Excess Insurer's Disclaimer 37 Days After First Notice Held Untimely as a Matter of Law

EXCESS – ADDITIONAL INSURED – LATE NOTICE TO EXCESS INSURER – 37-DAY UNTIMELY DISCLAIMER 

Liberty Mut. Fire Ins. Co. v. Navigators Ins. Co.
(1st Dept., 2/1/2018)

Review points from this decision:

• Notice Requirement:  An insurer's duty to cover losses of its insured is not triggered unless the insured gives timely notice of loss in accordance with the terms of the insurance contract.


• Additional Insured's Obligation to Give Timely Notice:  Even if an insurance policy were construed as specifying that only the named insured was required to provide notice of occurrences, demands and suits to the insurer, the duty to give reasonable notice as a condition of recovery is implied in all insurance contracts and is applicable to an additional insured.


• Timeliness of Notice to Excess Carrier:  Where notice to an excess insurer carrier is at issue, the focus is on whether the insured reasonably should have known that the claim against it would likely exhaust its primary insurance coverage and trigger its excess coverage, and whether any delay between acquiring that knowledge and giving notice to the excess carrier was reasonable under the circumstances.

But even if the additional insured's (or its liability insurer's) notice to the excess carrier is untimely, that late notice can be excused, in effect, if the excess carrier fails to disclaim in a timely manner.  And a delay by the excess insurer (Navigators) of only 37 days in disclaiming based on late notice -- a coverage defense that presumably was readily apparent to the excess insurer at first notice and did not require investigation --  in this case was held to be untimely as a matter of law:

Here, we find that Liberty Mutual's November 17, 2010 letter was sufficient to provide notice of claim to Navigators. However, even if the June 2010 supplemental bill of particulars implicated Navigators' excess policy (see Nova Cas. Co. v Interstate Indem. Co., 42 Misc 3d 1229[A], 2014 NY Slip Op 50250[U] [Sup Ct, Kings County 2014]), and the notice was untimely, Navigators' disclaimer, issued 37 days later, was untimely as a matter of law (see e.g. Bovis Lend Lease LMB, Inc. v Royal Surplus Lines Ins. Co., 27 AD3d 84, 88-89 [1st Dept 2005]; West 16th St. Tenants Corp. v Public Serv. Mut. Ins. Co., 290 AD2d 278 [1st Dept 2002], lv denied 98 NY2d 605 [2002]).

Judgment against Navigators for $850,000 plus statutory interest and costs.  An expensive delay.

The First Department is especially strict with the obligation of New York liability insurers under New York Insurance Law § 3420(d)(2) to "disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident or any other type of accident occurring within this state ... as soon as is reasonably possible[.]"

Use it (quickly) or lose it.  The coverage defense based on policy exclusion or breach of policy condition, that is.  See this blog's ... and Sometimes the Bar Eats You post for other examples of  relatively short delays in disclaiming that were held to be untimely as a matter of law. 

Signed Bid Proposal Found to Constitute "Written Contract" Triggering Additional Insured Coverage

COMMERCIAL GENERAL LIABILITY – BLANKET ADDITIONAL INSURED ENDORSEMENT – "WRITTEN CONTRACT" REQUIREMENT – SIGNED BID PROPOSAL

Netherlands Ins. Co. v. Endurance Am. Specialty Ins. Co.
(1st Dept., decided 1/9/2018)

Happy New Year everyone.  Let's start 2018 with a short review of what constitutes a "written contract" for purposes of triggering coverage under a blanket additional insured endorsement.

A blanket additional insured endorsement to a commercial general liability policy automatically grants insured status to a person or organization that the named insured is required by "written contract" to add as an insured.  Although there are multiple iterations of such endorsements and policy provisions, in this case Endurance American Specialty Insurance Company's general liability policy promised to afforded coverage to "[a]ny entity required by written contract ... to be named as an insured."

Endurance's insured, a contractor, bid a job to Netherland's insured, Bangor Realty, LLC.  Endurance's contractor ultimately got the job and a during the course of that construction project an injury occurred, leading to a personal action being brought against Endurance's insured and Bangor.  Endurance declined to extend additional insured coverage to Bangor, contending that the written bid proposal did not constitute a "written contract" that required Bangor to be named as an insured.  Netherlands commenced this declaratory judgment action, and Supreme Court granted Endurance's motion for summary judgment, declaring that Endurance was not obligated to defend or indemnify Bangor in the underlying personal injury action.

