Excess to Infinity

EMPLOYERS LIABILITY – COMMERCIAL UMBRELLA – UNLIMITED COVERAGE – EXHAUSTION OF PRIMARY POLICY LIMIT – SCHEDULE OF UNDERLYING INSURANCE  
Tully Construction Co., Inc. v. Illinois National Ins. Co.
(2nd Dept., decided 8/19/2015)

At what point is excess to unlimited coverage triggered?  

Tully Construction Company obtained a New York workers compensation/employers liability (WCEL) from Zurich American Insurance Company and a commercial umbrella liability insurance policy from Illinois National Insurance Company.  The umbrella policy required Tully to exhaust all insurance available before the excess coverage provided by the umbrella policy would be triggered. The umbrella policy also explicitly stated that, despite the listing of any limits of underlying insurance in the Schedule of Underlying Insurance, if the actual insurance available to Tully exceeded the amounts listed in the schedule, the umbrella policy would not be triggered until those greater amounts were met and exceeded. In underlying personal injury actions, the parties settled for $9,000,000, with Zurich paying $6,500,000 and Illinois paying $2,500,000.  This declaratory judgment action ensued, with Illinois seeking reimbursement from Zurich of Illinois' $2,500,000 settlement payment.

In AFFIRMING the Supreme Court's order granting summary judgment to Illinois and ordering Zurich to reimburse Illinois, the Appellate Division, Second Department, held:

The WCEL policy contained a New York Limit of Liability Endorsement which provided that in cases of bodily injury to an employee arising out of and in the course of employment that is subject to and is compensable under the Workers' Compensation Law, Zurich could not limit its liability and, as such, the policy was unlimited in those cases (see generally Oneida Ltd. v Utica Mut. Ins. Co., 263 AD2d 825 [New York recognizes no liability limits in Workers' Compensation and Employer's Liability policies]). 

In light of the unlimited nature of the WCEL policy, the Supreme Court properly concluded that the limits of the underlying insurance policies were never met and, as such, the excess coverage provided by the umbrella policy was never triggered (see Merchants Mut. Ins. Co. v New York State Ins. Fund, 85 AD3d 1686). 

Contrary to the plaintiffs' contention, under the circumstances of this case, the Supreme Court properly concluded that apportionment of liability pursuant to Hawthorne v South Bronx Community Corp. (78 NY2d 433) was not applicable, since this case involves a coverage dispute between a primary insurer and an excess insurer (see Liberty Mut. Ins. Co. v Insurance Co. of State of Pa., 43 AD3d 666; see also National Union Fire Ins. Co. of Pittsburgh, Pa. v State Ins. Fund, 222 AD2d 369; B.K. Gen. Contrs. v Michigan Mut. Ins. Co., 204 AD2d 584; Aetna Cas. & Sur. Co. v Lumbermens Mut. Cas. Co., 136 AD2d 246).

Sorry Buzz.  No excess umbrella liability coverage for you.  

Federal Appeals Court Rules that "Executed" Means Signed or Fully Performed. Certificate of Insurance Question Certified to New York Court of Appeals.

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:

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.

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.

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:

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?

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:

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.

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 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:

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.

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.

Unnecessary Parties and the Privity of Contract Requirement in Declaratory Judgment Litigation

COMMERCIAL UMBRELLA – DECLARATORY JUDGMENT – NECESSARY PARTIES – PRIVITY OF CONTRACT
Brother Jimmy's BBQ, Inc. v. American Intl. Group, Inc.
(Sup. Ct., New York Co., decided 5/18/2010)

I've sometimes thought that if there were a "Roy's Insurance Company",  I'd use the slogan, "Why Think?  Thinking is Hard.  We Insure Stupidity", to niche market companies and businesses that employ those kids from grade school who made the most trips to the local emergency room.  You know, the type who created and acted in the 68th greatest show of the last 25 years, first on MTV, then two and a half times on the big screen, and reportedly coming soon to your local cineplex in 3D.  

