New York Court of Appeals Revisits & Reiterates Scope of Additional Insured Coverage

CGL – SCOPE OF ADDITIONAL INSURED COVERAGE – "ARISING OUT OF" NAMED INSURED'S OPERATIONS FOR ADDITIONAL INSURED
Regal Constr. Corp. v. National Union Fire Ins. Co. of Pittsburgh, PA
(Ct. Apps., decided 6/3/2010)

Few insurance coverage issues have generated as much litigation in New York as the issue of the scope and priority of additional insured coverage has.  This blawg's additional insured label currently numbers 41 related posts, including this one.  As long as New York maintains its "Scaffolding Law" -- Labor Law § 240(1) -- and the absolute liability it imposes on construction project owners and general contractors for gravity-related injuries to subcontractors' employees, CGL insurers for named insureds likely will continue to scrutinize and litigate tenders by parties claiming additional insured status and protection under the named insureds' policies. 

In May 2008, the New York Court of Appeals issued its unanimous decision in Worth Constr. Co., Inc. v Admiral Ins. Co., 10 NY3d 411 (2008), reversing the First Department and finding no AI coverage to be owed because there was no proximate causal connection between the the named insured's work (fabrication and installation of a staircase), which the Court characterized as "merely the situs of the accident", and the accident.

Almost immediately after Worth was issued, commercial liability insurers began debating its meaning and impact on claims and tenders for AI coverage in construction accident cases.  This is one of those cases, and with two First Department justices dissenting based, in part, on their interpretation of Worth, the Court of Appeals presumably granted leave to appeal so it could clarify its ruling in that case.

The City of New York (owner) engaged URS Corporation as the construction manager for a renovation project at Rikers Island.  URS in turn hired plaintiff Regal Construction Corporation to serve as a prime contractor for general construction at the project, including demolition and renovation. The written agreement between Regal and URS required Regal to procure a CGL insurance policy naming URS as an additional insured.  Accordingly, Regal obtained a CGL insurance policy from plaintiff Insurance Corporation of New York (INSCORP), which named URS as an "additional insured."  The AI language of Regal's policy with INSCORP provided that Regal's insurance covered URS

only with respect to liability arising out of [Regal's] ongoing operations performed for [URS] (emphasis added). 

While the renovations were underway, Regal's project manager, Ronald LeClair, was walking through the facility with Regal's superintendent and an employee of Regal's demolition subcontractor. Because the area was in the process of demolition, the flooring consisted of temporary sheets of plywood spread over steel floor joists. LeClair stepped from the plywood onto a floor joist to indicate a wall that needed to be demolished. Unbeknownst to LeClair, the joist on which he stepped had been freshly painted and the paint caused him to slip, resulting in a back injury. LeClair claimed during his deposition that an unnamed person from URS told him that URS employees had painted the joist.

LeClair commenced a personal injury action against the City and URS; he did not sue his own employer, Regal, so there was no mention in his complaint about any connection between his injury and Regal's work or "ongoing operations" for URS.  URS tendered the complaint to Regal and INSCORP for defense and indemnification coverage, asserting that it was entitled to AI coverage under Regal's CGL policy with INSCORP.  INSCORP initially reserved its right to disclaim AI coverage to URS, but ultimately accepted URS's defense tender and began defending URS in the underlying personal injury action.  In an effort to resolve the question of whether URS was entitled to AI coverage under Regal's policy, however, INSCORP and Regal subsequently commenced this DJ action against URS and its CGL insurer, National Union Fire Insurance Company, seeking a declaration that URS was not entitled to coverage as an additional insured under the INSCORP policy.

On motions, Supreme Court granted judgment in favor of URS and its insurer, concluding that LeClair's injury arose out of Regal's work for URS.  Regal and INSCORP appealed, and the Appellate Division, First Department, affirmed, with two justices dissenting.

In AFFIRMING the Appellate Division's order, Judge Ciparick distinguished Worth, reiterated what the term "arising out of" means to the Court of Appeals, and opined:

The additional insured endorsement at issue here provides that URS is an additional insured under the CGL policy issued by INSCORP to Regal "only with respect to liability arising out of [Regal's] operations." We have interpreted the phrase "arising out of" in an additional insured clause to mean "originating from, incident to, or having connection with" (Maroney v New York Cent. Mut. Fire Ins. Co., 5 NY3d 467, 472 [2005] [internal quotations marks and citations omitted]).  It requires "only that there be some causal relationship between the injury and the risk for which coverage is provided" (id.).

Here, Regal's employee, LeClair, was walking through the work site to indicate additional walls that needed to be demolished by Regal's subcontractor when he slipped on a recently-painted metal joist. Although Regal and INSCORP contend that LeClair's injury did not arise from Regal's demolition and renovation operations performed for URS, but that it was URS employees who painted the joist on which LeClair slipped, the focus of the inquiry "is not on the precise cause of the accident but the general nature of the operation in the course of which the injury was sustained" (Worth, 10 NY3d at 416 [internal quotation marks and citation omitted]). Accordingly, the injury "ar[ose] out of" Regal's operations notwithstanding URS's alleged negligence, and fell within the scope of the additional insured clause of the insurance policy. 

Regal and INSCORP's reliance on Worth to argue otherwise is misplaced. * * * Worth sought to invoke the protection of the additional insured clause of the CGL policy procured by Pacific, but we rejected Worth's argument that the injury arose out of Pacific's operations. Specifically, we explained that it was "evident that the general nature of Pacific's operations involved the installation of a staircase and handrails. An entirely separate company was responsible for applying the fireproofing material. At the time of the accident, Pacific was not on the job site, having completed construction of the stairs, and was awaiting word from Worth before returning to affix the handrails" (id. at 416).  We went on to characterize the staircase as "merely the situs of the incident," concluding that there was no connection between the accident and Pacific's work (id.). 

This case is factually distinct from Worth. Here, there was a connection between the accident and Regal's work, as the injury was sustained by Regal's own employee while he supervised and gave instructions to a subcontractor regarding work to be performed.  That the underlying complaint alleges negligence on the part of URS and not Regal is of no consequence, as URS's potential liability for LeClair's injury "ar[ose] out of" Regal's operation and, thus, URS is entitled to a defense and indemnification according to the terms of the CGL policy. 

We have known for some time that the New York courts take an expansive view of the term "arising out of" and the Court of Appeals reminds insurance professionals and practitioners that that term means originating from, incident to, or having connection with.   

This case now stands for the proposition that even an unpled causal connection between a named insured's work or ongoing operations for the additional insured and an accident that causes injuries for which the additional insured allegedly is liable will be enough to trigger defense coverage in favor of the additional insured under "arising out of [the named insured's] ongoing operations for [the additional insured]" policy language, even if it was the additional insured's rather than the named insured's negligence that caused the accident and resulting injuries.

In other words, in the opinion of the New York Court of Appeals, for AI coverage to apply under this particular policy language, there must merely be a connection between the named insured's work or ongoing operations and the injury-causing accident, not the named insured's negligence and the accident. 

Who thinks this decision will quell additional insured coverage litigation in New York?