In REVERSING that order and judgment, the First Department held that the signed bid proposal in this case constituted a "written contract" within the meaning of the Endurance policy's blanket additional insured endorsement:

 The "Bid Proposal Document" for the construction project in which the underlying personal injury action arose is such a written contract. The proposal names the parties and the "Total agreed price," contains the dated signatures of the parties immediately below the agreed price, and incorporates by reference "the approved plan for the entire project," stating that all work is to be completed in strict accordance with the approved plan and with the plans and specifications prepared by the architect. Although the parties may have intended to execute a more formal agreement later, the proposal constitutes a binding agreement (see Bed Bath & Beyond Inc. v IBEX Constr., LLC, 52 AD3d 413 [1st Dept 2008]; Zurich Am. Ins. Co. v Endurance Am. Speciality Ins. Co., 145 AD3d 502 [1st Dept 2016]), and it requires the contractor, defendant's insured, to obtain a policy naming the owner (Bangor) as an additional insured.

Only Causal Link Between Named Insured's Acts or Omissions and Injury Required for Additional Insured Coverage to Apply

CGL – SCOPE OF ADDITIONAL INSURED COVERAGE – CAUSED BY NAMED INSURED'S ACTS OR OMISSIONS – CAUSAL LINK – ANTISUBROGATION RULE  
Burlington Ins. Co. v. NYC Transit Auth.
(1st Dept., decided 8/11/2015)

If a CGL policy provides additional insured coverage "only with respect to liability for bodily injury ... caused, in whole or in part, by [the named insured's] acts or omissions ... [i]n the performance of [the named insured's] ongoing operations", must the named insured have been negligent or otherwise at fault for causing the bodily injury for such additional insured coverage to apply?

Breaking Solution's policy with Burlington Insurance Company provided that certain entities were additional insureds "only with respect to liability for bodily injury ... caused, in whole or in part, by [the named insured's] acts or omissions ... [i]n the performance of [the named insured's] ongoing operations[.]"

The question addressed by the First Department, Appellate Division, in this case was whether this "acts and omissions" language of the additional insured provision provides additional insured coverage where there is a causal link between the named insured's conduct and the injury, regardless of whether the named insured was negligent or otherwise at fault for causing the accident.  In REVERSING Supreme Court's orders granting Burlington's motion to amend its DJ complaint to assert a contractual indemnification claim against the putative additional insureds --  defendants New York City Transit Authority (NYCTA) and Metropolitan Transit Authority (MTA) -- and then granting Burlington summary judgment on its contractual indemnification claim against the NYCTA, the First Department held:

This Court's most recent precedents have construed additional insured endorsements containing substantially the same "acts and omissions" language as do the endorsements at issue here as providing additional insured coverage where there is a causal link between the named insured's conduct and the injury, regardless of whether the named insured was negligent or otherwise at fault for causing the accident. Adhering to these precedents, we hold that defendants were entitled to coverage as additional insureds in the underlying action under the subject insurance policy. Given that the policy covers defendants for this loss, the anti-subrogation rule bars Burlington from recovering, as subrogee of the City of New York, contractual indemnification from defendant NYCTA, under the lease agreement between the City and NYCTA, for the amounts Burlington has paid to defend and settle the underlying action on behalf of the City.

NYCTA and MTA engaged Breaking Solutions to supply concrete-breaking excavation machines and personnel to operate the machines under NYCTA's direction.  An explosion occurred in a Brooklyn subway tunnel that was being excavated by a Breaking Solutions machine. The explosion occurred when the excavator came into contact with an energized electrical cable buried below the concrete. It is undisputed that it had been NYCTA's responsibility to identify and mark or protect hazards in advance, so as to enable the excavator operator to avoid them, and to shut off power to electrical cables in the work area. An employee of NYCTA was injured in that explosion and sued. In the course of discovery in that action, it emerged that, while the Breaking Solutions excavator had caused the explosion by disturbing the buried cable, there had not been any negligence or other fault on the part of the Breaking Solutions employee who operated the excavator.  NYCTA's internal documents essentially admitted that it was at fault for the incident.

