Plaintiffs failure to notify defendant of the adversary proceeding commenced in the bankruptcy court is not excused by the fact that defendant received notice of the pending litigation from another source (see Travelers Ins. Co. v Volmar Constr. Co., 300 AD2d 40, 43 [2002]). However, defendant did not establish that it was prejudiced by plaintiffs failure, and thus, pursu*441ant to the terms of the policy, plaintiffs failure “shall” not prejudice plaintiff’s rights under the policy. Defendant received notice from plaintiff of its potential liability under the policy, as well as a copy of the complaint in the bankruptcy proceeding. Yet, instead of exercising its right under the policy to take action to prevent or reduce loss or damage to its insured, defendant chose “to stay on the sidelines and to allow [plaintiff] to defend the suit on its own” (see Deutsche Bank Trust Co. of Ams. v Tri-Links Inv. Trust, 74 AD3d 32, 42 [2010]; American Tr. Ins. Co. v Hashim, 68 AD3d 618 [2009], Iv denied 14 NY3d 708 [2010]). Thus, defendant must reimburse plaintiff for the latter’s defense costs.
Defendant is not, however, obligated to indemnify plaintiff for the difference between the face amount of the policy and the amount for which it compromised the value of the subject mortgage at the bankruptcy proceeding, because plaintiff sustained no loss or damage under the policy by taking title to the property (see Grunberger v Iseson, 75 AD2d 329 [1980]; Citibank v Chicago Tit. Ins. Co., 214 AD2d 212, 222 [1995], Iv dismissed 87 NY2d 896 [1995]). Further, plaintiff voluntarily agreed to the settlement amount in the bankruptcy proceeding without notifying defendant, although it was not absolved from complying with its obligations under the policy by defendant’s disclaimer of coverage (see Seward Park Hous. Corp. v Greater N.Y. Mut. Ins. Co., 43 AD3d 23, 30-31 [2007]). Concur — Mazzarelli, J.E, Catterson, DeGrasse, Abdus-Salaam and Román, JJ.