William Floyd School Dist. v. Maxner
(2nd Dept., decided 12/15/2009)
When a project's general contractor and one of its subcontractors both obtain additional insured (AI) coverage for the project owner, are the AI coverages co-primary, or is one AI insurer excess over the other? Not surprisingly, the Second Department has ruled that the answer depends on policy language.
William Floyd Union Free School District contracted with Aurora Contractors, Inc., to be the general contractor of a construction project to build a new middle school. The contract required Aurora to provide the District with primary insurance coverage. Aurora had a policy with QBE Insurance Corp., and provided the District with a certificate of liability insurance listing it as an additional insured on that policy. Aurora subcontracted the obligation to supply kitchen equipment to Premium Supply Company. The subcontract required Premium to provide Aurora with insurance. Premium was insured by Royal Insurance Company of America, a division of Royal & SunAlliance, and provided Aurora with a certificate of liability insurance listing Aurora and the District as additional insureds on that policy. The Royal policy provided that additional insureds were covered "with respect to liability arising out of [Premium's] ongoing operations performed for that additional insured by the named insured at the location designated in the written contract." Premium subcontracted some of the contracting work to Dee's Associated. Frank Maxner, an employee of Dee's Associated, allegedly was injured while performing this work.
Maxner and his wife commenced a personal injury action against the District, the middle school, and Aurora. The District parties and their insurer, Transportation Insurance Company, then commenced this action, seeking a judgment declaring that the District plaintiffs were entitled to defense and indemnification coverage as additional named insureds under Aurora's policy with QBE. Aurora and QBE commenced a third-party action against Royal, seeking a judgment declaring that the District plaintiffs and Aurora were entitled to primary, noncontributory defense and indemnification coverage as additional named insureds under Premium's policy with Royal. Supreme Court declared that QBE and Royal were obligated, as co-insurers, to defend the District plaintiffs in the underlying action, and QBE appealed.
In REVERSING the order appealed from, the Second Department initially held that Royal was obligated to defend and indemnify the District plaintiffs and Aurora in the underlying action because Maxner allegedly was injured while performing work encompassed within Premium's subcontract with Aurora.
On the issue of priority of AI coverages afforded by QBE and Royal, the Second Department quoted policy language:
Under this provision, there is no question that QBE's named insured coverage for Aurora was excess over Royal's AI coverage for Aurora, but what about with respect to the District plaintiffs? Could the "you" in the QBE policy's excess insurance provision be construed to apply to the District plaintiffs? Citing the Court of Appeals' 2003 decision in Pecker Iron Works, the Second Department concluded it could and held:[T]he Royal policy issued to Premium provides:
"When an additional insured is added under this provision, and the written contract, written agreement or written permit requires the insurance to be primary and noncontributory, then this insurance is primary except when the Excess Provision under condition 4. Other Insurance in Section IV Commercial Liability Conditions applies. If this insurance is primary our obligations are not affected unless any of the other insurance is also primary. Then, we will share with all that other insurance by the Method of Sharing provision under condition 4."
The subcontract between Premium and Aurora required Premium to provide Aurora with insurance in accordance with a sample certificate of insurance, which listed Aurora and the school district plaintiffs as additional insureds. This agreement to name them as additional insureds was an agreement to provide them with primary coverage, triggering the above provision (see Pecker Iron Works of N.Y. v Traveler's Ins. Co., 99 NY2d 391).
The QBE policy issued to Aurora provides:
"4. Other insurance
If other valid and collectible insurance is available to the insured for a loss we cover . . . our obligations are limited as follows: . . .
"b. Excess Insurance
This insurance is excess over: . . .
"(2) Any other insurance, whether primary, excess, contingent or any other basis that is valid and collectible insurance available to you as an additional insured under a policy issued to:
(a) A contractor performing work for you."
For an excellent analysis of this decision, head over to Jon Lichtenstein's Let's Talk Coverage blog.Contrary to the plaintiffs' contention, this provision applies to the school district plaintiffs, as well as to Aurora. In the absence of unambiguous contractual language to the contrary, an additional insured "enjoy[s] the same protection as the named insured" (Pecker Iron Works of N.Y. v Traveler's Ins. Co., 99 NY2d at 393). The additional insured endorsement which provides for primary coverage for additional insureds does not vitiate this provision. The endorsement and the policy must be read together "and the words of the policy remain in full force and effect except as altered by the words of the endorsement" (Penna v Federal Ins. Co., 28 AD3d 731, 732, quoting County of Columbia v Continental Ins. Co., 83 NY2d 618, 628). Since the school district plaintiffs and Aurora are additional insureds under the Royal policy issued to a subcontractor, the QBE policy provides them with coverage excess to that provided to them under the Royal policy.
Further, the QBE policy provides that when its insurance is excess, QBE will have no duty to defend the insured if another insurer has such duty. Accordingly, the Supreme Court should have granted those branches of QBE's cross motion, made jointly with Aurora, which were for summary judgment on the third-party complaint declaring that Royal is obligated to defend and indemnify the school district plaintiffs and Aurora in the underlying action on a primary, noncontributory basis, and that the coverage provided by QBE is excess to that provided by Royal. Upon searching the record, we award summary judgment to QBE declaring that it is not obligated to defend the school district plaintiffs and Aurora in the underlying action unless no other insurer is obligated to defend those parties in the underlying action.