Franklin Dev. Co., Inc. v. Atlantic Mut. Ins. Co.
(2nd Dept., decided 3/24/2009)
The "Additional Insured—Manager or Lessors of Premises" endorsement (CG 20 11 01 96) adds the lessor or manager as an insured "but only with respect to liability arising out of the ownership, maintenance or use of that part of the premises leased to [the named insured]." Cases involving this endorsement often raise questions regarding the scope of the leasehold; in other words, what is "that part of the premises" that was actually leased to the named insured tenant?
Plaintiff Franklin Development Company leased space in a building it owned to Hertlein Special Tool Company. Pursuant to the lease terms, Hertlein obtained a CGL insurance policy for the leased premises from Atlantic Mutual, naming Franklin as an additional insured. An employee of Hertlein allegedly fell in a stairwell in the building and sustained injuries. He commenced a personal injury action against Franklin and two related entities, which in turned impleaded Hertlein.
In a previous appeal in the underlying personal injury action, the Second Department modified the motion court to grant plaintiffs' motion for summary judgment, dismissing the primary complaint and all cross claims against them. Although plaintiffs had raised the issue of whether the stairwell where the injured party had fallen was an area covered by the additional insured clause of Hertlein's insurance policy with Atlantic Mutual, the Second Department stated that that issue "need not be reached" in light of its decision granting summary judgment to plaintiffs.
Plaintiffs moved and Atlantic Mutual cross-moved for summary in this declaratory judgment action. The motion court not only granted Atlantic Mutual's cross motion, declaring that it was not obligated to defend or indemnify plaintiffs in relation to the underlying action, but also found, sua sponte, that this action was frivolous within the meaning of 22 NYCRR 130-1.1, and ordered that a hearing be conducted to determined an award of attorneys' fee to the defendant and the imposition of a sanction upon the plaintiffs.
In REVERSING the motion court's decision and remitting the matter back to Supreme Court for a determination on the merits of plaintiffs' motion, the Second Department ruled that the doctrine of collateral estoppel did not apply to preclude plaintiffs' from relitigating in this action the question of whether the stairwell was an area covered by the additional insured endorsement:
On the issue of Atlantic Mutual's duty to defend, the Second Department also ruled that Atlantic Mutual "failed to establish, as a matter of law, that the allegations of the complaint in the underlying action did not suggest a reasonable possibility of coverage, that there was no possible factual or legal basis upon which the defendant might eventually be held to be obligated to indemnify Franklin, or that the only interpretation of the allegations against the insured was that the factual predicate for the claim fell wholly within a policy exclusion[.]"Since Franklin appealed from the Supreme Court's denial of its motion for summary judgment on the third-party complaint, which was based on the issue presented here, Franklin addressed the issue before this Court, but, for the reasons discussed, this Court did not reach the issue. Thus, the issue was not necessarily decided and Franklin did not have "a full and fair chance to overturn the earlier decision" (Tydings v Greenfield, Stein & Senior, LLP, 11 NY3d 195, 200). Accordingly, the Supreme Court's determination thereof is not entitled to preclusive effect (see generally Tydings v Greenfield, Stein & Senior, LLP, 11 NY3d 195).