Repudiating Insurers Cannot Later Demand Suit-Paper Compliance or Reopen Default Damages Under Insurance Law § 3420

Case: Shattuck v Dryden Mut. Ins. Co., 2026 NY Slip Op 03538 (App Div, 4th Dept June 5, 2026)

1. Introduction

This Fourth Department decision arises from a familiar insurance-coverage sequence: an insurer disclaims and refuses to defend, the injured plaintiff obtains a default judgment against the insured, the insured assigns rights to the plaintiff, and the plaintiff then sues the insurer directly under New York Insurance Law § 3420.

Parties. Plaintiff Louis Shattuck (injured worker) sued Dryden Mutual Insurance Company as both an individual injured person/judgment creditor and as assignee of the insured, Cory Lisinski d/b/a CNL Construction and Maintenance.

Key issues. The court confronted three recurring disputes in § 3420 litigation:

  • Whether the insurer’s disclaimer (based on a workers’ compensation-related exclusion) relieved the insured of policy conditions such as forwarding suit papers.
  • Whether the insurer could collaterally attack the default judgment as allegedly procured by misconduct.
  • Whether, after declining to defend without obtaining declaratory relief, the insurer could participate later to relitigate damages and whether bad-faith claims were properly dismissed.

2. Summary of the Opinion

The Appellate Division modified Supreme Court’s order in two principal ways:

  • It granted plaintiff summary judgment for damages up to the policy limit under Insurance Law § 3420(a)(2), holding the insurer could not reopen or re-try the default damages inquest after disclaiming and declining to defend.
  • It reinstated plaintiff’s first through fourth causes of action to the extent they allege bad faith, holding the insurer failed to meet its initial summary-judgment burden to dismiss those claims.

The court otherwise rejected the insurer’s attempt to dismiss the complaint in its entirety based on (i) the insured’s alleged failure to forward suit papers and (ii) an asserted invalidity of the default judgment due to alleged misconduct.

3. Analysis

3.1 Precedents Cited

A. The breadth of the duty to defend

The court anchored its coverage analysis in the “exceedingly broad” duty to defend articulated in Automobile Ins. Co. of Hartford v Cook, 7 NY3d 131 (2006), and applied in the Fourth Department in National Union Fire Ins. Co. of Pittsburgh, Pa. v City of Oswego, 295 AD2d 905 (4th Dept 2002). Those cases stand for the rule that if the complaint’s allegations suggest a reasonable possibility of coverage—liberally construed—the insurer must defend, even if the suit may ultimately prove groundless.

Here, the underlying personal injury complaint alleged Shattuck was an “employee” but also pleaded in the alternative that he was an independent contractor. That alternative pleading created at least a reasonable possibility of covered liability (i.e., outside a workers’ compensation exclusion), triggering a defense obligation.

B. Disclaimer as repudiation/anticipatory breach excusing policy conditions

To defeat the insurer’s “no suit papers forwarded” defense, the court relied on repudiation doctrine: Audthan LLC v Nick & Duke, LLC, 42 NY3d 292 (2024) and Norcon Power Partners, L.P. v Niagara Mohawk Power Corp., 92 NY2d 458 (1998) for the definition of anticipatory breach/repudiation; and Igbara Realty Corp. v New York Prop. Ins. Underwriting Assn., 63 NY2d 201 (1984) for the proposition that a letter denying liability and refusing to pay can constitute repudiation.

Once repudiation is shown, older but still-cited insurance authorities explain the consequences: Bornas v Standard Acc. Ins. Co. of Detroit, Mich., 5 AD2d 96 (4th Dept 1958) (repudiation excuses further performance of policy conditions), and Auerbach v Otsego Mut. Fire Ins. Co., 36 AD3d 840 (2d Dept 2007) (similar effect). Applying these, the court held that Dryden’s disclaimer excused Lisinski from policy conditions—including forwarding papers in the default proceeding—because the insurer had already positively and unequivocally refused to perform.

C. Collateral attack on judgments in § 3420 actions

The insurer’s attempt to void the default judgment required proof that it was procured through “fraud, misrepresentation, or other misconduct.” The court framed that doctrine through Bahnuk v Countryway Ins. Co., 214 AD3d 1218 (3d Dept 2023), quoting Hernandez v American Tr. Ins. Co., 2 AD3d 584 (2d Dept 2003), and also cited Bond v Giebel, 101 AD3d 1340 (3d Dept 2012), lv dismissed 21 NY3d 884 (2013).

In rejecting the misconduct claim, the court referenced evidentiary/standards principles illustrated by Oppenheimer v Westcott, 47 NY2d 595 (1979), and also cited Jakobleff v Jakobleff, 108 AD2d 725 (2d Dept 1985). The record, the court held, did not establish the kind of wrongdoing that would render the judgment a nullity.

D. The “Lang rule”: disclaim-and-decline insurers cannot later contest liability/damages

The centerpiece of the modification is the court’s reliance on Lang v Hanover Ins. Co., 3 NY3d 350 (2004), reinforced by K2 Inv. Group, LLC v American Guar. & Liab. Ins. Co., 22 NY3d 578 (2014), rearg denied 23 NY3d 939 (2014). Together they reflect a strong policy choice: an insurer that disclaims and declines to defend without first obtaining declaratory relief assumes the risk of an adverse judgment and is later limited to litigating the validity of its disclaimer—not the underlying insured’s liability or the amount of damages.