Bacardi 151 Bottle with Flame Arrester

Back in March 2008, Brother Jimmy's BBQ would have been my company's kind of risk.  Its Upper West Side Manhattan location, to be precise.  Apparently, when Jerry Lee Lewis' rendition of the early rock classic "Great Balls of Fire" would play on the jukebox, the bartender at Brother Jimmy's would pour Bacardi 151 rum (75.5% ethanol) on the bar and light it on fire.  Unfortunately for 31-year-old financial industry worker Lauren Sclafani, who was seated at the bar with a client to watch some NCAA March Madness basketball, the stunt went horribly wrong when the flame blew back into the bottle (sans its metallic flame arrester?) and turned it into a flamethrower, dousing Sclafani's face, arms and hands with burning rum. After spending three weeks in a burn center for treatment of second- and third-degree burns, Sclafani sued both Brother Jimmy's and Bacardi under theories of negligence and of strict products liability, alleging, among other things, that Bacardi 151 was “defective, hazardous, unreasonably dangerous, and not [a] reasonably safe product.”

But Roy's Insurance Company did not insure Brother Jimmy's in March 2008, Illinois National Insurance Company did, at least under a commercial umbrella liability policy.  When Illinois National allegedly refused to defend the Brother Jimmy's defendants in the underlying Sclafani personal injury action, the Brother Jimmy's entities commenced this declaratory judgment action against Illinois National, American International Group, Inc. (AIG), AIG Domestic Claims, Inc. (AIGDC), various Bacardi entities, and Sclafani.

The Bacardi defendants moved pursuant to CPLR 3211(a)(7) to dismiss plaintiffs' amended complaint against them, contending that they were not necessary parties to this DJ action, were strangers to the plaintiffs' insurance contract with Illinois National, and would not be inequitably affected by a judgment rendered in this action.  Plaintiffs opposed the Bacardi defendants' motion, arguing that they might be "inequitably affected" by a judgment in this action and, as such, were necessary parties because the aggregate total of collectible insurance policies may influence the trial strategy of plaintiff in the underlying action and because there was the potential for joint and several liability in that action. 

In GRANTING the Bacardi defendants' motion to dismiss, New York County Supreme Court Justice Emily Jane Goodman reasoned:

Necessary parties are “[p]ersons who ought to be parties if complete relief is to be accorded between the persons who are parties to the action or who might be inequitably affected by a judgment in the action . . .” (CPLR 1001 [a]; see generally 1-7 Weinstein-Korn-Miller, CPLR Manual 6 7.02). Here, Bacardi is not a necessary party to this action. Plaintiffs do not allege that Bacardi is an insured under the subject policy. Moreover, Bacardi’s potential liability in the underlying action has no bearing on Brother Jimmy’s coverage or the interpretation of the insurance policy. Accordingly, Bacardi’s motion to dismiss must be granted (see Mayer's Cider Mill, lnc. v Preferred Mut, Ins. Co., 63 AD3d 1522, 1523-1524 [4th Dept 2009] [manufacturer and distributor of machine were not necessary parties in insured’s declaratory judgment action against insurer for defense and indemnification in underlying personal injury action]; Silverman v State Farm Fire & Cas. Co., 22 Misc 3d 591, 596 [Sup Ct, Nassau County 2008] [insurer’s motion to dismiss for failure to join former employee (the plaintiff in the underlying action) and her husband as necessary parties was denied; “(g)iven the essential nature of this case, these individuals, strangers to the insurance contracts at issue, are not necessary for any of the current parties to obtain complete relief”]).

AIG and AIGDC moved to dismiss plaintiffs' amended complaint on the ground that they were not parties to the commercial umbrella policy and, thus, plaintiffs lacked privity of contract with them.  They further contended that as the parent corporation of Illinois National, AIG could not be held liable for any breach of contract by its affiliates or subsidiaries, and that AIGDC merely acted as a claims administrator for Illinois National.  Plaintiffs opposed that motion on various procedural and substantive grounds.

In GRANTING AIG's and AIGDC's motion to dismiss, Justice Goodman ruled:

Here, the subject policy states that Illinois National was the insurer that issued the policy (Greensfelder Affirm., Exh. A, Declarations Page). The court must, therefore, consider whether AIG may be held liable for a breach of contract by its affiliates or subsidiaries.

