The New York Court of Appeals grants reargument in less than 1% of cases and reverses itself even more rarely. On Feb. 18, 2014, the Court of Appeals did just that.   

In 2013, in K2 Inv. Group, LLC v. American Guar. & Liab. Ins. Co.^[1], (K2-I), the Court of Appeals of New York issued a controversial decision, unanimously holding that because an insurer breached its duty to defend, it could not later rely on otherwise potentially applicable exclusions to deny coverage for indemnification. K2-I appeared to adopt the minority "coverage by estoppel" rule, which provides that when an insurer wrongfully fails to defend, that insurer may be liable in an amount up to its policy limits—even if the policy contains an exclusion that would otherwise preclude coverage for indemnification. This holding represented a drastic deviation from New York's well-established insurance law jurisprudence. Needless to say, the insurance industry was shocked and concerned.  Reargument followed.

In a rare reversal, the Court of Appeals issued K2-II^[2], vacating its prior decision and rejecting the notion of coverage by estoppel. With K2-II, New York reverted to the previous rule, pursuant to which New York insurers that breach the duty to defend will be liable for that breach, but will not be precluded from relying on policy exclusions to deny coverage for indemnification. New York rejoined the majority of states, which reject coverage by estoppel.