An insured who prevails in a declaratory judgment action brought by an insurer seeking to avoid policy obligations may recover attorneys' fees regardless of any underlying defense provided.
An insurer issued a commercial liability policy and later disclaimed coverage for a named insured while providing a defense in the underlying personal injury action. The insurer then filed a declaratory judgment action seeking to establish that it had no duty to defend or indemnify. The insured prevailed in that action. The question presented is whether the insured may recover attorneys' fees incurred in defending against the insurer's declaratory judgment action, even though the insurer had provided a defense in the underlying suit. The court applies the rule that an insured cast in a defensive posture by an insurer's attempt to free itself from policy obligations may recover fees if it prevails. The court holds that the insured is entitled to recover those fees as incidental to the insurer's contractual duty to defend.
3 N.Y.3d at 597 Awarding attorneys' fees to insured defending against insurer's declaratory judgment56 citing cases“it is well settled in new york that a prevailing party may not recover attorneys' fees from the losing party except where authorized by statute, agreement or court rule”
- Fishberg v. State Farm Fire & Cas. Co., No. 1:20-cv-06664, 2021 WL 3077478 (S.D.N.Y. July 20, 2021).([A] prevailing party may not recover attorneys’ fees from the losing party except where authorized by statute, agreement or court rule.)
- Liberty Surplus Ins. v. Segal Co., 420 F.3d 65 (2d Cir. 2005).published (The reasoning behind Mighty Midgets is that an insurer’s duty to defend an insured extends to the defense of any action arising out of the occurrence, including a defense against the insurer’s declaratory judgment acti…)
- Liberty Surplus Ins. Corp. v. Segal Co., 420 F.3d 65 (2d Cir. 2005).published (The reasoning behind Mighty Midgets is that an insurer's duty to defend an insured extends to the defense of any action arising out of the occurrence, including a defense against the insurer's declaratory judgment acti…)
- Scottsdale Ins. Co. v. City of New York, 245 A.D.3d 428 (N.Y. App. Div. 1st Dep't 2026).published Co. v City Club Hotel, LLC , 3 NY3d 592, 597 [2004] [internal quotation marks omitted]).
- Lex 54 Condo. v. Eltech Indus., Inc., 2025 NY Slip Op 32901(U) (N.Y. Sup. Ct., New York Cty. 2025).unpublished(holding that "a prevailing party may not recover attorneys' fees from the losing party except where authorized by statute, agreement, or court rule)
- Knocking Inc. v. Carter, No. 1:24-cv-09020 (S.D.N.Y. Aug. 7, 2025).Co. v. City Club Hotel, LLC, 3 N.Y.3d 592, 597 (2004).
- LM Ins. Corp. v. Saf. Nat'l Cas. Corp., No. 1:21-cv-01802 (E.D.N.Y. Mar. 24, 2025).“The reasoning behind [this rule] is that an insurer's duty to defend an insured extends to the defense of any action arising out of the occurrence, including a defense against an insurer's declaratory judgment action.” City Club, 3 N.Y.3d…
- Rhodes Assoc. Exec. Search of N.Y., LLC v. IS Co., 234 A.D.3d 535 (N.Y. App. Div. 1st Dep't 2025).publishedCo. v City Club Hotel, LLC , 3 NY3d 592, 597 [2004]).
- Integris Risk Retention Grp. v. Capital Region Orthopaedics Assocs., PC, No. 1:23-cv-00989 (N.D.N.Y. Sept. 30, 2024).Co. v City Club Hotel, LLC, 3 N.Y.3d 592, 597 (2004).
- Burlington Ins. Co. v. Mordini Estates Inc, 2024 NY Slip Op 32584(U) (N.Y. Sup. Ct., New York Cty. 2024).unpublishedCo. v City Club Hotel, LLC, 3 NY3d 592, 597-98 (2004), quoting Mighty Midgets, Inc. v Centennial Ins.
Show 42 more citing cases
- Match Grp., LLC v. Beazley Underwriting Ltd., No. 1:22-cv-04629 (S.D.N.Y. Feb. 29, 2024).Co. v. City Club Hotel, LLC, 822 N.E.2d 777, 780 (N.Y. 2004) (emphasis added) (quoting Mighty Midgets, Inc. v. Centennial Ins.