Generally, a party seeking to pierce the corporate veil must show: (1) complete domination and control of the subsidiary by the parent with respect to the transaction at issue; and (2) that such domination was used to commit a fraud or wrong against the plaintiff that resulted in the plaintiff's injury (see Matter of Morris v New York State Dept. of Taxation & Fin. , 82 NY2d 135, 141 [1993]; Do Gooder Prods., Inc. v American Jewish Theatre, Inc., 66 AD3d 527, 528 [1st Dept 2009]; Eastern States Elec. Contrs. v Crow Constr. Co., 153 AD2d 522, 523 [1st Dept 1989]). Notably, “[elvidence of domination alone does not suffice without an additional showing that it led to inequity, fraud, or malfeasance’’ (TNS Holdings v MKI Sec. Corp., 92 NY2d 335, 339 [1998]).

In Town of Smithtown v National Union Fire Ins. Co. (191 AD2d 426 [2d Dept 1993]), the plaintiffs commenced a declaratory judgment action seeking a declaration that their insurers were obligated to defend them in four actions brought by various school districts.  The subject policy was issued by National Union Fire Insurance Company, a subsidiary of AIG. The Court held that “the plaintiffs have failed to allege or tender proof that the parent company, American International Group, Inc., exercised complete dominion and control over National Union Fire Insurance Company in this matter.  Thus, liability of the parent company for the contractual obligations of its subsidiary may not be imposed” (id. at 428).

In the instant case, Brother Jimmy’s does not have a viable cause of action against AIG.  Brother Jimmy’s fails to allege that AIG exercised complete dominion and control over Illinois National. Moreover, Brother Jimmy’s has failed to remedy this defect in opposition to the motion.  AIG is a holding company for Illinois National, and had no involvement in the investigation or denial of plaintiffs’ claims under the policy (Mofsenson Aff., 3, 5).

Nor is there a basis for AIGDC’s liability in this declaratory judgment action.  It is well established that “an agent for a disclosed principal ‘will not be personally bound unless there is clear and explicit evidence of the agent’s intention to substitute or superadd his personal liability for, or to, that of his principal”’ (Savoy Record Co. v Cardinal Export Corp., 15 NY2d 1, 4 [1964], quoting Mencher v Weiss, 306 NY 1,4 [1953]; see also News Am. Mkfg., Inc. v Lepage Bakeries, Inc., 16 AD3d 146, 147 [1st Dept 2005]; Crimmins v Handler & Co., 249 AD2d 89, 91-92 [1st Dept 1998]).  Here, as noted above, the policy states that Illinois National was the company issuing the policy.  AIGDC was not a party to the insurance contract, and there is no evidence that AIGDC intended to substitute its own liability for that of Illinois National.  In addition, the January 9, 2009 disclaimer letter from AIGDC to Brother Jimmy’s NYC Restaurant Holdings, LLC states that “[AIGDC] is the claims administrator on behalf of Illinois National Insurance Company (‘Illinois National')" (Cooper Affirm., Exh. 1 [emphasis supplied]). Thus, AIGDC was acting as agent for Illinois National for purposes of claims administration.

Brother Jimmy's pulled all Bacadi 151 bottles from its bars the day after the accident happened.

First Department Upholds Primary Insurer's Coverage Denial Based on Designated Ongoing Operations/Construction Exclusion

CGL – COINSURANCE – EXCESS VS. PRIMARY – CONSTRUCTION EXCLUSION – INSURANCE LAW § 3420(D)
American Guar. & Liab. Ins. Co. v. State Natl. Ins. Co., Inc.
(1st Dept., decided 11/12/2009)

State National Insurance Company insured S&W Realty, LLC, under a $1 million per occurrence CGL policy, which contained this Designated Ongoing Operations/Construction Exclusion:

Description of Designated Ongoing Operation(s):

Construction Exclusion:  Construction of buildings or structures including, but not limited to, erection ... painting, leaning or pointing, and all work or activity in connection with the foregoing.  This exclusion does not apply to incidental repair and maintenance performed by the named insured on buildings owned and operated by the named insured.

This insurance does not apply to “bodily injury” or “property damage” arising out of the ongoing operations described in the Schedule of this endorsement, regardless of whether such operations are conducted by you or on your behalf or wliether the operations are conducted for yourself or for others.

S&W was also insured under a $50 million purchasing group commercial umbrella liability policy issued by American Guarantee & Liability Insurance Company. 

