Introduction

This appeal sits at the intersection of New York insurance law and equitable remedies, addressing when an insurer that is a “stranger” to another insurer’s policy can nonetheless bind that insurer to a defense and indemnity position it previously embraced. In affirming the district court, the Second Circuit held that Dongbu Insurance Co., Ltd. (Dongbu) was equitably estopped from disclaiming coverage for 89th Jamaica Realty (the owner/landlord) after issuing a 2020 letter that unconditionally accepted defense and indemnity “without reservations.” The court also clarified that prejudice in this context does not require exclusive control of the defense; a prejudicial change of position suffices. The panel further upheld an award equal to the unexhausted policy limits and post-disclaimer defense costs, plus prejudgment interest.

The dispute arose from a 2014 injury suit by an employee of J.G.F. NY (a tenant of 89th Jamaica). The injured employee sued both 89th Jamaica and a subtenant, S & H Fish Co. (S&H). S&H’s insurer, KBIC Insurance Co. (KBIC), afforded additional insured coverage to 89th Jamaica. Dongbu insured J.G.F. and faced potential responsibility via a contractual indemnification clause in the lease between J.G.F. and 89th Jamaica. After years of litigation, the underlying action settled in 2023 for $3,030,000, to which Dongbu contributed $250,000.

Penn‑Star Insurance Company (Penn‑Star), 89th Jamaica’s insurer, sued Dongbu in 2022 after Dongbu repudiated its earlier acceptance of coverage. The district court (Cogan, J.) granted summary judgment to Penn‑Star on equitable estoppel, awarding $750,000 (the remainder of Dongbu’s $1,000,000 limits), $24,353 in post‑disclaimer defense costs, and prejudgment interest. On appeal, Dongbu principally argued that Penn‑Star lacked standing to assert estoppel as a non‑party to the Dongbu policy, and that Penn‑Star had not shown justifiable reliance or prejudice.

Summary of the Opinion

• Standard of review: de novo on summary judgment and on interpretation and application of state law.
• Standing: Under New York law, equitable estoppel can be asserted inter‑insurer; privity with the policy is not required.
• Justifiable reliance: Penn‑Star reasonably relied on Dongbu’s 2020 letter, which accepted defense and indemnity for 89th Jamaica “without reservations” and acknowledged obligations under the contractual liability coverage. That letter lacked any reservation of rights, unlike Dongbu’s later 2022 disclaimer.
• Prejudice: Prejudice need not be “presumed,” nor does it require exclusive control of the defense. It is enough that Dongbu’s untimely disclaimer caused Penn‑Star to change its position to its detriment (e.g., Penn‑Star would have acted differently in the underlying litigation; Dongbu’s statements and presence influenced mediation and settlement dynamics).
• Damages: Because Dongbu was estopped from denying the coverage obligation, its duty to defend continued until settlement was paid. Awarding the remaining policy limits ($750,000), post‑disclaimer defense costs ($24,353), and prejudgment interest was proper; interest in equitable actions lies within the court’s discretion under N.Y. CPLR § 5001(a).
• Disposition: Judgment of the Eastern District of New York affirmed.

Analysis

A. Precedents Cited and Their Influence

• Yoda, LLC v. National Union Fire Insurance Co. of Pittsburgh, PA, 88 A.D.3d 506 (1st Dep’t 2011):

  Confirmed that equitable estoppel can apply “in disputes between insurers.” The Second Circuit relied on Yoda to reject Dongbu’s no-standing argument and to frame how prejudice can arise when a disclaimer is delayed—e.g., the defending party may have pursued different litigation strategies (such as impleader) had the disclaimer been timely.

• Liberty Insurance Underwriters, Inc. v. Arch Insurance Co., 61 A.D.3d 482 (1st Dep’t 2009):

  Rejected limiting estoppel to insurer-insured disputes; it applies in inter‑insurer allocation disputes. This authority supported inter‑insurer standing and the broader application of estoppel beyond the confines of privity.

• Lancer Indemnity Co. v. Peerless Insurance Co., 208 A.D.3d 768 (2d Dep’t 2022):

  Echoed that equitable estoppel is not confined to insurer‑insured conflicts. The court cites Lancer to reinforce that equitable principles may govern coverage allocation between carriers.

• Federated Department Stores, Inc. v. Twin City Fire Insurance Co., 28 A.D.3d 32 (1st Dep’t 2006):

  Often cited for the proposition that estoppel cannot create coverage where none exists. The Second Circuit underscored that Federated itself recognized exceptions, distinguishing cases like Utica Mutual where an insurer defending an owner despite its non‑listing as an additional insured was estopped from later disclaiming. This nuance is pivotal; where equitable considerations are strong, New York courts may bar an insurer from reversing course even if strict policy terms would otherwise foreclose coverage.

• Utica Mutual Insurance Co. v. 215 W. 91st St. Corp., 283 A.D.2d 421 (2d Dep’t 2001):

  Illustrates the exception recognized in Federated: conduct can estop an insurer from disclaiming, even absent strict contractual coverage, when equity demands it.

