CGL – ADDITIONAL INSURED – BLANKET ADDITIONAL INSURED ENDORSEMENT – "EXECUTED" – CERTIFICATE OF INSURANCE – ESTOPPEL
10 Ellicott Square Court Corp. v. Mountain Valley Indem. Co.
(2nd Cir. US Ct. Apps., decided 12/23/2010)
Plaintiffs were the owner and construction manager for a commercial building in Buffalo, New York. On August 14, 2003, they contracted with Ellicott Maintenance, Inc., to perform some interior demolition at the building. The construction agreement required Ellicott Maintenance to procure and maintain $5,000,000 in public liability insurance for any legal liabilities arising out of the demolition project, which was to be primary to the building owner's own liability insurance. The construction agreement also required that Ellicott Maintenance obtain, prior to the commencement of work, "Certificates of Insurance naming [the plaintiffs] as additional insureds." Representatives of the plaintiffs and Ellicott Maintenance did not actually sign the agreement until September 12, 2003.
At the time Ellicott Maintenance entered into the construction contract with the plaintiffs in August, it had in place a $1 million per occurrence primary CGL policy and a $2 million per occurrence umbrella policy with defendant Mountain Valley Indemnity Company. The primary policy's blanket additional insured endorsement extended coverage to any “person or organization with whom [Ellicott Maintenance] agreed, because of a written contract[,] to provide insurance such as is afforded under [the primary policy], but only with respect to liability arising out of [Ellicott Maintenance's] operations," and only when “the written contract or agreement [between Ellicott Maintenance and the additional insured] ha[d] been executed...prior to the ‘bodily injury.’"
The umbrella policy extended coverage to additional insureds with whom Ellicott Maintenance had “agreed in writing prior to any [injury] ... to provide insurance such as is afforded” by the umbrella policy. Unlike the primary policy, however, the umbrella Policy did not provide that its coverage of additional insureds was effective only if the written agreement between Ellicott Maintenance and any additional insureds had been “executed.”
On August 19, 2003,an entity identified by the court as "Mountain Valley's agent", issued a certificate of insurance (COI) identifying Mountain Valley as the issuer of the primary and umbrella policies, Ellicott Maintenance as the named insured, and the plaintiffs as “additional insured with respect to project: Graystone.” The COI contained the standard limiting and disclaiming language on its front and rear sides:
Ellicott Maintenance began work the day after it received the COI. On September 9, 2003, three days before the construction agreement was signed, David DelPrince, an employee of a subcontractor hired by Ellicott Maintenance was injured when a roof collapsed at the Graystone site.THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW.
THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES.
DISCLAIMER: The Certificate of Insurance ... does not constitute a contract between the issuing insurer ... and the certificate holder, nor does it affirmatively or negatively amend, extend or alter the coverage afforded by the policies listed thereon.
Plaintiffs notified Mountain Valley's agent of DelPrince's injury and potential claim by letter dated October 22, 2003, requesting that Mountain Valley defend and indemnify them in any suit brought by DelPrince. Some six months later, by letter dated April 13, 2004, Mountain Valley informed the plaintiffs that it would not defend or indemnify them because, inasmuch as the construction sgreement had not been signed on behalf of the parties before DelPrince was injured, “there was not in existence on the date of loss a written contract executed prior to the bodily injury,” as required by the terms of the primary policy. The letter further stated that even if the plaintiffs qualified as additional insureds under the primary policy as of the date of the accident, Mountain Valley would deny coverage because the plaintiffs had failed to timely notify Mountain Valley of DelPrince's injury and possible claim, as required by the primary policy.
DelPrince filed suit against plaintiffs and Ellicott Maintenance in New York State Supreme Court, Erie County, in October 2004, alleging negligence and violations of the New York Labor Law, and seeking to recover damages for the injuries he sustained. In late January 2007, plaintiffs commenced this declaratory judgment action, alleging that they were additional insureds under the primary policy and therefore were entitled to coverage from Mountain Valley for the underlying DelPrince suit. The plaintiffs further alleged that the COI bound Mountain Valley to provide coverage despite the absence of a signed agreement between plaintiffs and Ellicott Maintenance. Finally, the plaintiffs alleged that Mountain Valley should be precluded from relying on the defense of untimely notice because Mountain Valley's response disclaiming coverage was itself untimely. The plaintiffs later amended their complaint to add a claim alleging entitlement to indemnification and defense as additional insureds under the umbrella policy.
The parties cross-moved for summary judgment and, adopting the September 2009 report and recommendation of the magistrate judge in whole, the District Court granted plaintiffs' motion and denied defendant's in February 2010. On the question of whether the construction agreement was “executed” prior to DelPrince's injury, the court adopted the magistrate's conclusion that “in light of ‘common speech’ and the reasonable expectations of a businessperson”, and because Mountain Valley, as the drafter of the policy, could have used the term “signed” if it had intended to require a signature, the term “executed” as used in the primary policy should not be interpreted to require the parties' signatures to trigger coverage under that policy. The District Court also accepted the magistrate judge's analysis as being consistent with the Nassau County Supreme Court's November 2008 decision in Burlington Ins. Co. v Utica First Ins. Co., 22 Misc. 3d 1112A, a decision the Second Department reversed on March 9, 2010, less than three weeks after the District Court's decision in this case.
