"Stage Hand" Exclusion Found to be Ambiguous

CGL – "STAGE HAND" EXCLUSION – "ARISING OUT OF" – AMBIGUITY
Dzielski v. Essex Ins. Co.
(4th Dept., decided 12/23/2011)

We all know that courts construe policy exclusions narrowly and, when they are found to be ambiguous, against the insurer.  But it's seemingly getting tougher and tougher to sustain exclusion-based denials in New York's Fourth Judicial Department.  Is the "clear and unmistakable language ... subject to no other reasonable interpretation" standard of construing policy exclusions ever attainable when a court wants to find coverage?¹

The Merriam-Webster dictionary defines the intransitive verb "participate" to mean:

a : to take part
b : to have a part or share in something

The "stage hand" exclusion of the "Restaurant, Bar, Tavern, Night Clubs, Fraternal and Social Clubs Endorsement" of Essex' commercial liability policy negated liability coverage for "bodily injury, ... or any injury, loss or damage arising out of ... [i]njury to any entertainer, stage hand, crew, independent contractor, or spectator, patron or customer who participates in or is a part of any athletic event, demonstration, show, competition or contest[.]"

Plaintiff provided sound equipment to a band that was performing at Essex' insured's nightclub.  After the show, plaintiff was carrying some of his equipment from the nightclub to his truck when he fell from the nightclub's allegedly defective loading dock, sustaining injuries.  Essex denied liability coverage to the nightclub based on the policy's "stage hand" exclusion, and plaintiff obtained a $950,000 default judgment against the insured nightclub in his personal injury action.  Plaintiff then brought this action against Essex to recover that judgment pursuant to New York Insurance Law § 3420(b)(1).  Supreme Court, Erie County (Diane Y. Devlin, J.), granted plaintiffs' motion and denied Essex' cross motion for summary judgment, awarding plaintiffs the entire $950,000 underlying judgment amount, plus interest and costs, even though the Essex policy had a $500,000 per occurrence liability coverage limit.  Essex appealed.

In a 3-2 decision, the three-justice majority of the Appellate Division, Fourth Department, AFFIRMED the judgment appealed from, agreeing with the motion court that the exclusion's language was ambiguous:

It is axiomatic that, "to negate coverage by virtue of an exclusion, an insurer must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case' " (Belt Painting Corp. v TIG Ins. Co., 100 NY2d 377, 383).  We agree with plaintiffs that the language "participates in or is a part of any . . . show" is ambiguous, and that the court properly resolved that ambiguity against the insurer, "particularly [because it is] an exclusionary clause" (Ace Wire & Cable Co. v Aetna Cas. & Sur. Co., 60 NY2d 390, 398). Although, as defendant suggests, the policy language may be read broadly to encompass all persons who performed any tasks in connection with the show, including loading and unloading sound equipment, it may also reasonably be read narrowly to encompass only those persons who actually performed in the show or were injured as a result of activities occurring during the show. It is undisputed that the accident occurred after the show had ended, and we note in particular that the accident was caused by a defect in the premises that was wholly unrelated to the show itself. We thus conclude that the court properly determined that the exclusion does not apply in this case.

We reject defendant's contention that the inclusion of the phrase "arising out of" in the exclusion mandates the broader interpretation espoused by defendant. Even assuming, arguendo, that the phrase "arising out of" is interpreted as "originating from, incident to, or having connection with" (Maroney v New York Cent. Mut. Fire Ins. Co., 5 NY3d 467, 470 [internal quotation marks omitted]), we note that coverage is excluded only if an accident originates from, is incident to or has connection with a person's "participat[ion]" in a "show." Here, it cannot be said that there is no ambiguity concerning whether the accident arose out of plaintiff's participation in a show, which in fact had ended before the accident occurred.

While ruling against Essex on the coverage issue, the majority did at least recognize that a judgment creditor proceeding via Insurance Law § 3420(b)(1) against the judgment debtor's liability insurer may not recover more than the limit of the judgment debtor's liability coverage, which in this case was $500,000 per occurrence, less a $500 deductible.  Consequently, the majority reduced the award against Essex from $950,000 to $499,500, plus interest and costs. 