- Gramercy Park Partners, LLC v. GPH Ground Tenant LLC (N.Y. Sup. Ct. 2023).unpublishedCo. v City Club Hotel , LLC, 3 NY3d 592, 597 [2004]).
- Greenway Mews Realty, L.L.C. v. Liberty Ins. Underwriters, Inc., 214 A.D.3d 411 (N.Y. App. Div. 1st Dep't 2023).publishedCo. v City Club Hotel, LLC , 3 NY3d 592, 597 [2004]; Sukup v State of New York , 19 NY3d 519, 522 [1967]).
- Matter of 419 BR Partners LLC v. Zabar, 209 A.D.3d 604 (N.Y. App. Div. 1st Dep't 2022).publishedCo. v City Club Hotel, LLC , 3 NY3d 592, 597 [2004]).
- Am. Empire Surplus Lines Ins. Co. v. L&G Masonry Corp., 194 A.D.3d 401 (N.Y. App. Div. 1st Dep't 2021).publishedCo. v City Club Hotel, LLC, 3 NY3d 592, 597 [2004]).
- Varbero v. Belesis, No. 1:20-cv-02538, 2020 WL 5849516 (S.D.N.Y. Oct. 1, 2020).Co. v. City Club Hotel, LLC, 3 N.Y.3d 592, 597 (2004); Gotham Partners L.P. v. High River Ltd., P’ship, 906 N.Y.S.2d 205 (1st Dep’t 2010); NetJets Aviation, Inc., 537 F.3d at 175 ; Mid-Hudson Catstkill Rural Migrant Ministry, Inc. v. Fine…
- Those Certain Underwriters at Lloyd's, London, Subscribing to Policies PGIARK07130-00 & PGIXS00556-00 v. DVO, Inc., 473 F. Supp. 3d 236 (W.D.N.Y. 2020).published Co. v. City Club Hotel, LLC, 822 N.E.2d 777, 780 (N.Y. 2004) (quoting Mighty Midgets, Inc. v. Centennial Ins, Co., 389 N.E.2d 1080, 1085 (N.Y. 1979)).
- Houston Cas. Co. v. Prosight Speciality Ins. Co., 462 F. Supp. 3d 443 (S.D.N.Y. 2020).publishedU.S. Underwriters,3 N.Y.3d at 597-98 (internal citations omitted).
- United Specialty Insuance Co. v. Lux Maint. & Ren. Corp., No. 1:18-cv-03083 (S.D.N.Y. Nov. 20, 2019). Co. v. City Club Hotel, LLC, 3 N.Y.3d 592, 597 (2004) (citing Mighty Midgets, Inc. v. Centennial Ins.
- Hertz Vehs., LLC v. Cepeda, 156 A.D.3d 440 (N.Y. App. Div. 1st Dep't 2017).publishedCo. v City Club Hotel, LLC, 3 NY3d 592, 597-598 [2004], citing Mighty Midgets v Centennial Ins.
- Fiduciary Ins. Co. of Am. v. Med. Diagnostic Servs., P.C., 150 A.D.3d 498 (N.Y. App. Div. 1st Dep't 2017).publishedCo. v City Club Hotel, LLC, 3 NY3d 592, 597 [2004]; see also Gotham Partners, L.P. v High Riv.
- ABL Advisor LLC v. Peck, 147 A.D.3d 689 (N.Y. App. Div. 1st Dep't 2017).publishedCo. v City Club Hotel, LLC, 3 NY3d 592, 597 [2004]).
- Markham Gardens, L.P. v. 511 9th, LLC, 143 A.D.3d 949 (N.Y. App. Div. 2d Dep't 2016).publishedCo. v City Club Hotel, LLC, 3 NY3d 592, 597 [2004]; see Great Neck Terrace Owners Corp. v McCabe, 101 AD3d 944, 946 [2012]).
