USA – NEW YORK Trends and Developments Contributed by: Ian Boczko and Sunny S. Jeon, Wachtell, Lipton, Rosen & Katz
the Texas Insurance Code, which requires Texas law to govern insurance contracts payable to citizens or inhabitants of Texas by an insurance company doing business in Texas. See Tex. Ins. Code art. 21.42; id. § 982.303. The court found that there was no basis under New York’s choice-of-law rules to allow another state’s public policy to invalidate a New York choice- of-law clause. The decision continues a trend of New York courts enforcing contractual New York choice-of-law provi- sions in large commercial insurance policies. See, eg, My Invs . LLC v Starr Surplus Lines Ins . Co ., 2024 WL 4859027, at *3 (S.D.N.Y. Nov. 20, 2024); Berkley Assur- ance Co . v MacDonald - Miller Facility Sols ., Inc ., 2019 WL 6841419, at *2-3 (S.D.N.Y. Dec. 16, 2019). In doing so, the court emphasised New York’s strong interest in providing certainty and predictability to commercial parties selecting New York law to govern their agree- ments. For large commercial programmes, New York choice- of-law clauses remain a powerful risk-management tool and may be enforced even when the insured’s home state has statutes favouring the application of local law. Delaware Follows New York in Rejecting Automatic Characterisation of SEC Disgorgement as a “Penalty” and Excluded from Coverage In Clear Channel Outdoor Holdings , Inc . v Illinois National Insurance Co ., a Delaware Superior Court addressed whether an approximately USD16 million disgorgement award paid pursuant to an SEC settle- ment order was a “penalty” excluded from coverage. 2026 WL 1347392, at *9-15 (Del. Super. Ct. Apr. 28, 2026). The policy defined “loss” to include “damages” and “settlements” but specifically excluded “civil or criminal fines or penalties imposed by law”. Id. at *2. In denying coverage, the insurer argued that “dis- gorgement” was not a “loss” but, in substance, a “penalty” and invoked the Supreme Court’s decisions in Kokesh and Liu . The court disagreed, explaining that the policy’s exclusion language mirrored the SEC’s statutory authority and that the policy exclusion applied narrowly and specifically to instances in which the SEC imposed civil monetary penalties, not dis-
gorgement. Importantly, the court relied heavily on the New York Court of Appeals’ reasoning in J . P . Morgan Securities v Vigilant Insurance Co ., 37 N.Y.3d 552 (N.Y. 2021). Quoting the Court of Appeals, the court found that “Kokesh ‘was not interpreting the term ”penalty” in an insurance contract’, and ‘the meaning of that term may vary based on context’”. Clear Channel, 2026 WL 1347392, at *14 (quoting J.P. Morgan Sec. Inc., 37 N.Y.3d at 568). Because Kokesh and Liu did not concern insurance coverage and could not have informed the parties’ reasonable expectations at the time of contracting, those decisions did not control. The court held that the insurer had failed to meet its burden to show that the exclusion barred coverage for the disgorgement amount. New York Court Permits Bad-Faith Claims Based on Claims-Handling Conduct In Renergy , Inc . v Mt . Hawley Insurance Co ., a fed- eral court applying New York law rejected the insur- er’s argument that bad-faith claims are categorically limited to first-party insurance policies. 2026 WL 1192415 (S.D.N.Y. May 1, 2026). The dispute arose after the insurer allegedly relied heavily on a third- party consultant’s work and ultimately reimbursed the insured for only a small portion of its claimed costs. The insured argued that the insurer should be subject to a bad-faith claim because the insurer relied heavily on the consultant’s determinations without sufficient independent analysis, issued duplicative and burden- some document requests, and ultimately adopted the consultant’s recommendation to pay only a small por- tion of the claim. The insurer argued that New York’s bad-faith claims-handling doctrine, and any associ- ated consequential damages, is confined to first-party property policies. The insurer further argued that the insured’s real complaint was that the insurer failed to pay enough under the policy, and New York gener- ally does not permit standalone bad-faith claims that simply duplicate a coverage claim. The court agreed with the insured and found that New York law does not automatically foreclose bad-faith claims simply because the policy provides third-party liability coverage rather than traditional first-party cov- erage. The court further held that allegations concern- ing an insurer’s investigation and handling of a claim may support consequential damages independent of
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