Justices Fahey and Peradotto dissented, all but guaranteeing an appeal of this case to the New York Court of Appeals.  The dissenting justices concluded that the language "participates in or is a part of any . . . show" is not ambiguous, and that the plaintiff fell squarely within that language:

[P]laintiff was hired by the band to provide sound reinforcement services for the show, and thus there is no question that he "participate[d] in or [wa]s a part of" the show on the night of his accident. The majority's conclusion that such clause may "reasonably be read narrowly to encompass only those persons who actually performed in the show or were injured as a result of activities occurring during the show" is not supported by the plain language of the exclusion. First, if the exclusion was intended to apply only to those persons who "actually performed" in a show, then the language "spectator, patron or customer" in the exclusion would be superfluous. Second, such an interpretation imposes a temporal limitation on the exclusion where no such limitation appears therein. Indeed, if defendant had intended to limit the exclusion in that manner, it could have done so explicitly as it did in other provisions of the policy (see Maroney v New York Cent. Mut. Fire Ins. Co., 5 NY3d 467, 473). For example, the policy's medical payments coverage provision specifically excludes expenses for bodily injury "[t]o a person injured while taking part in athletics" (emphasis added). Similarly, the policy's "combination endorsement" excludes expenses for bodily injury or personal injury to any person "while practicing for or participating in any event or function of a sporting or athletic nature" (emphasis added). Here, by contrast, the absence of such limiting language in the exclusion in question reflects an intent to provide a broad exclusion for all injuries arising from participation in shows or other special events (see Maroney, 5 NY3d at 473).

With respect to the majority's rejection of the broadening effect of the exclusion's "arising out of" language, the dissenters, relying on New York Court of Appeals' case law, noted:

We further conclude that plaintiff's injury "ar[o]se[] out of" his participation in the show within the meaning of the exclusion.  In the insurance context, the phrase "arising out of" has been broadly interpreted to mean "originating from, incident to, or having connection with" (Maroney, 5 NY3d at 472 [internal quotation marks omitted]; see Regal Constr. Corp. v National Union Fire Ins. Co. of Pittsburgh, PA, 15 NY3d 34, 38). Here, plaintiff's accident occurred while he was in the process of removing his sound equipment from the nightclub. The process of packing up and removing sound equipment at the conclusion of a show necessarily "originat[es] from, [is] incident to, or ha[s] connection with" the show (Maroney, 5 NY3d at 472 [internal quotation marks omitted]). The fact that plaintiff's accident was allegedly caused by the defective nature of the loading dock rather than any condition of the show itself does not remove plaintiff's injury from the policy exclusion. "[T]he 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" (Regal Constr. Corp., 15 NY3d at 38). Indeed, "the phrase arising out of' . . . requires only that there be some causal relationship between the injury and the risk for which coverage is provided" (Maroney, 5 NY3d at 472), and such a causal relationship clearly exists here.

With its double dissent, expect this case to head to Albany.   Although the "stage hand" exclusion itself may not be of great interest to most liability insurers doing business in New York, the "participates in" and "arising out of " language of that exclusion, and the New York courts' interpretation of those phrases, should be.

Post Script (July 11, 2012) ~~ On June 5, 2012, the New York Court of Appeals unanimously REVERSED this decision for the reasons given by the dissenting justices at the Fourth Department in a very short memorandum decision that you can read here.

---

1. Rhetorical coverage question.

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?

Commercial Landlord Found Entitled to Additional Insured Coverage Under Tenant's Policy But on Excess Basis Only

CGL – ADDITIONAL INSURED – ARISING OUT OF THAT PART OF LEASED PREMISES – PRIORITY OF COVERAGE
L&B Estates, LLC v. Allstate Ins.
(2nd Dept., decided 3/16/2010)

Commercial landlord L&B Estates leased Brooklyn premises to tenant 21st Century Achievers.  As required by the lease, the tenant obtained a CGL policy from Allstate, naming the landlord as an additional insured, but "only with respect to liability arising out of the ownership, maintenance or use of that part of the premises shown in the [d]eclarations as leased to [tenant]."  The Allstate policy's declarations did not mention the sidewalk in front of the premises as having been leased to Century. L&B, the landlord, was covered by its own CGL policy with United National Specialty Insurance Company, and the Allstate and United policies each contained an "other insurance" provision.

