union Fire Insurance Company as a purported excess carrier under an umbrella policy issued to a different entity.
- National Union disclaimed coverage, citing late notice and insufficient information to confirm Shaya Pacific’s insured status.
- Judgments totaling several million dollars were entered against Shaya Pacific in the underlying action.
- Shaya Pacific sued Wilson Elser for legal malpractice and breach of contract, alleging that counsel’s failure to provide timely notice to National Union caused the loss of excess coverage.
- The trial court dismissed the complaint under CPLR 3211, and Shaya Pacific appealed.

## Issues

1. Whether defense counsel retained by a primary liability insurer owes the insured a duty to investigate the existence of excess insurance and provide notice to an excess carrier.
2. Whether the insured stated a claim that counsel negligently handled notice to a purported excess carrier after undertaking to give such notice, including whether causation and damages were sufficiently pleaded.

## Decision

- The Appellate Division modified the dismissal and otherwise affirmed.
- The court held that insurer-appointed defense counsel generally has no duty to investigate the insured’s excess coverage or to notify excess insurers absent a specific undertaking or special circumstances.
- The court held that, to the extent counsel undertook to tender the claim to an excess carrier, the complaint sufficiently alleged negligent performance of that undertaking to survive a motion to dismiss.
- The court rejected dismissal at the pleading stage based on uncertainty about the insured’s status under the umbrella policy and based on arguments that the insured’s prior warning defeated proximate cause as a matter of law.

## Legal Principles

- Defense counsel appointed by an insurer represents the insured and owes the insured loyalty and the ordinary reasonable skill and knowledge of the profession.
- A law firm retained by a primary insurer to defend an insured does not, solely by virtue of that role, assume an affirmative duty to search for excess coverage or to provide notice to excess carriers.
- When defense counsel affirmatively undertakes a coverage-related task (such as tendering a claim to an excess carrier), counsel must perform that task with reasonable care; negligent performance that impairs coverage may support a malpractice claim.
- On a CPLR 3211 motion, causation and damages allegations are evaluated favorably to the plaintiff; disputes about insured status, comparative fault, and whether earlier notice would have improved the coverage position are typically fact questions not resolved on the pleadings.

## Conclusion

The court limited insurer-appointed defense counsel’s obligations concerning excess insurance by rejecting a general duty to investigate and notify excess carriers, while allowing malpractice claims to proceed where counsel allegedly performed a chosen tender/notice task negligently and that negligence plausibly contributed to the loss of potential excess coverage.


Shaya B. Pac., LLC v. Wilson, Elser, Moskowitz, Edelman & Dicker, LLP, 38 A.D.3d 34, 827 N.Y.S.2d 231 (2d Dep't 2006)