On March 30, 2004, a contractor's employee fell from a scaffold and was injured while doing pointing work on an apartment building owned by S&W.  Within days of the accident, both State and American were notified of the employee's fall and injuries.  Weeks later, the employee commenced a personal injury action against S&W, alleging causes of action sounding in common law negligence and violations of New York Law Law §§ 200, 240(1) and 241(6).

Presumably based on the possibility that the employee's injuries had arisen from incidental repair and maintenance of the insured's building, defendant Tower Risk Management Company, acting as State's general managing agent, issued a reservation of rights letter and retained defense counsel to defend S&W in early May.  On May 21, 2004, Tower received a letter from S&W's managing agent which indicated that S&W and the injured party's employer did not have a written contract for the job “as it was a minor building repair, a leak into two apartments[.]"

In a November 2004 bill of particulars report letter, S&W's retained defense counsel advised Tower that it appeared "likely" that the injured employee would be able to sustain a Labor Law § 240(1) cause of action.  By letter dated November 6, 2006, defense counsel advised Tower that the court had granted partial summary judgment to the underlying plaintiff on his Labor Law § 240(1) claim, and that it had been determined "that the job was much larger and [they] did 'pointing work' on the entire front facade of the building."

By letter dated January 30, 2007, Tower disclaimed coverage on State’s behalf to S&W based on the policy's construction exclusion.  American subsequently sent a letter to Tower on behalf of S&W, requesting that State withdraw its coverage disclaimer based on what American asserted was the inapplicability of the construction exclusion and untimeliness of State's coverage denial in violation of Insurance Law § 3420(d).

In May 2007, the matter went to mediation and settled, without State's participation,  for $2.1 million.  American funded the entire settlement and commenced this action to recover State's $1 million in primary coverage, plus interest.

On the parties' motion and cross motion, New York County Supreme Court Justice Michael Stallman granted summary judgment to State and Tower, dismissing the complaint.  Justice Stallman rejected American's arguments that the construction exclusion was ambiguous, and that State had failed to issue a disclaimer in a timely fashion, in violation of Insurance Law § 3420(d).  American appealed.

In AFFIRMING the award of summary judgment to State and Tower, the First Department  held:

Plaintiff, the excess insurance carrier, sought a declaration that the coverage disclaimer by defendant State National, the primary insurer, for reimbursement of funds advanced by the excess insurer on the insured's behalf to settle the underlying personal injury action, was untimely as a matter of law, and that the primary insurer's policy exclusion was inapplicable and ambiguous. The court properly found that the primary insurer's "construction" exclusion was unambiguous and applied to the activities being performed by the injured party at the time of his accident. The exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case (see Continental Cas. Co. v Rapid-Am. Corp., 80 NY2d 640, 652 [1993]). The court also properly found that the protections of Insurance Law § 3420[d] were inapplicable to one insurer's claim for reimbursement from another insurer (see Bovis Lend Lease LMB, Inc. v Royal Surplus Lines Ins. Co., 27 AD3d 84, 91-92 [2005]).

It apparently did not matter to either the motion court or the First Department that, unlike in Bovis Lend Lease LMB, the mutual insured was a nominal party in this coinsurance recovery action, settlement monies had already been paid on behalf of the mutual insured, and American was proceeding against State, in part, as the mutual insured's subrogee.  Thus, the Insurance Law § 3420(d) argument of untimeliness American was making against State was being made as much on behalf of S&W as for itself.

Contrast this decision with the First Department's ruling in JT Magen v. Hartford Fire Ins. Co., 64 AD3d 266 (1st Dept., 5/14/2009), in which the court clarified its holding in Bovis Lend Lease LMB and held that a tender letter which one insurer sends to another insurer — asking that their mutual insureds be provided with a defense and indemnity as additional insureds under the latter insurer's policy — fulfills that policy's notice-of-claim requirements so as to trigger that insurer's obligation to issue a timely disclaimer pursuant to Insurance Law § 3420(d).  The First Department made no mention of its JT Magen decision in this case presumably because both State and American became aware of the underlying accident and injuries at the same time, there was no tender from American to State (American being the excess/umbrella rather than a co-primary insurer), and State assumed S&W's defense in the underlying personal injury action.