In November 2005, a pedestrian allegedly was injured when she tripped and fell as a result of an alleged defect in the sidewalk in front of the leased premises.  She sued both landlord and tenant, and the landlord, L&B, tendered the suit to Allstate for defense and indemnification as an additional insured under the tenant's, Century's, CGL policy.  Allstate rejected the tender on the basis that the injured party's claim did not arise out of the ownership, maintenance or use of "that part of the premises shown in the Declarations as leased to [Century]."  L&B commenced this declaratory judgment action for defense and indemnification coverage from Allstate as an additional insured under Century's policy, as well as damages for breach of contract against Allstate and Century. L&B cross-moved for summary judgment on its complaint against Allstate and Century, and the Kings Supreme (Knipel, J.) granted L&B's cross motion.

In MODIFYING the order appealed from, the Appellate Division, Second Department, held that although L&B was entitled to coverage as an additional insured under Century's policy with Allstate, Allstate's AI coverage was excess to L&B's primary coverage with United and, therefore, Allstate was not obligated to contribute towards L&B's defense or indemnification in the underlying personal injury action under L&B's coverage with United was exhausted:

L&B established its prima facie entitlement to judgment as a matter of law against Allstate by submitting, among other things, the Allstate policy, which established that it was an additional insured with respect to Coddett's claim, and that Allstate had refused to provide coverage. Inasmuch as Administrative Code of the City of New York § 7-210 imposes liability on owners of commercial property for defects in sidewalks, L&B's potential liability arises from its ownership of the premises leased to Century. Since unambiguous terms in an insurance contract are given their plain and ordinary meaning (see Antoine v City of New York, 56 AD3d 583, 584), L & B is an additional insured under the Allstate policy for claims arising from defective conditions on the sidewalk in front of the premises. 

In opposition, however, Allstate established, as a matter of law, that its coverage of L&B under the Allstate policy was excess to the coverage provided to L&B under the United policy. When a policy provides only excess coverage, the duty to defend or indemnify is not triggered until coverage under the primary policy has been exhausted or otherwise terminated (see Great N. Ins. Co. v Mount Vernon Fire Ins. Co., 92 NY2d 682, 686-687; Sport Rock Intl., Inc. v American Cas. Co. of Reading, Pa., 65 AD3d 12, 20; Osorio v Kenart Realty, Inc., 48 AD3d 650, 653). Consequently, upon searching the record, Allstate is entitled to summary judgment declaring that it is not the primary insurer, that the coverage it provided to L&B is excess to that provided by the United policy, and that, therefor, it was not obligated to defend or indemnify L&B in the underlying action unless its obligated [sic] to provide excess coverage is triggered. 

Question of Fact Precludes Summary Judgment on Additional Insured Coverage

CGL – ADDITIONAL INSURED – LIABILITY ARISING OUT OF "YOUR WORK" – INSURANCE LAW § 3420(D) INAPPLICABLE
KMAPS Corp. v. Nova Cas. Co.
(4th Dept., decided 7/3/2008)

New York reporters are replete with cases addressing when an owner's or general contractor's liability may be said to have "arisen" out of a named insured subcontractor's work for the owner or general contractor, for purposes of triggering additional insured coverage in favor of the owner or GC under the subcontractor's CGL policy. This is such a case, on Round #2 to the Appellate Division, Fourth Department. Since I represented and argued this case for Nova, I can share the lower court's Decision and Order and Appellant's Brief with you.

KMAPS hired separate subcontractors Nestor Santana and Victor Cobos to install television cable. KMAPS was itself a contractor for Paragon Cable. KMAPS sent Cobos to a job site where Santana was already working, and since he was working inside already, Santana told Cobos to install cable outside the building. Cobos had his own equipment and assistant. While installing the cable, Cobos fell and broke a window with his hand, injuring himself.

Cobos sued the property owners and Paragon Cable, which in turn impleaded KMAPS. KMAPS and its CGL insurer, Security Indemnity Insurance Company, tendered KMAPS' defense and indemnification to Santana's CGL insurer, Nova Casualty Company. Santana's policy covered KMAPS as an additional insured "but only with respect to liability arising out of * * * '[Santana's] work' for the additional 'insured' [KMAPS][.]" Nova, while acknowledging that KMAPS was listed as an additional insured on Santana's policy with Nova, neither accepted the tender nor denied coverage to KMAPS. KMAPS eventually impleaded Santana.

