A New York state court applying New York law held that American Home Assurance Company (AIG) must pay attorneys’ fees incurred by the New York/ New Jersey Port Authority in its successful campaign for defense coverage relating to asbestos lawsuits filed by underlying plaintiffs who constructed the World Trade Center (WTC).

Plaintiff AIG filed a complaint seeking a declaration that it had no obligation to defend or indemnify the Port Authority against pending WTC asbestos claims. The Port Authority counterclaimed, seeking a mirror-image declaration that AIG was obligated to defend and indemnify it in the WTC asbestos claims. The Port Authority moved for partial summary judgment on AIG’s duty to defend, which the Court granted.

The Port Authority then filed a motion for attorneys’ fees under New York law, which provides that an insured “who has been cast in a defensive posture by the legal steps an insurer takes in an effort to free itself from its policy obligations” and who prevails on the merits may recover attorney’s fees incurred in defending against the insurer’s action. AIG argued that it is not liable for attorneys’ fees, because the Port Authority prevailed on its own claim for declaratory relief, as opposed to AIG’s claim for declaratory relief. The Court disagreed, finding that the claims are “[t]wo sides of the same coin.” Because the ruling in Port Authority’s favor resolved AIG’s claim, the Court held that Port Authority had “prevailed” on AIG’s claim. Thus, the Court ordered AIG to pay Port Authority’s legal fees in connection with establishing AIG’s duty to defend. American Home Assurance Co. v. The Port Auth. of New York and New Jersey, et al., No. 651096/2012 (N.Y. Sup. Ct. June 5, 2014).