- Zelasko Constr., Inc. v. Merchants Mut. Ins., 142 A.D.3d 1328 (N.Y. App. Div. 4th Dep't 2016).published Co. v City Club Hotel, LLC, 3 NY3d 592, 597 [2004]; Mighty Midgets v Centennial Ins.
- McMahan v. McMahan, 53 Misc. 3d 1030 (N.Y. Sup. Ct. 2016).publishedCo. v City Club Hotel, LLC, 3 NY3d 592, 597 [2004] [citations omitted]; RMP Capital Corp. v Victory Jet, LLC, 139 AD3d 836 [2d Dept 2016].) Here, the “damages” which plaintiff sought to recover were the alleged “actual damages” resulting f…
- RMP Capital Corp. v. Victory Jet, LLC, 139 A.D.3d 836 (N.Y. App. Div. 2d Dep't 2016).publishedCo. v City Club Hotel, LLC, 3 NY3d 592, 597 [2004]; see TAG 380, LLC v ComMet 380, Inc., 10 NY3d 507, 515-516 [2008]).
- Pandarakalam v. Liberty Mut. Ins., 137 A.D.3d 1234 (N.Y. App. Div. 2d Dep't 2016).publishedCo. v City Club Hotel, LLC, 3 NY3d 592, 597 [2004]; Mighty Midgets v Centennial Ins.
- Country-Wide Ins. v. Gotham Med., P.C., 50 Misc. 3d 712 (N.Y. Sup. Ct. 2015).publishedCo. v City Club Hotel, LLC, 3 NY3d 592, 597-598 [2004]).
- Am. Home Assur. Co. v. Port Auth. of N.Y. & N.J., 123 A.D.3d 633 (N.Y. App. Div. 1st Dep't 2014).publishedCo. v City Club Hotel, LLC, 3 NY3d 592, 597-598 [2004] [internal quotation marks omitted]).
- Suffolk Fed. Credit Union v. Cumis Ins. Soc'y, Inc., 958 F. Supp. 2d 399 (E.D.N.Y. 2013).publishedCo. v. City Club Hotel, LLC, 3 N.Y.3d 592, 597-598 , 822 N.E.2d 777, 779-80 , 789 N.Y.S.2d 470, 472-73 (2004); Mighty Midgets, Inc. v. Centennial Ins.
- Agility Funding, LLC v. Loosch, 108 A.D.3d 820 (N.Y. App. Div. 3d Dep't 2013).published Co. v City Club Hotel, LLC, 3 NY3d 592, 597 [2004]).
- Great Neck Terrace Owners Corp. v. McCabe, 101 A.D.3d 944 (N.Y. App. Div. 2d Dep't 2012).published Co. v City Club Hotel, LLC, 3 NY3d 592, 597 [2004]; see Hooper Assoc. v AGS Computers, 74 NY2d 487, 491 [1989]; Spodek v Neiss, 86 AD3d 561, 561 [2011]).
- Suffolk Fed. Credit Union v. Cumis Ins. Soc'y, Inc., 910 F. Supp. 2d 446 (E.D.N.Y. 2012).publishedCo. v. City Club Hotel, LLC, 3 N.Y.3d 592, 597-598 , 822 N.E.2d 777, 779-80 , 789 N.Y.S.2d 470, 472-73 (2004) (citations and internal quotation marks omitted).