The underlying personal injury action ultimately settled, with KMAPS contributing $60,000 and Santana contributing $15,000 towards the settlement. KMAPS and its insurer then continued their pursuit of liability coverage from Nova in this DJ action.

On trip #2 to the Appellate Division, the Fourth Department unanimously REVERSED the Erie County Supreme Court's grant of summary judgment to KMAPS and vacated its declaration of coverage in KMAPS' favor. The Fourth Department found that Nova had raised an issue of fact as to whether KMAPS was entitled to a defense and indemnification with respect to injuries sustained by Cobos in the underlying action, a different subcontractor who was not insured by Nova.

The Fourth Department also ruled that the lower court had erroneously determined that Nova was obligated under Insurance Law § 3420(d) to provide KMAPS with a timely disclaimer of coverage. The "arising of out 'your work'" language of the additional insured endorsement of Nova's policy with Santana did not operate as an exclusion to coverage and "requiring payment of a claim upon failure to . . . disclaim [in a timely manner] would create coverage where it [may] never [have] existed". Finally, the court also concluded that because it is the insured's burden to establish coverage in the first instance, the lower court erred in determining that Nova was required to assert lack of coverage as an affirmative defense.

Back to Supreme Court we go. Again.

"Your Work" Completed

CGL – ADDITIONAL INSURED – "YOUR WORK" – ARISING OUT OF NAMED INSURED'S OPERATIONS
Worth Constr. Co., Inc. v. Admiral Ins. Co.
(Ct. Apps., decided 5/1/2008)

In Worth Constr. Co., Inc. v. Admiral Ins. Co., 2008 NY Slip Op 03992(Ct. Apps., decided 5/1/2008), a unanimous court reversed the Appellate Division's decision and granted summary judgment to the subcontractor's GL carrier, declaring that it was not obligated to defend or indmnify the GC as an additional insured in relation to an underlying construction site accident. In the underlying action, the GC had conceded on the subcontractor's motion to dismiss the third-party complaint that the subcontractor was not negligent in its installation of the stairs upon which the underlying plaintiff had fallen. Based on that concession, the Court of Appeals ruled that the GC was not entitled to coverage under the subcontractor's GL policy, which covered the GC as an additional insured "but only with respect to liability arising out of your [the subcontractor's] operations or premises owned by or rented to you[.]" The policy also defined "Your work" as "(a) Work or operations performed by you or on your behalf; and (b) Materials, parts or equipment furnished in connection with such work or operations."

In a 3-2 decision, the Appellate Division had held that, based on the definition of "Your work" in the policy, it was immaterial, for purposes of deciding additional insured coverage, whether the subcontractor (Pacific) had completed the installation of the stairs, whether its installation was negligent or whether Pacific or one of its contractors was Murphy's (the injured party's) employer. Rather, for coverage purposes, the Appellate Division ruled that it was "sufficient that [Murphy's] injury was sustained on the stairs[.]"

The Court of Appeals disagreed with that reasoning and and with the CG's contention on this appeal that the simple fact that Murphy slipped on the staircase established as a matter of law that his accident arose out of Pacific's work because the staircase was part of the "materials" that Pacific was utilizing to fulfill its subcontract. While noting that the absence of negligence, by itself, generally is insufficient to establish that an accident did not "arise out of" an insured's operations, Judge Pigott writing for the Court iterated that "[t]he focus of a clause such as the additional insured clause here '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[.]'"

In this case, the Court found it 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 jobsite, having completed construction of the stairs, and was awaiting word from Worth (the GC) before returning to affix the handrails. The allegation in the complaint that the stairway was negligently constructed was the only basis for asserting any significant connection between Pacific's work and the accident. Once Worth admitted that its claims of negligence against Pacific were without factual merit, it conceded that the staircase was merely the situs of the accident. Therefore, it could no longer be argued that there was any connection between Murphy's accident and the risk for which coverage was intended. Therefore, Pacific's insurer, Farm Family, was entitled to summary judgment dismissing the GC's DJ action.