On that basis Burlington, which had defended and indemnified the City of New York in the personal injury action, sought contractual indemnification from NYCTA as the City's subrogee.  Among other grounds, NYCTA argued that because it qualified for additional insured coverage under Breaking Solutions' policy with Burlington, the antisubrogation rule applied to bar Burlington's claims against it.  Based on its finding that the "caused, in whole or part, by [the named insured's] acts or omission" language of the Burlington policy required only a casual link between the named insured's acts or omissions and the injury, rather than proof of the named insured's negligence or fault, the First Department reversed the lower court's orders and granted summary judgment to NYCTA and MTA, dismissing Burlington's complaint.

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.

An Insurer Is Not Required to Deny Coverage Where None Exists

CGL – INSURANCE LAW § 3420(D) – TIMELY DISCLAIMER REQUIREMENT
York Restoration Corp. v. Solty's Constr., Inc.
(2nd Dept., decided 12/14/2010)

If a party seeking coverage is neither an insured nor an additional insured under the policy, does New York Insurance Law § 3420(d) apply to require a prompt disclaimer of coverage?  No, reminds the Second Department.

Although Sirius initially disclaimed coverage to York Restoration Corp. based on late notice, in this action Sirius cross-moved for summary judgment on the ground that York was not an additional insured on the date of the accident.  Supreme Court denied Sirius' cross motion and granted summary judgment to York.

In REVERSING the order appealed from, the Appellate Division, Second Department, held:

Sirius correctly contends that York is not entitled to defense and indemnification because it was not a named insured on the date of the accident. The party claiming insurance coverage bears the burden of proving entitlement (see National Abatement Corp. v National Union Fire Ins. Co. of Pittsburgh, Pa., 33 AD3d 570; Tribeca Broadway Assoc. v Mount Vernon Fire Ins. Co., 5 AD3d 198). A party is not entitled to coverage if it is not named as an insured or additional insured on the face of the policy as of the date of the accident for which coverage is sought (see Essex Ins. Co. v Michael Cunningham Carpentry, 74 AD3d 733; Majawalla v Utica First Ins. Co., 71 AD3d 958; National Abatement Corp. v National Union Fire Ins. Co. of Pittsburgh, Pa., 33 AD3d at 571; Tribeca Broadway Assoc. v Mount Vernon Fire Ins. Co., 5 AD3d at 200). 

Here, York was not named as an additional insured under the policy until approximately five weeks after the underlying accident. The accident occurred on October 29, 2004, but the subsequently issued policy change endorsement, naming York as an additional insured, was not effective until December 6, 2004. Therefore, Sirius had no duty to defend and indemnify York (see ADF Constr. Corp. v Home Insulation & Supply, 237 AD2d 915, 916; Tower Ins. Co. of N.Y. v Joselyn Grocery Corp., 2008 NY Slip Op 31745[U]; see also Travelers Ins. Co. v Utica Mut. Ins. Co., 27 AD3d 456).

York's contention that Sirius may not assert that York is not an insured under the policy because Sirius failed to disclaim on that ground is without merit. A disclaimer pursuant to Insurance Law 3420(d) is unnecessary when a claim does not fall within the coverage terms of an insurance policy (see Markevics v Liberty Mut. Ins. Co., 97 NY2d 646, 648; Matter of Worcester Ins. Co. v Bettenhauser, 95 NY2d 185, 188; Siragusa v Granite State Ins. Co., 65 AD3d 1216, 1217). An insurer is not required to deny coverage where none exists (see Hargob Realty Assoc., Inc. v Fireman's Fund Ins. Co., 73 AD3d 856, 858).  Therefore, when a claim is denied because the claimant is not an insured under the policy, there is no statutory obligation to provide prompt notice of the disclaimer (see Hargob Realty Assoc., Inc. v Fireman's Fund Ins. Co., 73 AD3d at 858; Siragusa v Granite State Ins. Co., 65 AD3d at 1217; Matter of Nationwide Ins. Co. v Smaller, 271 AD2d 537, 537-538; Matter of Fireman's Fund Ins. Co. v Freda, 156 AD2d 364, 366). Under the circumstances, the Sirius policy did not provide coverage to York as of the date of the accident. Requiring payment of a claim upon a failure to timely disclaim would create coverage where it never existed (see Matter of Worcester Ins. Co. v Bettenhauser, 95 NY2d at 188).