- Schuyler Meadows Country Club, Inc. v. Holbritter, 95 A.D.3d 1408 (N.Y. App. Div. 3d Dep't 2012).publishedCo. v City Club Hotel, LLC, 3 NY3d 592, 597 [2004] [citations omitted]; see Flemming v Barnwell Nursing Home & Health Facilities, Inc., 15 NY3d 375, 379 [2010]; Chapel v Mitchell, 84 NY2d 345, 348-349 [1994]; Hooper Assoc. v AGS Computers,…
- Kramarik v. Travelers, 25 A.D.3d 960 (N.Y. App. Div. 3d Dep't 2006).published
- Gargano v. City of New York, 26 A.D.3d 329 (N.Y. App. Div. 2d Dep't 2006).published
- RAD Ventures Corp. v. Artukmac, 31 A.D.3d 412 (N.Y. App. Div. 2d Dep't 2006).published
- Pipia v. Nassau Cnty., 34 A.D.3d 664 (N.Y. App. Div. 2d Dep't 2006).published
- Companion Life Ins. v. All State Abstract Corp., 35 A.D.3d 519 (N.Y. App. Div. 2d Dep't 2006).published
- Nat'l Grange Mut. Ins. v. T.C. Concrete Constr., Inc., 43 A.D.3d 1321 (N.Y. App. Div. 4th Dep't 2007).published
- 1 Funding Ctr., Inc. v. H & G OperatIng Corp., 48 A.D.3d 908 (N.Y. App. Div. 3d Dep't 2008).published
- Siamos v. 36-02 35th Avenue Dev., LLC, 54 A.D.3d 842 (N.Y. App. Div. 2d Dep't 2008).published
- Vill. of Springville v. Reynolds, 61 A.D.3d 1353 (N.Y. App. Div. 4th Dep't 2009).published
- Mount Vernon City Sch. Dist. v. Nova Cas. Co., 78 A.D.3d 1028 (N.Y. App. Div. 2d Dep't 2010).published
- Gen. Star Nat'l Ins. v. Niagara Frontier Transit Metro Sys., Inc., 82 A.D.3d 1627 (N.Y. App. Div. 4th Dep't 2011).published
- Spodek v. Neiss, 86 A.D.3d 561 (N.Y. App. Div. 2d Dep't 2011).published
- Gotham Partners v. High River Ltd. P'ship, 76 A.D.2d 203 (N.Y. App. Div. 1st Dep't 2010).published
- Mike Bldg. & Contracting, Inc. v. Just Homes, LLC, 27 Misc. 3d 833 (N.Y. Sup. Ct. 2010).published
- Estee Lauder Inc. v. OneBeacon Ins. Grp., LLC, 31 Misc. 3d 379 (N.Y. Sup. Ct. 2011).published
- SPECIALTY NAT. INS. v. English Bros. Funeral Home, 606 F. Supp. 2d 466 (S.D.N.Y. 2009).published
- Ins. Co. of Greater New York v. Clermont Armory, 84 A.D.3d 1168 (N.Y. App. Div. 2d Dep't 2011).published
- Hershfeld v. JM Woodworth Risk Retention Grp., Inc., 213 A.D.3d 651 (N.Y. App. Div. 2d Dep't 2023).published
3 N.Y.3d at 598 Insured's right to recover fees in declaratory judgment action13 citing cases“the reasoning behind mighty midgets is that an insurer's duty to defend an insured extends to the defense of any action arising out of the occurrence, including a defense against an insurer's declaratory judgment action.”
- GuideOne Nat'l Ins. Co. v. Sys. 2000 Plumbing Serv., Inc., No. 1:22-cv-05018 (S.D.N.Y. Aug. 31, 2026). Co. v. City Club Hotel, LLC, 822 N.E.2d 777, 780 (N.Y. 2004) (“[A]n insured who prevails in an action brought by an insurance company seeking a declaratory judgment that it has no duty to defend or indemnify the insured may recover attorne…
- Liberty Surplus Ins. v. Segal Co., 420 F.3d 65 (2d Cir. 2005).published Id.; see also id., 3 N.Y.3d at 597-98 , 822 N.E.2d at 780 , 789 N.Y.S.2d at 473 (“The reasoning behind Mighty Midgets is that an insurer’s duty to defend an insured extends to the defense of any action arising out of the occurrence, includ…
- Liberty Surplus Ins. Corp. v. Segal Co., 420 F.3d 65 (2d Cir. 2005).published Id.; see also id., 3 N.Y.3d at 597-98 , 822 N.E.2d at 780 , 789 N.Y.S.2d at 473 ("The reasoning behind Mighty Midgets is that an insurer's duty to defend an insured extends to the defense of any action arising out of the occurrence, includ…
- Oriska Ins. v. Am. Textile Maint., 322 F. App'x 36 (2d Cir. 2009).unpublished “the reasoning behind mighty midgets is that an insurer's duty to defend an insured extends to the defense of any action arising out of the occurrence, including a defense against an insurer's declaratory judgment action.”