On the question of whether the plaintiffs were entitled to coverage based on the COI, the magistrate judge had recommended finding that the COI incorporated the terms of the primary and umbrella policies. Relying on Niagara Mohawk Power Corp. v. Skibeck Pipeline Co., 271 A.D.2d 867 (4th Dept. 2000), the magistrate judge found that Mountain Valley's agent, acting within the scope of its authority, “issued the certificate of insurance naming [the plaintiffs] as additional insureds, upon which [the plaintiffs] were entitled to rely, regardless of the absence of a signing of the construction contract at that time.” The magistrate judge therefore recommended estopping Mountain Valley from denying coverage to the plaintiffs, a recommendation the District Court judge adopted. Finally, the magistrate judge rejected Mountain Valley's argument that the plaintiffs had not provided timely notice of DelPrince's injury.
Mountain Valley appealed to the United States Court of Appeals for the Second Circuit. In a unanimous opinion, that court affirmed the District Court's finding that plaintiffs were covered as additional insureds under the umbrella policy but reserved decision on the COI estoppel question of coverage under the primary policy pending the New York Court's of Appeals' answer of this certified question:
Significantly, the Second Circuit agreed with the Second Department's March 2010 decision in Burlington Ins. Co. v Utica First Ins. Co. that "executed" means signed or fully performed:In a case brought against an insurer in which a plaintiff seeks a declaration that it is covered under an insurance policy issued by that insurer, does a certificate of insurance by an agent of the insurer that states that the policy is in force but also bears language that the certificate is not evidence of coverage, is for informational purposes only, or other similar disclaimers, estop the insurer from denying coverage under the policy?
On the question of whether Mountain Valley should nonetheless be estopped from denying coverage to the plaintiffs under the primary policy because Mountain Valley's agent issued, and the plaintiffs relied upon, the COI, however, the Second Circuit noted that New York's intermediate appellate courts are divided on this issue -- the First and Second Departments of the Appellate Division having ruled that informational COIs cannot give rise to an estoppel situation, while the Third and Fourth Departments having held that a certificate of insurance can estop an insurer from denying coverage where the parties intended to provide coverage to the party seeking it if the certificate was issued by an agent within the scope of its authority, and if the party seeking coverage reasonably relied on the certificate of insurance by, for example, beginning construction work.Because New York law unambiguously requires either the signing of a contract or its full performance for it to be "executed" within the meaning of an insurance policy requiring such prior execution, and because neither occurred here, the Construction Agreement was not executed as of the date of DelPrince's injury. The district court's finding that it was and its conclusion that for that reason the Primary Policy was in effect at the time of the accident, are therefore in error.
Because of the "diversity of authority among the Appellate Divisions" on this "significant issue of state law," the Second Circuit reserved decision on the COI estoppel issue and certified the above question to the New York Court of Appeals.
With respect to the umbrella policy, however, the Second Circuit found that since the umbrella policy's additional insured endorsement did not provide that its coverage of additional insureds was effective only if the written agreement between its named insured and any additional insureds had been “executed”, plaintiffs were entitled to coverage under that policy:
This case and its certified question will now head to the New York Court of Appeals for an answer. Depending on how the New York Court of Appeals answers the certified question, the Second Circuit will either affirm or reverse the District Court's finding of additional insured coverage to the plaintiffs under the primary policy. Regardless of its impact on the outcome of this particular case, however, the New York Court of Appeals' answer of the certified question will likely affect many, many cases in which certificates of insurance have been issued identifying one or more entities as additional insureds without either a corresponding endorsement of the actual listed primary or umbrella policies or the triggering of additional insured coverage under such policies' blanket additional insured endorsements.Section 3(c) of the Umbrella Policy provides: "Any person or organization with whom or with which you have agreed in writing prior to any loss, `occurrence[,]' or `offense' to provide insurance such as is afforded by this policy is an insured...." Fijal Decl. Ex. K at 8 (§ 3(c)). Pursuant to Section 3(d), "Each person or organization who is an `insured' in the `underlying insurance' is an `insured' under this insurance subject to all the limitations of such `underlying insurance' other than the limits of the underlying insurer's liability." Id. (§ 3(d)).
We conclude that Section 3(c) renders the plaintiffs insureds under the Umbrella Policy. The policy requires no more than an agreement in writing. The New York Court of Appeals "ha[s] long held that a contract may be valid even if it is not signed by the party to be charged, provided its subject matter does not implicate a statute... that imposes such a requirement." Flores v. Lower E. Side Serv. Ctr., Inc., 4 N.Y.3d 363, 368, 828 N.E.2d 593, 596 (2005). "[A]n unsigned contract may be enforceable, provided there is objective evidence establishing that the parties intended to be bound." Id. at 369, 828 N.E.2d at 597.