Monday, October 27, 2008

Defense Owed to Additional Insured; Indemnification Dependent on Liability Outcome

Chunn v. New York City Hous. Auth.

(1st Dept., decided 10/23/2008)

Typical of a First Department memorandum decision, this case doesn't give much in the way of background facts.  It appears, however, that plaintiff alleged that he was assaulted while visiting his sister, a tenant in a New York City Housing Authority building.  The sister alleged in an affidavit that the intercom had been broken for several months before her brother was assaulted.  American Security Systems, Inc., presumably was responsible for installing and/or maintaining the intercom system and, by contract, agreed to hold harmless and indemnify NYCHA.

Three insurance policies were at issue:
  1. a CGL policy issued by National Casualty Company to ASSI, which afforded coverage to NYCHA as an additional insured with respect to liability for, among other things, bodily injury caused in whole or in part by ASSI's "acts or omissions"; 
  2. a following form  "excess policy" issued by Scottsdale Insurance Company to ASSI; and 
  3. an owners and contractors protective (OCP) policy issued by Scottsdale to ASSI. 
Chunn commenced a personal injury action against NYCHA and ASSI and, for reasons not evident from the  decision, NYCHA commenced a first third-party action against ASSI for contractual indemnification (rather than cross-claiming).  Presumably because National Casualty and Scottsdale had denied additional insured coverage to NYCHA, NYCHA commenced a second third-party action for declaratory relief against those insurers. 

In MODIFYING the lower court's order, the First Department held:
  • because the complaint alleged that plaintiff's injury was caused, in whole or in part, by ASSI's acts or omissions with respect to the NYCHA building's systems, NYCHA was entitled to a defense under ASSI's CGL policy with National Casualty;
  • contrary to the insurers' contention that they demonstrated as a matter of law that "there [wa]s no possible factual or legal basis on which [they] might eventually" be obligated to indemnify NYCHA, the sister's affidavit presented an issue of credibility that precluded summary judgment; 
  • NYCHA was also entitled to a defense under the excess policy issued by Scottsdale to ASSI because that policy followed the form of National Casualty's CGL policy, under which NYCHA was an additional insured (I don't get this part of the court's ruling; mutual defense obligation of both the primary and excess insurers?);
  • the insurers' ground for disclaiming coverage under the OCP policy, i.e., late notice, was belied by the record, as was their contention that notice to National Casualty did not constitute notice to Scottsdale,  as well; in any event, however, any delay in notice was due to misleading statements by the National Casualty claims department concealing the existence of the OCP policy; 
  • although the insurers' duty to defend was clear, issues of fact as to liability in the underlying personal injury action rendered premature the conclusion that the insurers had a duty to indemnify NYCHA; 
  • the second third-party action should be severed to avoid the prejudice to the second third-party defendants that would result from the jury's awareness of the existence of liability insurance; and 
  • it would be premature to declare that the indemnification provisions of the contract between NYCHA and ASSI were void and unenforceable under General Obligations Law § 5-322.1.
Observation:  this is the second time in under three months that the First Department has excused an insured's late notice based on its finding that the insured had been misled about the insurer's identity or policy's existence.  See, Cicero v. Great American Ins. Co., (1st Dept., decided 7/29/2008).

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