A Nationwide Mutual Insurance Co. unit has prevailed in a dispute with another insurer in litigation over liability in connection with the delivery of contaminated milk.

In August 2013, a truck operated by Mannssville, New York-based M&T Transport, a milk delivery company, delivered milk contaminated with metal filings to Adams, New York-based Great Lakes Cheese of New York Inc., causing substantial damage to its factory, according to Friday’s ruling by the 2nd U.S. Circuit Court of Appeals in New York in Harleysville Worcester Insurance Co. v. Wesco Insurance Co.

Worcester, Massachusetts-based Harleysville Worcester, a Nationwide unit, was M&T’s general liability insurer, while New York-based Wesco, a unit of AmTrust Financial Corp., was its auto liability insurer.

When Wesco disclaimed coverage, Harleysville assumed the defense under a reservation of rights in connection with two ensuing lawsuits, according to the ruling.

After a mediation, the lawsuits were settled for $1,062,500, of which Harleysville paid the coverage limit of $1 million in exchange for an assignment of all rights against Wesco.

Harleysville then filed suit against Wesco, arguing it was liable under its auto policy for defense and indemnity and that Harleysville’s general liability policy excluded coverage. 

The U.S. District Court in New York ruled in Harleysville’s favor, which was affirmed by a unanimous three-judge appeals court panel.

Wesco’s position in the district court was that its policy excluded coverage, said the ruling. Now, however, Wesco “does an about-face conceding that its policy covers the accident (and that Harleysville doesn’t) but arguing that Harleysville cannot recover nevertheless” because it had acted as a volunteer, said the ruling.

“We have discretion to consider arguments raised for the first time on appeal, but this case does not warrant that exercise of discretion,” said the ruling.

The panel also held that Wesco’s argument that it was not provided timely notice of the lawsuit by Harleysville was “meritless,” in affirming the lower court’s ruling.

A state appeals court ruled in June that a Nationwide Mutual Insurance Co. unit must pay for the defense of a restaurant that faced lawsuits alleging the restaurant’s manager installed a camera in the women’s bathroom.