• Sparta Insurance Co. v. Technology Insurance Co., Inc., 751 F. App’x 32 (2d Cir. 2018):

  Persuasive support for reading carrier communications: where correspondence does not suggest policy defenses or reservation, reliance on a defense/indemnity acceptance is reasonable.

• Geico Insurance Co. v. Silverio, 171 A.D.3d 924 (2d Dep’t 2019):

  Used to clarify that the reliance inquiry focuses on whether the reliance was justifiable, not on the insurer’s subjective intent behind the communication.

• Broadworth Realty Associates v. Chock 336 B’way Operating, Inc., 168 A.D.2d 299 (1st Dep’t 1990):

  Articulates prejudice as a “prejudicial change in position,” a standard the Second Circuit applied to Penn‑Star’s showing.

• U.S. Fidelity & Guaranty Co. v. New York, Susquehanna & Western Ry. Corp., 275 A.D.2d 977 (4th Dep’t 2000):

  Demonstrates that shared defense dynamics and settlement engagement can contribute to prejudice even where the insured retained chosen counsel.

• Boston Old Colony Insurance Co. v. Lumbermens Mutual Casualty Co., 889 F.2d 1245 (2d Cir. 1989):

  Cited for the practical reality that perceptions of available insurance funds stiffen litigation postures and affect settlement leverage—which can be prejudicial when based on an insurer’s acceptance of coverage.

• Federal Insurance Co. v. Cablevision Systems Development Co., 836 F.2d 54 (2d Cir. 1987):

  Confirms that a duty to defend persists through payment of judgment or settlement. This underpinned the award of defense costs through the 2023 settlement.

• N.Y. CPLR § 5001(a):

  Prejudgment interest in equitable actions is discretionary. The court found no abuse of discretion in the district court’s award.

B. The Court’s Legal Reasoning

1. Standing for Inter‑Insurer Estoppel

   Dongbu argued Penn‑Star lacked “contractual standing” because it was not a party to Dongbu’s policy. The court rejected this, emphasizing New York’s acceptance of equitable estoppel in disputes between insurers and in allocation disputes. The panel treated “standing” here as a merits question of who may invoke estoppel—not as privity with a particular policy. By citing Yoda, Liberty, and Lancer, the court made clear that equitable estoppel is not a policy‑privity doctrine; it is a conduct‑based doctrine that can bind an insurer to its representations and actions towards other insurers involved in the same risk.

2. Justifiable Reliance on Dongbu’s 2020 Letter

   In 2020, Dongbu wrote that it “has agreed to defend and indemnify 89th Jamaica Realty LLC to the fullest extent of its policy limits … based on the contractual liability portion of the Policy, without reservations,” and expressly “acknowledges and recognizes its defense and indemnity obligations.” The court highlighted the absence of any reservation of rights or policy defenses in that letter, contrasting it with Dongbu’s 2022 disclaimer that expressly reserved rights and asserted the absence of a contractual indemnification finding.

   Crucially, the court held that the equitable estoppel inquiry does not hinge on what Dongbu subjectively intended by the 2020 letter. The question is whether Penn‑Star’s interpretation of the letter as an acceptance of coverage was reasonable. Given the explicit “without reservations” language and the acknowledgement of obligations, the court found Penn‑Star’s reliance plainly justifiable.

3. Prejudice Without Exclusive Control of Defense

   Dongbu invoked Federated’s language that prejudice is established where an insurer’s control of the defense is such that lawsuit character and strategy can no longer be altered. The Second Circuit clarified the context: that statement rejected a presumption of prejudice and did not impose a requirement of exclusive control. The operative standard remains whether the relying party suffered a “prejudicial change in position.”

   On this record, Penn‑Star made two independent showings, either of which sufficed: (i) had Dongbu timely and clearly disclaimed, Penn‑Star would have acted more actively and differently in the underlying case; and (ii) Dongbu’s 2020 acceptance and presence in mediation influenced the course and posture of negotiations, including expectations about available insurance. Those dynamics mirror the concerns in U.S. F&G and Boston Old Colony about shared defense/settlement conduct and leverage shaped by perceived coverage.

4. Damages Within Policy Limits and Defense Costs

   Because Dongbu was equitably estopped from denying coverage, its defense obligation persisted through settlement. The court upheld an award equal to the unexhausted policy limits ($750,000, reflecting a $1,000,000 limit minus Dongbu’s $250,000 contribution) and post‑disclaimer defense costs ($24,353). The award of prejudgment interest on those defense costs was within the district court’s discretion under CPLR § 5001(a).

C. Impact and Practical Significance

Although this is a non‑precedential summary order, it offers clear, practical guidance in New York insurance disputes and will be persuasive in future litigation.

