Breaking: Scottsdale Insurance Ordered to Keep Defending NYC After Three-Year Delay in Disclaiming Coverage – Court Cites Severe Prejudice
By Sam Michael
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As Scottsdale Insurance disclaimer delay, New York City insurance ruling, additional insured coverage, insurance estoppel New York, and Appellate Division First Department dominate legal and insurance headlines today, a New York appeals court has ruled that Scottsdale Insurance Company must continue defending the City of New York in a negligence lawsuit and pay its legal fees following a three-year delay in attempting to disclaim coverage.
In a decision issued January 6, 2026, by the Appellate Division, First Department, justices unanimously held that Scottsdale’s prolonged defense before disclaiming created irreversible prejudice to the city, estopping the insurer from withdrawing.
The case stems from a street work permit issued by New York City’s Department of Transportation (DOT) to a contractor. As standard procedure, the DOT required the contractor to name the city as an additional insured on its commercial general liability policy. A certificate of insurance was provided confirming this, and the policy was issued by Scottsdale Insurance Company, a subsidiary of Nationwide.
When a personal injury negligence lawsuit arose from the work site, Scottsdale initially accepted the tender and provided a defense to the city for approximately three years, controlling strategy and even engaging in settlement discussions.
Years into the litigation, Scottsdale abruptly sought to disclaim coverage, arguing there was no formal written contract between the contractor and the city explicitly requiring the additional insured endorsement—thus triggering no obligation under the policy.
The appellate court rejected this, emphasizing the extreme prejudice to NYC. By allowing Scottsdale to handle the defense for so long, the city had relinquished control, shaped its litigation approach around assumed coverage, and entered settlement talks expecting insurer funding. A late withdrawal would force the city to bear massive costs and risks independently.
Legal experts note this aligns with New York precedent on estoppel in insurance disputes. Under state law, unreasonable delays in disclaiming—especially when prejudice results—can bar insurers from denying duty to defend. Here, the three-year gap was deemed fatal, as the basis for disclaimer (lack of written contract) should have been apparent early on.
Public reactions in legal circles highlight warnings for carriers: Prompt investigation and timely disclaimers are critical in additional insured scenarios. On platforms like X, insurance professionals discussed the ruling as a reminder of New York’s policyholder-friendly stance on delays, with some calling it a “costly lesson” for Scottsdale.
For U.S. readers, particularly businesses and municipalities, this underscores risks in construction and permitting. Cities like NYC rely on additional insured protections for public works, impacting taxpayer funds if coverage fails. Economically, it affects contractors’ insurance costs and project bids. Legally, it reinforces that insurers can’t “have it both ways”—defending long-term while reserving late exits.
Background: Additional insured endorsements are common in contracts requiring proof of insurance for permits or work on public property. Certificates confirm status but don’t create coverage; the policy does. Scottsdale argued strictly on policy language, but courts prioritized equitable prejudice.
The ruling also awards the city reimbursement for defense costs, potentially significant given years of litigation.
This case spotlights tensions in liability insurance, where delays can shift burdens dramatically.
In summary, the Appellate Division’s firm stance against Scottsdale’s delayed disclaimer protects NYC from prejudice while signaling strict timelines for insurers. Outlook suggests reinforced diligence in coverage determinations, potentially influencing similar disputes nationwide in 2026.
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