Nautilus Ins. Co. v. Matthew David Events, Ltd.
(1st Dept., decided 1/14/2010)
Bloomberg, LLC and Bloomberg, Inc., hired Matthew David Events, Ltd. to plan, design and manage a corporate party sponsored by Bloomberg. MDE contracted with United Stage Service, Inc. to perform work, labor and services for the Bloomberg event. Timothy Shea, then an employee of Stage, worked as a stagehand at the event. While working the party, Shea allegedly was injured when he fell off a utility vehicle in which he had been riding.
Two days shy of the 3-year SOL, Shea commenced a personal injury action against Bloomberg, MDE, and others. The following day, MDE notified Nautilus, its commercial liability insurer, of the accident and lawsuit. Nautilus immediately disclaimed liability coverage on the grounds that MDE failed to provide timely notice of the claim and that Shea's injury was excluded by the policy's employee injury exclusion, which negated coverage for bodily injury to an "employee" of the insured "arising out of and in the course of: (a)[e]mployment by the insured; or (b)[p]erforming duties related to the conduct of the insured's business." The policy defined "employee" as including but not limited to, any person or persons "hired by, loaned to, leased to, contracted for, or volunteering services to the insured, whether or not paid by the insured." Nautilus then commenced this declaratory judgment action to confirm its denial of defense and indemnification coverage to MDE.
Prior to the commencement of discovery, Nautilus moved for summary judgment and for a declaration that it was not obligated to defend or indemnify MDE and/or Shea in the underlying action, and to dismiss all counterclaims against it. In opposition, MDE argued that that the language of the employee exclusion was ambiguous since it was not clear whether or not employees of a contractor were included within the scope of the exclusion. MDE also argued that Nautilus' motion was premature since discovery had not yet commenced and it was necessary to determine the relationship between MDE and Stage. Nautilus replied that the language of the employee exclusion was clear, and since Shea was an "employee" of MDE at the time of the accident, liability coverage under the policy was precluded.
New York County Supreme Court denied Nautilus' motion and, upon searching the record, granted reverse summary judgment to defendants dismissing the employee exclusion-based cause of action of Nautilus' DJ complaint. The motion court found that it was not clear whether Shea, as Stage's employee, would be a person "contracted for" by MDE and excluded from coverage. Because the policy did not define the phrase "contracted for," the motion court concluded that it was susceptible to more than one meaning, noting that, for instance, the phrase could be narrowly defined to include only a temporary worker whom MDE contracted from a temporary employment agency. Nautilus appealed.
In a 3-2 split decision, the First Department REVERSED the order appealed from and granted summary judgment to Nautilus, finding that the employee injury exclusion was broad and unambiguous and applied to negate liability coverage to MDE for the underlying personal injury action. The three-justice majority found:
In this case, Nautilus met its burden of demonstrating that the exclusion provision relied upon by the court to dismiss the third cause of action clearly applies to the underlying action. The policy contained an "Employee Exclusion," which excluded from coverage bodily injury to an "employee" of the insured "arising out of and in the course of: (a)[e]mployment by the insured; or (b)[p]erforming duties related to the conduct of the insured's business." The employee exclusion is very broad. The exclusion defined "employee" as including but not limited to, any person or persons "hired by, loaned to, leased to, contracted for, or volunteering services to the insured, whether or not paid by the insured." Moreover, the exclusion was applicable whether the insured was liable as an employer or in any other capacity and applied to any obligation to share damages with or repay someone else who must pay damages because of the injury.
We agree with Nautilus that giving the words "contract for" their plain and ordinary meaning, MDE's retention of a subcontractor to perform work for the Bloomberg event at Randalls' Island constituted services for the insured and thus falls within the scope of the employee injury exclusion. Indeed, the "contract for" language of the Employee Exclusion clearly contemplates that a contractor could be retained by a party other than the insured on the insured's behalf, and that an injury to that contractor or its employee would fall within the scope of the exclusion (see U.S. Underwriters Ins. Co. v Beckford, 1998 WL 23754, 1998 US Dist LEXIS 574 [ED NY 1998]). The argument that this language may be interpreted to apply only to persons who contract directly to work for MDE renders the explanatory language that the term "employees" includes those providing "services to the insured, whether or not paid by the insured" a nullity. It is a well settled principle of contract law that a court should not adopt a construction of a contract "which will operate to leave a provision of a contract . . . without force and effect. An interpretation that gives effect to all the terms of an agreement is preferable to one that ignores terms or accords them an unreasonable interpretation" (Ruttenberg v Davidge Data Sys. Corp., 215 AD2d 191, 196  [internal quotation marks and citations omitted]; see also Consolidated Edison Co. of NY, Inc. v United Coastal Ins. Co., 216 AD2d 137 , lv denied 87 NY2d 808 ).
Writing for the two-justice dissent, Justice Mazzarelli focused on the prepositions used in the policy's definition of "employee" and found that definition and its related exclusion to be ambiguous, opining:
A reversal with two dissents resulting in a final judgment, as in this case, means an appeal by right to the New York Court of Appeals. If MDE exercises that right, look for a decision from the Court of Appeals some time later this year.The exclusion invoked by plaintiff is ambiguous because it is eminently reasonable to interpret the definition in the endorsement of the term "employee" as extending only to those who are engaged directly by the insured. Such an interpretation is based on the policy definition which describes "employee[s]" as persons having been "hired by," "loaned to,", "leased to," and "volunteering services to" the insured. The emphasized prepositions strongly suggest the necessity for privity between the insured and the person being employed by it if a claim is to be excluded.
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Again, the overall context of the definition of "employee" suggests that the parties intended that only those engaged directly by the insured would be covered by the exclusion. Indeed, this is consistent with the notion that at least one of the purposes of hiring a subcontractor is to insulate oneself from liability. The interpretation urged by plaintiff would defeat this purpose by depriving the insured of coverage for injuries to employees of subcontractors.
In addition, the phrase "a person . . . contracted for . . . the insured" is ambiguous on its face. Indeed, a reasonable person, if he or she could make any sense of the phrase at all, would be confused as to who had contracted with whom. Even if some sensible meaning could be ascribed to the phrase, reasonable people could differ about what it means. One person could, like plaintiff, interpret it as referring to a person who, like Shea, works for a company with which the insured enters into a contract. However, another person could, as Supreme Court did, interpret the phrase as referring to a person furnished directly to the insured pursuant to a contract entered into between the insured and third-party, such as a temporary employment agency. Because the term is reasonably susceptible of more than one interpretation, it is ambiguous (see Chimart Assoc. v Paul, 66 NY2d 570, 573 ).