• Communications matter—“without reservations” means what it says. An insurer’s written acceptance of defense and indemnity, without a reservation of rights, can estop later disclaimers—even vis‑à‑vis another insurer that is not in privity with the policy. Claims handlers should avoid ambiguous global “acceptances” unless coupled with explicit reservations.
• Estoppel can bind even absent strict contractual coverage. While the general rule is that estoppel does not create coverage, New York recognizes equitable exceptions based on conduct. If an insurer’s actions foreseeably induce reliance and alter litigation posture, estoppel may prevent a late pivot to no‑coverage.
• Prejudice does not require exclusive control. The prejudice standard focuses on whether the relying party was made worse off—e.g., lost the right to control its defense, refrained from strategic moves (such as impleader, separate defense counsel, or alternative settlement strategies), or faced altered mediation dynamics because of assumed coverage.
• Inter‑insurer standing is uncontroversial in New York. Yoda, Liberty, and Lancer reflect a settled principle: equity applies to allocation disputes and defense/indemnity arrangements among carriers, not only to insurer‑insured relationships.
• Duty to defend persists until settlement or judgment is paid. When estoppel applies, the defending insurer remains obligated through resolution. Carriers who reverse positions late may be responsible for defense costs through settlement.
• Priority and exhaustion should be addressed explicitly. Dongbu’s 2020 letter also opined that S&H’s policy was primary. If an insurer intends to condition any defense/indemnity on future findings (e.g., contractual indemnification established by verdict/settlement), that condition must be stated clearly and timely.

D. Practical Guidance for Insurers and Counsel

• When responding to a tender, employ a clear reservation of rights if any policy defenses remain open; avoid “without reservations” language unless you intend to be bound.
• State conditions expressly (e.g., “any indemnity obligation arises only upon a finding of contractual indemnification” or “coverage is excess over specified primary insurance”), and specify that no duty to defend is assumed unless and until conditions are satisfied.
• Issue disclaimers promptly once a basis is known or reasonably knowable. Delayed disclaimers magnify estoppel risk and may also implicate statutory timeliness requirements in other contexts.
• Use non‑waiver agreements and tri‑partite inter‑insurer standstill or allocation agreements to preserve positions during joint defense or mediation.
• Document your role in joint defense and settlement communications carefully; active participation can later be cited as evidence of reliance and prejudice.

Complex Concepts Simplified

• Equitable Estoppel: A fairness doctrine preventing a party from taking a position inconsistent with its past statements or conduct when another reasonably relied on those statements and would be harmed by the change. In insurance, it can bar a late disclaimer if the other party changed its litigation strategy based on an earlier coverage acceptance.
• Reservation of Rights: A statement by an insurer acknowledging a claim and possibly providing a defense for now, but reserving the right to deny coverage later based on policy defenses. Without such a reservation, an acceptance letter can be treated as binding.
• Duty to Defend vs. Duty to Indemnify: The duty to defend is broader and arises when a claim potentially falls within coverage; it generally lasts until the claim is resolved by settlement or judgment. The duty to indemnify is the obligation to pay sums the insured is legally required to pay as damages, typically determined by the facts established in the underlying case.
• Prejudice: Harm resulting from reliance—such as lost control over defense strategy, missed opportunities (like impleader or different settlement approaches), or negotiations skewed by assumptions about available insurance.
• Additional Insured vs. Contractual Liability Coverage: Additional insured status extends coverage to a third party under the named insured’s policy. Contractual liability coverage insures the named insured’s promise to indemnify another under a contract (e.g., a lease). Both can overlap in construction/landlord‑tenant settings, and disputes often arise over priority and trigger.
• Primary vs. Excess: A primary policy pays first; an excess policy pays after specified underlying insurance is exhausted. If an insurer believes its position is excess, it must still state reservations and conditions clearly to avoid estoppel.
• Summary Judgment Standard: The court grants judgment as a matter of law when no genuine dispute of material fact exists and the movant is entitled to judgment based on undisputed facts.

Conclusion

Penn‑Star v. Dongbu underscores that, under New York law, inter‑insurer equitable estoppel is alive and well. An insurer that communicates an unconditional acceptance of defense and indemnity—especially “without reservations”—risks being bound to that position even if later analysis suggests that contractual coverage is debatable or absent. The Second Circuit’s affirmance clarifies three central points:

• Insurers have standing to assert equitable estoppel against other insurers; privity with the policy is unnecessary.
• Justifiable reliance can rest squarely on an insurer’s clear acceptance letter; the insurer’s later intent or reinterpretation will not undo reliance that was reasonable at the time.
• Prejudice is a functional inquiry into changed litigation posture; it does not require exclusive control of the defense.

The practical lesson is straightforward: carriers must draft tender responses and reservations with precision, disclaim promptly when appropriate, and appreciate that their participation in defense and settlement can have binding equitable consequences. Even as a non‑precedential decision, this order provides a well‑reasoned, citable framework that will influence how New York courts and practitioners assess inter‑insurer coverage disputes, reservations of rights, and prejudice in the wake of delayed disclaimers.