- Houston Cas. Co. v. Prosight Speciality Ins. Co., No. 1:18-cv-09574 (S.D.N.Y. July 28, 2020).Co. v. City Club Hotel, LLC, 3 N.Y.3d 592, 598 (2004).
- State Farm Fire & Cas. Co. v. Ricci, 96 A.D.3d 1571 (N.Y. App. Div. 4th Dep't 2012).published Co. v City Club Hotel, LLC, 3 NY3d 592, 598 [2004]).
- Estee Lauder Inc. v. OneBeacon Ins. Grp., LLC, 31 Misc. 3d 379 (N.Y. Sup. Ct. 2011).published
- Progressive Halcyon Ins. v. Giacometti, 72 A.D.3d 1503 (N.Y. App. Div. 4th Dep't 2010).published
- RLI Ins. v. Smiedala, 77 A.D.3d 1293 (N.Y. App. Div. 4th Dep't 2010).published
- Farm Fam. Cas. Ins. v. Habitat Revival, LLC, 91 A.D.3d 903 (N.Y. App. Div. 2d Dep't 2012).published
Show 3 more citing cases
- Am. Guarantee & Liab. Ins. v. Moskowitz, 19 Misc. 3d 548 (N.Y. Sup. Ct. 2008).published
- U.S. Liab. Ins. Co. v. WW Trading Co., No. 19-2661 (2d Cir. May 15, 2020).unpublished
- Scottsdale Ins. v. United Indus. & Constr. Corp., 137 F. Supp. 3d 167 (E.D.N.Y. 2015).published
822 N.E.2d at 780 Recovering attorneys' fees after declaratory judgment action7 citing cases[A]n insured who prevails in an action brought by an insurance company seeking a declaratory judgment that it has no duty to defend or indemnify the insured may recover attorneys’ fees regardless of whether the insurer provided a defense to the insured.
- GuideOne Nat'l Ins. Co. v. Sys. 2000 Plumbing Serv., Inc., No. 1:22-cv-05018 (S.D.N.Y. Aug. 31, 2026). ([A]n insured who prevails in an action brought by an insurance company seeking a declaratory judgment that it has no duty to defend or indemnify the insured may recover attorneys’ fees regardless of whether the insurer…)
- Berkley Assurance Co. v. John H. Fisher, P.C., 771 F. Supp. 3d 292 (S.D.N.Y. 2025).published Co. v. City Club Hotel, LLC, 3 N.Y.3d 592, 597 , 822 N.E.2d 777, 780 (2004) (emphasis added) (quoting Mighty Midgets, 47 N.Y.2d at 21 ).
- Match Grp., LLC v. Beazley Underwriting Ltd., No. 1:22-cv-04629 (S.D.N.Y. Feb. 29, 2024).Co. v. City Club Hotel, LLC, 822 N.E.2d 777, 780 (N.Y. 2004) (emphasis added) (quoting Mighty Midgets, Inc. v. Centennial Ins.
- Those Certain Underwriters at Lloyd's, London, Subscribing to Policies PGIARK07130-00 & PGIXS00556-00 v. DVO, Inc., No. 1:19-cv-00252 (W.D.N.Y. Dec. 28, 2021).Co. v. City Club Hotel, LLC, 822 N.E.2d 777, 780 (N.Y. 2004) (quoting Mighty Midgets, Inc. v. Centennial Ins.
- Those Certain Underwriters at Lloyd's, London, Subscribing to Policies PGIARK07130-00 & PGIXS00556-00 v. DVO, Inc., 473 F. Supp. 3d 236 (W.D.N.Y. 2020).published Co. v. City Club Hotel, LLC, 822 N.E.2d 777, 780 (N.Y. 2004) (quoting Mighty Midgets, Inc. v. Centennial Ins, Co., 389 N.E.2d 1080, 1085 (N.Y. 1979)).
- Gemini Ins. Co. v. Titan Constr. Servs., LLC, No. 1:17-cv-08963 (S.D.N.Y. Aug. 27, 2019).Co. v. City Club Hotel, LLC, 822 N.E.2d 777, 780 (N.Y. 2004); Westport, 2011 WL 724737 , at *5. 20 However, Defendants’ arguments were largely rejected by this Court.
