Employers' Liability (1B) Coverage Not Unlimited for Out-of-State Policy

WC/EL POLICY – EMPLOYER'S LIABILITY UMLIMITED COVERAGE – OUT-OF-STATE POLICY – INSURANCE LAW § 3420(D) – "ISSUED FOR DELIVERY"

Preserver Ins. Co. v. Ryba
(Ct. Apps., decided 6/10/2008)

Ineresting and noteworthy case.

Employers' liability coverage -- sometimes called "1B" coverage -- must be unlimited in EL coverage for policies issued or "issued for delivery" in New York State.

Effective September 9, 2007, an amendment to the New York Workers' Compensation Law § 50 (2), requires out-of-state employers with operations and/or employees in New York State to maintain workers' compensation insurance "through a policy issued under the law of this state." The New York Workers' Compensation Board has advised that this requirement can only be fulfilled when New York is listed in Item 3.A. ("Part One of the policy applies to the Workers' Compensation Laws of the states listed here:") of the policy's Information Page.

This case involved a New Jersey WC/EL policy issued before that amendment. Preserver issued a WC/EL (workers' compensation/employers liability) policy from New Jersey to a New Jersey subcontractor. An employee of that subcontractor (Ryba) was injured in a construction accident on May 17, 2003. Although that subcontractor was allegedly supposed to have the GC (Almeida) listed in its policy as an additional insured, it failed to do so.

Claiming that AAlmeida's negligence caused his paraplegia, Ryba sued Almeida, asserting common-law negligence and New York Labor Law §§ 200, 240(1) and 241(6) causes of action. Because Ryba claimed a grave injury, Almeida commenced a third-party action against Ryba's employer, East Coast Stucco, asserting causes of action for common-law indemnification/contribution, contractual indemnification and breach of contract for failure to procure the promised liability insurance.

Preserver brought this DJ action and sought summary judgment on three grounds: (1) that it had no duty to defend Almeida's cause of action for contractual indemnification or for breach of contract for failure to procure insurance for Almeida because its policy expressly excluded coverage for any liability assumed under a contract; (2) that it had no duty to defend or indemnify East Coast Stucco against Almeida's cause of action for common-law indemnification because Ryba's accident in New York, was not necessary or incidental to East Coast Stucco's work in New Jersey; and (3) that if it must provide employers' liability insurance, coverage is limited to $100,000 as provided by the policy.

Almeida's homewners' insurer, Northern Assurance Company of America, opposed Preserver's motion and cross-moved for summary judgment, contending that Preserver was time-barred under Insurance Law § 3420 (d) from disclaiming coverage, and that the Preserver policy was limitless as to the amount of EL coverage. The Supreme Court granted Northern's cross motion on both grounds and the Appellate Division affirmed.

In REVERSING the decisions of both lower courts, the Court of Appeals held:

New York Insurance Law § 3420 (d) provides that when a liability policy is "delivered or issued for delivery in this state, [if] an insurer shall disclaim liability or deny coverage for death or bodily injury . . . it shall give written notice as soon as is reasonably possible." It is undisputed that the policy was actually delivered in New Jersey by a New Jersey insurer to a New Jersey insured. Was the policy nonetheless "issued for delivery" in New York? We answer in the negative.

A policy is "issued for delivery" in New York if it covers both insureds and risks located in this state (citations omitted). By including New York as an "Item 3.C." state, the policy covers risks located in New York. East Coast Stucco is, however, a New Jersey company, with its only offices located in that state, so it cannot be said that the insured is located in New York. Because the policy was neither actually "delivered" nor "issued for delivery" in New York, Preserver is not required by Insurance Law § 3420 (d) to make timely disclaimer of coverage.

Further, since the policy explicitly excludes coverage for any liability assumed under a contract, Preserver must neither defend nor indemnify East Coast Stucco for the Contractual indemnification or breach of contract causes of action. And even if the policy were "issued for delivery" in New York, Preserver still would not be barred from denying coverage for Almeida's breach of contract claim since Insurance Law § 3420 (d) requires timely disclaimer only for denials of coverage "for death or bodily injury."

On the issue of whether Preserver was required to provide unlimited EL coverage, the Court held:

Nothing in the policy suggests that this cap evaporates when an accident occurs in a 3.C. state. Nor, significantly, does Part Two provide — as Part One does — that employers' liability insurance will conform to the workers' compensation laws of the state where the injury occurs. This conclusion is fortified by Part Two's "Exclusions," stating that this portion of the policy does not cover "any obligation imposed by a workers compensation . . . or any similar law." Plainly, nothing in the insurance contract supports Northern's argument for unlimited liability.

Both insurers agree that no statutory provision mandates unlimited employers' liability coverage. Northern, however, asks us to defer to the New York Manual, arguing that it requires insurance policies to provide unlimited employers' liability coverage, a requirement made applicable in this case because the risk took place in New York.

* * * * *

Plainly, when a state is listed under Item 3.A., the insurer is required to provide a number of additional endorsements that are not required when the state is merely listed in Item 3.C. In East Coast Stucco's policy, which was underwritten in New Jersey, and which lists only New Jersey under Item 3.A., there are several New Jersey endorsements attached to the policy. None, however, provide unlimited employers' liability insurance. Whether New Jersey is listed as a 3.A. or 3.C. state, nothing in the New Jersey Manual requires that an insurer provide unlimited coverage.

The Preserver policy lacks any New York endorsements, precisely because New York is an Item 3.C. state. Here, even if Preserver is bound by the New York Manual, its employers' liability insurance for Ryba's injury should be capped at $100,000 because Preserver was not informed that East Coast was operating in New York. That being so, Preserver was not required to move New York from a 3.C. state to a 3.A. state, and not required to add an endorsement providing unlimited employers' liability insurance for injuries in New York.

Judgment for Preserver granted declaring that it had no duty to indemnify defendant East Coast Stucco with respect to Almeida's contractual indemnification and breach of contract claims in the underlying action, and that Preserver's duty to indemnify defendant East Coast Stucco with respect to the remaining claims against it was limited to $100,000.