Exclusion for Bodily Injury to an Employee of Any Insured Held to Apply to Negate CGL Coverage to Building Owner for Injury to Tenant's Employee

CGL – ADDITIONAL INSURED – BODILY INJURY TO EMPLOYEE OF ANY INSURED EXCLUSION
Howard & Norman Baker, Ltd. v American Safety Cas. Ins. Co.
(2nd Dept., decided 7/13/2010)

American Safety Casualty Insurance Company (ASCIC) issued a CGL policy to Point Recycling, which was a tenant in a building owned by the plaintiff, Howard & Norman Baker, Ltd. (HNB).  As required by the lease between HNB and Point, HNB was named as an additional insured under Point's CGL policy.  Roberto Ruiz, an employee of Point, commenced an action to recover damages for personal injuries he allegedly sustained in the subject building, and the defense of HNB in that action was tendered to ASCIC, which denied coverage based, in part, on the ground that the policy contained an exclusion for "bodily injury to . . . [a]n employee of any insured arising from and in the course of . . . [e]mployment by any insured."

HNB then commenced this action for a judgment declaring that ASCIC was obligated to defend and indemnify it in the underlying action. After ASCIC moved to vacate plaintiff's note of issue, HNB cross-moved for summary judgment declaring that ASCIC was is obligated to defend and indemnify it in the underlying action.  Supreme Court denied HNB's cross motion for summary judgment and, in effect, denied American's application to search the record and award summary judgment in its favor. 

In REVERSING the lower court's order and granting summary judgment to ASCIC, the Second Department held that the policy's BI-to-an-employee-of-any-insured exclusion was clear and unambiguously applied to negate liability coverage to HNB for the underlying personal injury action:

Here, the plain meaning of the exclusion invoked by American was that the Policy did not provide coverage for damages arising out of bodily injury sustained by an employee of any insured in the course of his or her employment (see Bassuk Bros. v Utica First Ins. Co., 1 AD3d at 471; see also Hayner Hoyt Corp. v Utica First Ins. Co., 306 AD2d 806, 807; Consolidated Edison Co. of N.Y. v United Coastal Ins. Co., 216 AD2d 137; Tardy v Morgan Guar. Trust Co. of N.Y., 213 AD2d 296). Despite the Policy provision stating that "this insurance applies if each Named Insured were the only Named Insured," the exclusion's reference to "any insured" makes it unmistakably clear that the exclusion is not limited to injuries sustained by HNB's employees (cf. Greaves v Public Serv. Mut. Ins. Co., 5 NY2d 120). Accordingly, since Ruiz was an employee of one of the insureds, his injury is not covered under the Policy. The Supreme Court, therefore, should have granted American's application to search the record and award it summary judgment declaring that it is not obligated to defend and indemnify HNB in the underlying action.  

Issues of Fact Preclude Summary Judgment on Whether Insurer is Estopped from Denying Additional Insured Coverage

CGL – ADDITIONAL INSURED – CERTIFICATE OF INSURANCE – ESTOPPEL
Sevenson Envtl. Servs., Inc. v. Sirius Am. Ins. Co.
(4th Dept., decided 6/11/2010)

Plaintiffs submitted a certificate of insurance (COI) providing that they "and their respective officers, employees and agents [we]re named as additional insureds on [Thomas Johnson Inc.'s general liability policy with Sirius on] a direct, primary and non-contributory basis."  They also submitted an additional insured (AI) endorsement naming persons or organizations "as on file with company."  In response, Sirius submitted an affidavit of its third-party claims administrator, who averred that the named insured's underwriting file did not contain any request or notice to name plaintiffs as additional insureds on the policy.

In ruling that Supreme Court properly denied summary judgment to Sirius, the Fourth Department found that the fact that Sirius's third-party claims administrator did not locate any documentation in the named insured's underwriting file was, by itself, insufficient to establish as a matter of law that neither Sirius nor one of its agents possessed documentation naming plaintiffs as additional insureds.