- Guideone Specialty Mut. Ins. v. Congregation Adas Yereim, 593 F. Supp. 2d 471 (E.D.N.Y. 2009).published
822 N.E.2d at 779 Insured recovering fees in declaratory judgment actions3 citing cases
- O'Hara v. Cohen-Sanchez, No. 1:22-cv-06209 (E.D.N.Y. Mar. 27, 2025).Co. v. City Club Hotel, LLC, 822 N.E.2d 777, 779 (N.Y. 2004); see Mid-Hudson Catskill Rural Migrant Ministry, Inc. v. Fine Host Corp., 418 F.3d 168, 177 (2d Cir. 2005) (applying New York substantive law to assess entitlement to attorney’s…
- Foremost Ins. v. Levesque, 2007 ME 96, 926 A.2d 1185.published
- Versatile Housewares & Gardening Sys., Inc. v. Thill Logistics, Inc., 819 F. Supp. 2d 230 (S.D.N.Y. 2011).published
3 N.Y.3d at 596 Insured recovering fees in declaratory judgment action2 citing cases“an insured who prevails in an action brought by an insurance company seeking a declaratory judgment that it has no duty to defend or indemnify the insured may recover attorneys' fees regardless of whether the insurer provided a defense to the insured.”
- Merry-Go-Round Playhouse, Inc. v. Assessor of Auburn, 104 A.D.3d 1294 (N.Y. App. Div. 4th Dep't 2013).published Co. v City Club Hotel, LLC, 3 NY3d 592, 596-597 [2004]).
3 N.Y.3d at 595 cited at this page1 citing case
- State Farm Mut. Auto. Ins. Co. v. Am. Empire Surplus Lines Ins. Co., 2024 NY Slip Op 31852(U) (N.Y. Sup. Ct., New York Cty. 2024).unpublishedCo. v City Club Hotel, LLC, 3 NY3d 592, 595 [2004]).
v.
City Club Hotel, LLC, Et Al., Appellants-Respondents, and Marek Szpakowski Et Al., Respondents
OPINION OF THE COURT
G.B. Smith, J.The United States Court of Appeals for the Second Circuit, by two certified questions, has asked this Court to clarify whether[*596] an insured who prevails in an action brought by an insurer seeking a declaratory judgment that it has no duty to defend or indemnify the insured, may recover attorneys’ fees expended in defending against the declaratory judgment action regardless of whether the insurer provided a defense to the insured. We answer that question in the affirmative.
Plaintiff, U.S. Underwriters Insurance Company, issued a commercial general liability policy for the policy period of May 15, 1999 to May 15, 2000, to defendants City Club Hotel, LLC and Shelby Realty, LLC, as named insureds, in connection with renovation work City Club was to perform on Shelby’s property. On April 27, 2000, while performing the renovation work, Marek Szpakowski, a construction worker employed by City Club, fell from a scaffold and sustained serious injuries. In July 2000, U.S. Underwriters received notice of Szpakowski’s claim and a copy of his counsel’s letter to Shelby informing it that it might be sued. When the insurer confirmed receipt of the notice of claim, it identified City Club and Shelby as “Our Insured.”
In November 2000, Mr. Szpakowski and his wife brought a personal injury action in Supreme Court asserting various labor and industrial law claims against Shelby, Forthright Development, LLC and Metropolitan Hotels, LLC. A copy of the verified complaint was sent to U.S. Underwriters on or about December 13, 2000. By letter dated December 20, 2000, approximately five months after it received notice of the claim, the insurer disclaimed coverage of City Club and Shelby with respect to the claims based on the employee exclusion clause of the policy, but nonetheless provided Shelby a defense in the underlying action.
In September 2002, U.S. Underwriters, asserting diversity jurisdiction, brought the instant action in the United States District Court for the Southern District of New York seeking a declaratory judgment that it has no duty to defend or indemnify defendants Shelby, City Club, Forthright and Metropolitan, or their named officers. The insurer moved, and defendants subsequently cross-moved, for summary judgment. The District Court granted summary judgment to defendants on the issue of disclaimer of coverage, finding that the disclaimer was untimely as a matter of law. The court, however, denied defendants’ motion to recover attorneys’ fees incurred in successfully defending the declaratory judgment action, ruling that attorneys’ fees were not warranted because U.S. Underwriters did not breach the duty to defend.
