Thursday, February 12, 2009

Fourth Department Reiterates that Policy, Not Construction Contract, Language Determines Priority of Additional Insured Coverage

David Christa Constr., Inc. v. American Home Assur. Co.

(4th Dept., decided 2/11/2009)

David Christa Construction hired Spring Lake Excavating to work on a construction project at Cornell University.  A Spring Lake employee was injured during that project and brought a Labor Law and negligence suit against Christa, which impleaded Spring Lake.  The commercial general liability insurance configuration was as follows:

Cornell University
General Contractor
David Christa Construction
United Pacific Insurance Company (Reliance)
Spring Lake Excavating
American Home Assurance Company

Spring Lake's CGL policy with American Home included as an "[a]dditional [a]ssured" any organization to which Spring Lake "agreed, by written contract, to provide coverage, but only with respect to operations performed by or on behalf of" Spring Lake.  For reasons not apparent from the decision, American Home apparently declined to afford additional insured (AI) coverage to Christa, and both Christa and Reliance (by the NYS Superintendent of Insurance, as Reliance's ancillary receiver) commenced declaratory judgment actions, later consolidated into one, seeking to have American Home's AI coverage for Christa declared as being primary.  Christa and the Superintendent unsuccessfully moved for summary judgment, the motion court finding that there was a question of fact requiring certain discovery before the matter of the priorities of insurance coverage could finally be determined.  During the pendency of plaintiffs' appeals, the jury rendered a verdict against Christa and in favor of Spring Lake in the trial of Christa's third-party action against Spring Lake in the underlying action, and the court dismissed the third-party complaint.

In REVERSING the lower court's denial of summary judgment to Christa and the Superintendent, the Fourth Department declared that American Home owed primary and United Pacific owed excess liability coverage to Christa. Reiterating that "[t]he scope of insurance coverage obtained by a general contractor and  subcontractor 'must be determined by the terms of the policies, not the terms of the subcontract'", the court held:
Here, the additional insured provision of defendant's policy was triggered when Spring Lake agreed in the subcontract agreement to obtain liability insurance and to list Christa as an additional insured. The well-settled definition of the term "additional insured" is "an entity enjoying the same protection as the named insured" (Pecker Iron Works of N.Y. v Traveler's Ins. Co., 99 NY2d 391, 393 [internal quotation marks omitted]). Under defendant's policy, the coverage afforded to Spring Lake was to be excess over any other insurance available to it "other than [i]nsurance that is excess" to defendant's policy. Inasmuch as Christa was an additional insured, defendant likewise was obligated to provide Christa with excess coverage unless other insurance available to Christa provided only excess, rather than primary, coverage. United's policy unambiguously provided that it was to be excess over any other insurance covering Christa and on which it was not the named insured, which would include defendant's policy. Thus, United's policy provided Christa with excess coverage over defendant's policy.
Irrespective of the priority of coverage determination, American Home argued that since the jury in the underlying action found against Christa and for Spring Lake on Christa's third-party action against Spring Lake, Christa was not entitled to defense and indemnification AI coverage under Spring Lake's policy because it could not be said that Christa's liability arose operations performed by Spring Lake.  In rejecting this argument and finding that American Home was obligated to both defend and indemnify Christa notwithstanding the intervening dismissal of its third-party action against Spring Lake, the court held:
The language of defendant's additional insured provision "focuses not upon the precise cause of the accident, as defendant[] urge[s], but upon the general nature of the operation in the course of which the injury was sustained" (Consolidated Edison Co. of N.Y. v Hartford Ins. Co., 203 AD2d 83, 83). The parties do not dispute that Roosa was employed by Spring Lake and injured while performing construction work for Spring Lake. Consequently, we conclude that Roosa was injured while acting "with respect to operations performed by or on behalf of" Spring Lake and that defendant is obligated to provide coverage to Christa as an additional insured pursuant to its policy. The fact that Roosa's injury may have been caused by Christa's negligence is immaterial with respect to the issue whether Christa is covered under defendant's policy (see Tishman Constr. Corp. of N.Y. v American Mfrs. Mut. Ins. Co., 303 AD2d 323, 324; Turner Constr. Co. v Pace Plumbing Corp., 298 AD2d 146, 147; Consolidated Edison Co. of N.Y. v United States Fid. & Guar. Co., 266 AD2d 9; Lim v Atlas-Gem Erectors Co., 225 AD2d 304, 305-306).
When a court's analysis of the scope of AI coverage focuses on the nature of the operations, rather than the cause of the accident, it becomes more likely that the AI will be found entitled to both defense and indemnification coverage, regardless of the AI's negligence.  AI endorsement language will dictate which of the two analyses -- nature of the operations or cause of the accident -- will be utilized in making the AI coverage determination.


John Hochfelder said...

Great post, as always. And it's comforting to me, as a lawyer who does not practice insurance coverage law, to see that even the experts chart out the parties and the carriers when reading and analyzing these types of cases. This area of law can be complex. Good job, Roy.

Roy A. Mura said...

Thanks, John. What I'd really like to do is find a way to post the "chart" or drawing I usually create for AI cases. It includes semi-circular arrows showing HHI and PPI (hold harmless/indemnity) and (promise to procure insurance) obligations vis-à-vis the parties. When I have the extra time (like we bloggers ever have that), I'll see whether I can come up with a template.

Thanks for the comment.