The Fourth Department, however, disagreed with the lower court's ruling that Sirius was estopped from denying AI coverage to the plaintiffs:

It is well established that a certificate of insurance, by itself, does not confer insurance coverage, particularly under the circumstances of this case, in which the certificate expressly provides that it "is issued as a matter of information only and confers no rights upon the certificate holder [and] does not amend, extend or alter the coverage afforded by the policies listed below," e.g., the general liability policy. "A certificate of insurance is only evidence of a carrier's intent to provide coverage but is not a contract to insure the designated party nor is it conclusive proof, standing alone, that such a contract exists" (Tribeca Broadway Assoc., LLC, 5 AD3d at 200; see School Constr. Consultants, Inc. v ARA Plumbing & Heating Corp., 63 AD3d 1029, 1030-1031; Home Depot U.S.A., Inc. v National Fire & Mar. Ins. Co., 55 AD3d 671, 673).

Nevertheless, an insurance company that issues a certificate of insurance naming a particular party as an additional insured may be estopped from denying coverage to that party where the party reasonably relies on the certificate of insurance to its detriment (see Lenox Realty v Excelsior Ins. Co., 255 AD2d 644, 645-646, lv denied 93 NY2d 807; Bucon, Inc. v Pennsylvania Mfg. Assn. Ins. Co., 151 AD2d 207, 210-211). For estoppel based upon the issuance of a certificate of insurance to apply, however, the certificate must have been issued by the insurer itself or by an agent of the insurer (see Tribeca Broadway Assoc., LLC, 5 AD3d at 200; Niagara Mohawk Power Corp. v Skibeck Pipeline Co., 270 AD2d 867, 869; Lenox Realty, 255 AD2d at 646; see also American Ref-Fuel Co. of Hempstead v Resource Recycling, 248 AD2d 420, 423-424).

The Fourth Department held that both parties failed to eliminate all triable issues of material fact regarding whether the COI was issued by or at the direction of an agent of Sirius.

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?

Hold Harmless Indemnitee Found Not Entitled to Additional Insured Coverage

CGL – BLANKET ADDITIONAL INSURED ENDORSEMENT – CERTIFICATE OF INSURANCE – HOLD HARMLESS AGREEMENT – TIMELY DISCLAIMER – SUPPLEMENTARY PAYMENTS PROVISION
Hargob Realty Assoc., Inc. v. Fireman's Fund Ins. Co.
(2nd Dept., decided 5/18/2010)

Fireman's Fund issued a commercial general liability insurance policy to U.S.A. Interior, LLC (USAI), that contained an additional insured endorsement, which added to the insured persons covered under the subject policy

any entity the Named Insured is required in a written contract to name as an insured ... but only with respect to liability arising out of work performed by or on behalf of the Named Insured for the Additional Insured.  (Emphasis added.)

Plaintiff entered into a construction contract with USAI pursuant to which USAI was to perform demolition work at certain premises owned by the plaintiff. The only written agreements between USAI and the plaintiff pertaining to the project were a one-page proposal from USAI specifying the bid price and work to be performed and a hold harmless agreement.  Pursuant to the hold harmless agreement, USAI, as the subcontractor, agreed to indemnify and hold harmless the plaintiff, as the owner, "from and against any and all claims, suits, liens, judgment, damages, losses and expenses arising in whole or in part ... from the acts, omissions, breach or default of [USAI] in connection with the performance of any work by or for [USAI]," except for claims arising from Hargob's own negligence.

Plaintiff commenced this declaratory judgment action for defense and indemnification coverage from Fireman's Fund in relation to an underlying personal injury action that presumably related to USAI's demolition work for plaintiff.  In AFFIRMING Nassau County Supreme Court's order granting Fireman's Fund's motion for summary judgment, the Second Department held:

1. Hold Harmless Agreement:  Notwithstanding USAI's written agreement to indemnify the plaintiff, the hold harmless agreement did not contain any requirement that USAI name the plaintiff as an additional insured under the subject policy and, thus, the additional insured endorsement of USAI's policy with Fireman's Fund was not applicable.
   
   
2. Certificate of Insurance:  The USAI certificate of insurance proffered in opposition to Fireman's Fund's motion, listing the plaintiff as an additional insured under the subject policy, was insufficient to alter the language of the policy itself, especially since the certificate recited that it was for informational purposes only, that it conferred no rights upon the holder, and that it did not amend, alter, or extend the coverage afforded by the policy.
   
   
3. Timely Denial of Coverage:  Fireman's Fund's denial of coverage under the additional insured endorsement constituted a denial based upon a "lack of inclusion" rather than "by reason of exclusion" and, thus, it was not required to deny coverage where none existed.  Therefore, to the extent that the denial of coverage was based upon lack of coverage as an additional insured pursuant to the additional insured endorsement, a timely disclaimer was unnecessary.
   