Umbrella Carrier's Application Misrepresentation Defense Rejected

CGL – EMPLOYEE INJURY EXCLUSION – MEANING OF "CONTRACTOR" AND "SUBCONTRACTOR" – APPLICATION MISREPRESENTATION – LATE NOTICE
Alcon Bldrs. Group, Inc. v. U.S. Underwriters Ins. Co.
(Sup. Ct., New York Co., decided 7/1/2008)

Alcon Builders Group brought this DJ action to require its primary (US Underwriters Insurance Company) and umbrella (National Union Fire Insurance Company) CGL insurers to defend and indemnify it in relation to an underlying construction accident/personal injury action stemming from a subcontractor's employee's worksite injury. New York County Supreme Court Justice Helen Freeman granted Underwriters' motion for summary judgment with respect to the primary policy, but denied the cross motions of plaintiff and National Union with respect to the umbrella policy.

The primary CGL policy issued by Underwriters contained an "Exclusion of Injury to Employees, Contractors and Employees of Contractors" which provided, in pertinent part:

This policy does not apply to:

* * * (ii) "Bodily injury" to any contractor or any "employee" of any contractor arising out of or in the course of the rendering or performing services of any kind or nature whatsoever by such contractor or "employee"of such contractor for which any insured may become liable in any capacity[.]

In upholding the applicability of this exclusion to negate coverage under the Underwriters primary policy, Justice Freeman noted that "the relevant language of Underwriters' policy has repeatedly been held to be clear, unambiguous and enforceable (citations omitted). Plaintiff's argument that Konieczny does not fall within the exclusion because he was the employee of a 'subcontractor' rather than a 'contractor' has also been considered, and rejected, by the courts[.]" The court also rejected Alcon's attempt to distinguish this matter from the established case law upholding and applying the exclusion on the ground that the primary policy itself gave separate, independent meanings to the terms "contractor" and subcontractor", finding that the only example cited by Alcon weakened rather than strengthened its argument for coverage.

With respect to the umbrella policy, Justice Freeman rejected National Union's defense of application misrepresentation but held that the record was not sufficiently developed to determine whether Alcon provided timely notice of the occurrence to National Union.

National Union had argued that Alcon's "e-Excess application" incorrectly denied that the Underwriters policy was supplemented by manuscripted or exclusionary endorsements. National Union contended that had Alcon correctly reported the nature of the Underwriters policy, the umbrella policy would have been written to "match" all exclusions in the primary policy and would have contained identical ones, including the exclusion for bodily injury to contractors and employees.

Characterizing the affidavit submitted by National Union in support of its application misrepresentation defense as "problematic", Justice Freeman rejected that defense because: (1) the affidavit admitted that National Union did not maintain any written underwriting guidelines regarding the alleged practice of matching exclusions and endorsements; (2) National Union could not have relied on the alleged misrepresentation because the umbrella policy was issued several months before the Underwriters primary policy; (3) the Schedule of Underlying Insurance in the umbrella policy did not meaningfully identify any underlying policy, further confirming that National Union did not issue it in reliance upon the terms of any underlying policy; (4) a comparison of the primary umbrella policies refuted National Union's claim that it had a mandatory "matching" policy; and (5) the umbrella policy specifically anticipated that circumstances might exist where National Union's coverage obligations would be broader that the underlying insurer, National Union obligating itself to defend bodily injury claims which were "covered by this policy but not covered by any underlying insurance."

Although the court rejected National Union's application misrepresentation defense, it denied both Alcon's and National Union's cross motions for summary judgment or dismissal without prejudice, holding that discovery was needed to determine whether Alcon's nearly 18-month delay in providing notice of the accident to National Union breach the umbrella's policy's notice requirement. Alcon claimed that it was not aware of the accident until it was served with the complaint, an assertion Alcon supported with an affidavit from a corporate officer who stated that he questioned plaintiff's employees upon receipt of the pleadings and determined that no one was aware of the incident. Justice Feeeman ruled that National Union was entitled to investigate the lack of knowledge claim by deposing Alcon's officers, employees and the injured worker, and seeking whatever documentary or other evidence may exist regarding the accident and whether it was reported.