The Appellate Division, Supreme Court of New York, affirmed the lower court’s grant of summary judgment determining that the insurer could not challenge the judgment in the underlying case after refusing to defend the insured. Shattuck v Dryden Mut. Ins. Co., 2026 N.Y. App. Div. LEXIS 3789 (N.Y. App. Div. June 5, 2026).

The underlying plaintiff was injured while performing construction work using tools and equipment of Cory Lisinski. Lisinski was insured by Dryden Mutual Insurance Company. Lisinski notified Dryden of the accident. Dryden disclaimed coverage based on lack of coverage for liability under the Workers’ Compensation law. The underlying plaintiff sued Lisinski and obtained a default judgment after a damages inquest in the amount of $2,841,782. Lisinski assigned to plaintiff any rights he had against Dryden arising from the personal injury action.

The underlying plaintiff then brought a direct action against Dryden and moved for summary judgment seeking policy limits. Dryden cross-moved for summary judgment to dismiss the complaint.

The trial court determined that Dryden was liable under the policy but directed a new damages inquest to allow participation of Dryden’s counsel. The court further dismissed plaintiff’s bad faith claims. Dryden appealed from the order to the extent plaintiff’s complaint was not dismissed. Plaintiff cross-appealed from the order directing a new damages inquest.

Dryden contended in its appeal that the court should have granted its summary judgment to dismiss the complaint in its entirety because Lisinski failed to forward to Dryden the papers concerning the underlying default proceeding. The court rejected this argument. The underlying complaint alleged that plaintiff was an employee of Lisinski but also included the alternative allegations that plaintiff was an independent contractor. Thus, Dryden was required at least to provide Lisinski with a defense. Because Dryden denied a defense, Lisinski was excused from further performance on his part of the conditions of the policy, including forwarding to Dryden the suit papers regarding the default judgment. The lower court, therefore, did not err when it refused to grant the cross-motion in its entirety.

Moreover, Dryden could not challenge the damages in the default judgment proceeding and the lower court erred in directing a new damages inquest. If an insurer disclaimed and declined to defend in the underlying lawsuit without seeking a declaratory judgment concerning its duty to defend or indemnify the insured, it took the risk that the injured party would obtain judgment against the insured and seek payment from the insurer after an assignment of the policy. Having chosen not to participate in the underlying lawsuit, the carrier could litigate only the validity of its denial of coverage and could not challenge the liability or damages determination in the underlying judgment.

Finally, the lower court erred in dismissing plaintiff’s bad faith claims. Dryden did not meet its burden of showing it did not act in bad faith.

Thanks to my colleague, Mark Murakami, for flagging this case.