   
4. Supplementary Payments Provision:   The policy's supplementary payments provision, which obligated Fireman's Fund to defend an indemnitee of the named insured when certain specified conditions are met, did not also afford liability coverage. "Contrary to the plaintiff's contention, the supplementary payments provision did not demonstrate an intent by [Fireman's Fund] to afford the plaintiff coverage solely on the basis that it is an indemnitee of the named insured, in the absence of the plaintiff's addition as 'an insured' under Section II of the subject policy pursuant to the additional insured endorsement.   (see Stainless, Inc. v Employers Fire Ins. Co., 69 AD2d at 33).  Liability coverage under the policy is afforded by Section I, not the supplementary payments provision. Therefore, Hargob's status as an indemnitee does not operate to confer upon it status as an additional insured, and it is, thus, not entitled to liability coverage under the subject policy pursuant to the supplementary payments provision."

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. 

Summary Judgment Properly Denied on Alleged Oral Agreement to Name Property Owner as Additional Insured

CGL – ADDITIONAL INSURED – ORAL AGREEMENT TO PROCURE INSURANCE
Pyramid Brokerage Co., Inc. v. Zurich Am. Ins. Co.
(4th Dept., decided 3/19/2010)

There were two actions in this matter, the first of which resulted in a declaration that plaintiff was not an additional insured under the Zurich policy and that Zurich had no duty to defend or indemnify plaintiff in an underlying Labor Law action (White v General Motors Corp., 38 AD3d 1193).  This appeal concerned the second action, in which plaintiff sued various contractors and subcontractors for their alleged breach of contract, negligent misrepresentation and intentional misrepresentation in relation to additional insured coverage plaintiff contended the defendants were obligated to procure for it.

On the parties' appeals from their various motions and cross motions for summary judgment, the Fourth Department held:

• contradicting affidavit and deposition testimony from plaintiff's site project manager and defendants' employees created a question of fact precluding summary judgment on the alleged existence of the defendants' oral agreement to name plaintiff as an additional insured under their commercial general liability policy;
  
  
• as it sounded in fraud, plaintiff's intentional misrepresentation cause of action was governed by the six-year statute of limitations set forth in CPLR § 213(8) and accrued in January 2003, when Zurich disclaimed coverage on the ground that plaintiff was not named as an additional insured under the defendants' policy; and
  
  
• the lower court properly concluded as a matter of law that, if an oral agreement existed, defendants breached that agreement and plaintiff was damaged thereby, because neither in opposition to plaintiff's  motion nor in support of their own cross motion did defendants address the alleged breach of contract in the event that an oral agreement was made, and they also did not address the specified damages.

"Executed" Means Signed or Fully Performed -- Additional Insured Coverage Denied

CGL – BLANKET ADDITIONAL INSURED ENDORSEMENT – "EXECUTED"
Burlington Ins. Co. v. Utica First Ins. Co.
(2nd Dept., decided 3/9/2010)

Manlyn Development Corp. (Burlington's insured) contracted to perform work as construction manager on a renovation project at a property located in Manhattan.  Manlyn subcontracted certain work at the site to New York Interiors, Ltd. (Utica First's insured), as memorialized in a purchase order. The purchase order required New York Interiors to obtain insurance in specified minimum amounts, and to name Manlyn as an additional insured on a certificate of insurance.  Although the purchase order was dated June 26, 2003, it was not signed and "authorized" by Manlyn until July 9, 2003, and it was not signed by New York Interiors until July 23, 2003.

New York Interiors apparently didn't wait until the purchase order was fully signed to start its work and one of its employee was injured on June 27, 2003, one day after the purchase order was dated but weeks before it was fully signed.  The employee sued, and Manlyn sought additional insured (AI) coverage from New York Interior's commercial general liability insurer, Utica First Insurance Company.  Utica First denied AI coverage to Manlyn, based on language of the blanket additional insured endorsement in New York Interior's policy, which provided that an "insured" included any person or organization the insured was required to name as an additional insured on the policy "under a written contract or written agreement." The endorsement further provided that the written contract or agreement must be, inter alia, "[c]urrently in effect or becoming effective during the terms of this policy; and . . . [e]xecuted prior to the bodily injury' [or] personal injury.'"