Applying Lang, the Fourth Department held Supreme Court should not have ordered a new damages inquest to allow insurer participation; instead, plaintiff was entitled to summary judgment for damages up to the policy limit under § 3420(a)(2).

E. Bad faith: “gross disregard” standard and summary judgment burdens

The court reinstated the bad-faith aspects of the first through fourth causes of action by invoking the governing standard from Pavia v State Farm Mut. Auto. Ins. Co., 82 NY2d 445 (1993), rearg denied 83 NY2d 779 (1994), and the Fourth Department’s application in State Farm Fire & Cas. Co. v Ricci, 96 AD3d 1571 (4th Dept 2012). Under Pavia, the touchstone is “gross disregard” of the insured’s interests—i.e., a deliberate or reckless failure to treat the insured’s interests as equal to the insurer’s.

Procedurally, the court emphasized summary judgment burdens under Zuckerman v City of New York, 49 NY2d 557 (1980), and the rule that failure of the movant’s prima facie showing ends the inquiry under Winegrad v New York Univ. Med. Ctr., 64 NY2d 851 (1985). The insurer did not meet its initial burden to negate bad faith; therefore, the court reinstated those claims without reaching the sufficiency of plaintiff’s opposing proof.

3.2 Legal Reasoning

  • Step 1: Duty to defend triggered by pleadings. Because the underlying complaint plausibly alleged an independent contractor relationship as an alternative to employment, the insurer had at least a reasonable possibility of coverage and thus a defense duty.
  • Step 2: Disclaimer/refusal to defend = repudiation. The insurer’s unequivocal disclaimer operated as a repudiation of its contractual duties. That repudiation excused the insured from complying with policy conditions such as forwarding suit papers related to the default.
  • Step 3: No collateral attack without proof of fraud/misconduct. The insurer could not invalidate the default judgment absent record proof of fraud, misrepresentation, or comparable misconduct affecting the court. The evidentiary record did not support such a finding.
  • Step 4: Damages cannot be reopened after a “disclaim-and-decline” strategy. Under Lang, the insurer’s litigation options in the later § 3420 action were confined to coverage/disclaimer issues; it could not relitigate damages by obtaining a new inquest.
  • Step 5: Bad-faith claims survive where the insurer fails its prima facie showing. Applying Pavia and summary-judgment standards, the court held dismissal was improper because the insurer did not negate “gross disregard” as a matter of law at the prima facie stage.

3.3 Impact

This decision reinforces (and operationalizes) several practical consequences for New York insurance litigation:

  • Repudiation has teeth. When an insurer unequivocally disclaims, it may lose the ability to enforce post-disclaimer policy conditions (like forwarding suit papers) against the insured/assignee. Insurers should evaluate disclaimers with the expectation that repudiation doctrine may bar technical-condition defenses later.
  • “No DJ, no second bite.” The court underscores the risk of refusing to defend without seeking a declaratory judgment: the insurer may be stuck with a default judgment’s liability and damages findings, capped only by the policy limit, and may litigate only disclaimer/coverage in the § 3420 action.
  • Bad faith claims may be harder to knock out early. By reinstating bad-faith allegations on burden-of-proof grounds, the decision signals that insurers must submit competent evidence addressing the Pavia “gross disregard” standard to win dismissal on summary judgment.
  • Judgment-collateral-attack arguments face a high evidentiary bar. Allegations of misconduct must be supported by proof sufficient to render the judgment a “nullity,” not merely by suspicion or litigation tactics.

4. Complex Concepts Simplified

  • Insurance Law § 3420(a)(2) / (b)(1) (direct action). These provisions allow an injured person (or judgment creditor) to sue the tortfeasor’s insurer directly after obtaining a judgment against the insured and satisfying statutory prerequisites.
  • Duty to defend vs. duty to indemnify. The duty to defend is broader and is triggered by the allegations and reasonable possibilities of coverage; indemnity depends on the actual facts establishing covered liability.
  • Disclaimer. A formal denial of coverage/defense by the insurer. In this case it functioned as an unequivocal refusal to perform under the policy.
  • Repudiation / anticipatory breach. A clear, absolute refusal to perform contractual obligations before performance is due. Here, it excused the insured from further compliance with policy “conditions” like forwarding suit papers.
  • Collateral attack on a judgment. An attempt to invalidate a judgment in a separate proceeding. In § 3420 cases, a judgment can be attacked only if it is a “nullity” due to fraud or comparable misconduct practiced on the court.
  • Bad faith (“gross disregard”). Under Pavia, bad faith requires more than mere error; it means deliberate or reckless disregard of the insured’s interests—failing to treat them as equal to the insurer’s own interests.
  • Policy limit. The maximum amount the insurer must pay under the policy; even if the judgment exceeds it, recovery under § 3420 is capped at the limit (absent separate extra-contractual exposure such as proven bad faith).

5. Conclusion

Shattuck v Dryden Mut. Ins. Co. strengthens two interconnected rules in New York coverage litigation: (1) an insurer that repudiates its defense obligation may not later rely on the insured’s noncompliance with policy conditions such as forwarding suit papers, and (2) an insurer that disclaims and declines to defend without first pursuing declaratory relief generally cannot later contest the underlying judgment’s damages in a § 3420 action. The decision also serves as a procedural reminder that bad-faith claims governed by Pavia should not be dismissed on summary judgment absent a clear prima facie showing by the insurer.