Monday, December 15, 2008

Letter Confirming Defense & Indemnification Coverage Found Not to be Policy Endorsement

CGL – ADDITIONAL INSURED COVERAGE – WHAT CONSTITUTES A POLICY ENDORSEMENT
GuideOne Specialty Ins. Co. v. Admiral Ins. Co.

(2nd Dept., decided 12/9/2008)


Weingarten Custom Homes (WCH) contracted with Torah Academy for Girls to build an addition to Torah Academy's building.  As required by the contract, Torah Academy was an additional insured under a liability insurance policy issued to WCH and various related companies by Admiral. However, contrary to the provision in the contract that required such coverage to be in the sums of no less than $2,000,000 per person and $5,000,000 per occurrence, WCH's policy with Admiral contained coverage limits of only $1,000,000 per person and occurrence. Torah Academy had secondary and excess coverage under a policy issued to it by the plaintiff, GuideOne.

While working on the project, a construction worker was seriously injured in a fall, and he eventually commenced an action against Torah Academy. In a letter dated October 10, 2005, GuideOne sought assurances from Admiral's claims superintendent that Admiral would provide a "full defense and indemnification" to Torah Academy in the injured worker's personal injury action. The claims superintendent was asked to sign a copy of the letter and return it to counsel. The letter contained, inter alia, the following sentence: "[Admiral] is providing [Torah Academy] with a full defense and indemnification in this matter." Before signing and returning the letter, Admiral's claims superintendent hand-wrote an addition to the sentence, so that it read "[Admiral] is providing [Torah Academy] with a full defense and indemnification in this matter, as it conforms with the contract between [WCH & Torah Academy]" (emphasis added). Following this exchange of letters, the injured worker settled his action against Torah Academy for the sum of $1,225,000. Admiral paid $1,000,000 of that amount, and GuideOne paid $225,000. 

GuideOne then commenced this action against Admiral for recovery of GuideOne's $225,000 contribution toward the underlying settlement.  GuideOne claimed that the letter, as signed by Admiral's claims superintendent, in effect, modified Admiral's policy to provide coverage in the sums of $2,000,000 per person and $5,000,000 per occurrence as required in the contract between WCH and Torah Academy.  In a pre-answer motion, Admiral moved to dismiss the complaint insofar as asserted against it pursuant to CPLR 3211(a)(1) and (7).  Kings Supreme denied the motion with leave to renew upon the completion of discovery.

In REVERSING and granting Admiral's pre-answer motion to dismiss the complaint, the Second Department ruled that the coverage confirming letter Admiral's claim superintendent signed did not constitute a coverage limits amending policy endorsement:
"'[T]o succeed on a motion to dismiss pursuant to CPLR 3211(a)(1), the documentary evidence which forms the basis of the defense must be such that it resolves all factual issues as a matter of law, and conclusively disposes of the plaintiff's claim'" (Ruffino v New York City Tr. Auth., 55 AD3d 817, 817, quoting Morris v Morris, 306 AD2d 449, 451). The policy issued by Admiral expressly provided that its terms could not be "amended or waived [except] by endorsement issued by [Admiral] and made a part of this policy." The letter signed by Admiral's claims superintendent did not purport to be, and did not constitute, such an endorsement (cf. Matter of Government Gen. Empls. Ins. Co. v Constantino, 49 AD3d 736, 737; Matter of State Farm Mut. Auto. Ins. Co. v Russell, 39 AD3d 759, 761). Moreover, inasmuch as the policy is unambiguous with respect to the limits of the coverage afforded, resort to extrinsic evidence was not proper (see Katz v American Mayflower Life Ins. Co. of N.Y., 14 AD3d 195, 200, affd 5 NY3d 561; Del Vecchio v Cohen, 288 AD2d 426, 427-428; Furey v Guardian Life Ins. Co., 261 AD2d 355, 356; cf. Shook v Blue Stores Corp., 30 AD3d 811, 812). Consequently, the documentary evidence submitted by Admiral in support of its motion conclusively established that its policy did not provide coverage beyond its stated limits (see Topel v Reliastar Life Ins. Co. of N.Y., 6 AD3d 608; Randazzo v Gerber Life Ins. Co., 3 AD3d 485, 485-486; cf. Ruffino v New York City Tr. Auth., 55 AD3d 817; Krystal Investigations & Sec. Bur., Inc. v United Parcel Serv., Inc., 35 AD3d 817). Accordingly, the Supreme Court should have granted the appellant's motion to dismiss the complaint insofar as asserted against it pursuant to CPLR 3211(a)(1) and (7).
Although the decision does not identify the other "et al." defendants, GuideOne presumably sued WCH, as well, for its failure to procure the liability insurance limits required by its contract with Torah Academy. 

3 comments:

Larry Rogak said...

Roy: Having represented GuideOne in this subrogation action, I can provide additional details. GuideOne named both the insurer, Admiral, and the contractor, WCH, as defendants. Although Admiral's policy limits were $1 million per occurrence, its claims manager added a hand-written notation on our letter to him confirming Admiral's acceptance of our tender of the defense. That handwritten addition read, "as conforms to the contract." We argued that this note created at least a question of fact as to whether Admiral would provide the policy limits called for in the construction contract ($2 million per occurrence). Supreme/Kings agreed that it did, but the Appellate Division said no. The suit continues against the contractor, who clearly breached the construction contract by purchasing a policy with limits of $1 million instead of $2 million. I still feel that for purposes of a CPLR 3211 motion, which Admiral made here, it was not entitled to dismissal based on "documentary evidence."

Larry Rogak

Heidi said...

Another example of why more and more insurers are beginning to ask to review the contracts at the time they are asked to provide the insurance. And what course of action, if any, would GuideOne have against Torah for their breach in assuring that the coverage they were required to get under the Admiral contract was met?

Larry Rogak said...

I don't see any cause of action by GuideOne against Torah due to the contractor's failure to get the required coverage. Nothing in the GuideOne CGL policy creates a duty on the part of its insured to ensure that a third party contractor gets a certain amount of coverage.