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).
1 comment:
An insurance company's duty to defend an additional insured is analyzed under the same criteria as the insurance company's duty to defend a named insured. While this is the rule under NY law and most other states, it should be examined more closely.
A named insured has paid premium for the privilege of being protected from allegations that fall within the coverage, regardless of the truth of those allegations. An additional insured has paid nothing to the insurance company. Its rights derive entirely from the benefit conferred to the named insured.
In the case of the lessor as additional insured on the lessee's policy, the named insured will be responsible for injuries that occur on the leased premises under its control, not only to the injured party, but also to the property owner. The property owner receives defense and indemnity as an additional insured because it also benefits the premium paying named insured. But if the injury did not arise out of the ownership, maintenance or use of the premises leased to the named insured, then the named insured does not benefit from the defense provided to the property owner. If the question of whether the injury arose out of the ownership, maintenance or use of the part of the premises leased to the named insured is not addressed in the pleadings, the additional insured should not be entitled to the benefit of the doubt. The insurance carrier for the named insured should be allowed to prove with extrinsic evidence that the accident did not so arise. If it can satisfy the summary judgment standard with that extrinsic evidence, the property owner should look to its own insurance coverage, for which it paid the premium, for its defense. This is not the law, but it should be.
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