In its appeal to the Second Circuit, U.S. Underwriters challenged the District Court’s finding that its disclaimer of cover[*597] age was untimely. Defendants challenged the denial of attorneys’ fees. The Second Circuit affirmed and held that U.S. Underwriters’ disclaimer of coverage as to Shelby, Forthright and Metropolitan was untimely as a matter of law; that U.S. Underwriters is obliged to defend and indemnify Shelby in the underlying action; and that the complaint against defendants City Club and the named officers must be dismissed as these parties do not seek coverage under the policy. As to whether attorneys’ fees can be awarded to defendants, the Second Circuit noted a division in interpreting the relevant law and certified the following two questions to this Court:
“1. Whether, in a case in which an insurance company has brought a declaratoiy judgment action to determine that it does not have obligations under the policy but has defended in the underlying suit, a defendant prevailing in the declaratory judgment action should be awarded attorneys’ fees expended in defending against that action?
“2. Whether, in the special circumstances of this case, attorneys’ fees should be awarded to one or more of the defendants?” (369 F3d 102, 113 [2d Cir 2004].)
We accepted certification (2 NY3d 787 [2004]) and now answer the first question in the affirmative as to Shelby, a named insured under the policy. Since it is not clear what is meant by the “special circumstances of this case,” * we decline to answer the second question, concluding it is more appropriate for the District Court or the Second Circuit to resolve this issue.
It is well settled in New York that a prevailing party may not recover attorneys’ fees from the losing party except where authorized by statute, agreement or court rule (see Chapel v Mitchell, 84 NY2d 345, 349 [1994], quoting Hooper Assoc., Ltd. v AGS Computers, Inc., 74 NY2d 487, 491 [1989]; Mighty Midgets, Inc. v Centennial Ins. Co., 47 NY2d 12, 21-22 [1979]). However, an insured who is “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 attorneys’ fees incurred in defending against the insurer’s action (Mighty Midgets, 47 NY2d at 21). The reasoning behind Mighty Midgets is that an insurer’s duty to defend an insured extends to the[*598] defense of any action arising out of the occurrence, including a defense against an insurer’s declaratory judgment action.
In the instant case, it is undisputed that Shelby, a named insured under the policy, was cast in a defensive posture by U.S. Underwriters in their dispute over whether the insurer had a duty to defend and indemnify Shelby in the underlying personal injury action. Further, it is undisputed that Shelby successfully defended against the insurer’s summary judgment motion and thereby prevailed in the matter.
Based on Mighty Midgets, Shelby is entitled to recover attorneys’ fees. We hold that under Mighty Midgets, an insured who prevails in an action brought by an insurance company seeking a declaratory judgment that it has no duty to defend or indemnify the insured may recover attorneys’ fees regardless of whether the insurer provided a defense to the insured. Given that the expenses incurred by Shelby in defending against the declaratory judgment action arose as a direct consequence of U.S. Underwriters’ unsuccessful attempt to free itself of its policy obligations, Shelby is entitled to recover those expenses from the insurer. In other words, Shelby’s recovery of attorneys’ fees is incidental to the insurer’s contractual duty to defend.
Accordingly, certified question No. 1 should be answered in the affirmative and certified question No. 2 not answered.
Chief Judge Kaye and Judges Ciparick, Rosenblatt, Graffeo, Read and R.S. Smith concur.
Following certification of questions by the United States Court of Appeals for the Second Circuit and acceptance of the questions by this Court pursuant to section 500.17 of the Rules of Practice of the Court of Appeals (22 NYCRR 500.17), and after hearing argument by counsel for the parties and consideration of the briefs and the record submitted, certified question No. 1 answered in the affirmative and certified question No. 2 not answered.
In their briefs and at oral argument before this Court, counsel had differing views as to what the “special circumstances” were.