Utica First denied coverage to Manlyn on the ground that the purchase order was not signed at the time of the underlying plaintiff's alleged injury and, therefore, had not been "executed" as of that time.  Burlington and Manlyn then commenced this declaratory judgment action seeking AI coverage for Manlyn under New York Interior's policy in relation in the underlying action. 

Nassau Supreme denied Utica First's motion for summary judgment and Utica First appealed.  In REVERSING the order appealed from and granting summary judgment to Utica First, the Second Department ruled that the term "executed" as used in the blanket AI endorsement was not ambiguous and meant fully signed or performed:

Here, the term "executed" in the additional insured endorsement does not render the policy ambiguous. "[T]hat the term executed' can be interpreted in two ways does not render the contract uncertain or ambiguous" (Rodless Props., L.P. v Westchester Fire Ins. Co., 40 AD3d 253, 254). Rather, the defendant demonstrated that the contract was not "executed" at the time of the alleged accident on June 27, 2003, since it was both unsigned and had not been fully performed at that time (id.; see Nicotra Group, LLC v American Safety Indem. Co., 48 AD3d 253, 253-254). Moreover, there is no support for the plaintiffs' contention that the condition in the additional insured endorsement that the contract be "executed" prior to the bodily injury or personal injury could be satisfied by partial performance. Accordingly, that branch of the defendant's motion which was for summary judgment declaring that it was not required to defend or indemnify Manlyn in the underlying action should have been granted.

The Third Department's Bad Penny -- Not Waiver. Not Insurance Law § 3420(D)(2) Preclusion

CGL – ADDITIONAL INSURED – DUTY TO DEFEND – WAIVER – PRIORITY OF COVERAGE
Village of Brewster v. Virginia Sur. Co., Inc.
(3rd Dept., decided 2/18/2010)

Here's the promised follow-up to my February 19, 2010 post on this case.  On February 23rd, commenter Tom E. wrote:

I'll hazard a guess - #3. [Virginia Surety waived or is precluded from asserting any policy exclusions not raised or invoked in its original disclaimer.] Section 3420(d) of New York's Insurance Law does not apply to property damage claims. Therefore, the 3d Dept. erred in precluding the carrier's previously uninvoked exclusions. However, the insurer could be equitably estopped from relying on coverage defenses if the insured/claimant could prove it was prejudiced by the insurer's actions and/or it relied to its detriment on the insurer's conduct.

Correct!  For some reason, the Third Department insists on muddling together and misusing the concepts of common law waiver and statutory preclusion under New York Insurance Law § 3420(d)(2).

In June 2004, the Village of Brewster contracted with Laws Construction Corporation to construct new potable water distribution and wastewater collection systems within the Village.  The contract provided that Laws would indemnify the Village for all claims for injury to property arising out of Laws' work and required Laws to maintain comprehensive general liability insurance naming the Village an additional insured. Laws obtained a CGL insurance policy from Virginia Surety Company, which included an additional insured endorsement naming the Village as an additional insured, but "only with respect to liability arising out of [Laws'] work for [the Village]."

On August 5, 2005, during the course of the work, a water main broke in the vicinity of Main Street in the Village, causing flooding to properties. Two of the affected residents sued the Village and Laws for property damage. The Village, in turn, tendered to Virginia Surety the claims against it and Laws, and demanded that Virginia Surety defend and indemnify it pursuant to the terms of Law's CGL insurance policy.  Virginia Surety denied coverage on the basis that Laws' operations did not cause or contribute to the property damages claimed in the underlying complaints and, therefore, any alleged loss did not arise out of Laws' work.

The Village and its CGL insurer commenced this declaratory judgment action seeking, among other things, a declaration that Virginia Surety was required to defend and indemnify the Village for any liability arising out of the underlying actions and that Virginia Surety must reimburse the Village's own CGL insurer for legal fees and costs it had incurred to date in defending the Village in the underlying actions.  Plaintiffs unsuccessfully moved for summary judgment and then appealed. 

In MODIFYING the order appealed from to grant summary judgment to the plaintiffs, the Third Department held:

1. Regardless of whether it must ultimately indemnify the additional insured Village in the underlying property damage actions, Virginia Surety was obligated to defend the Village because the allegations of the underlying complaints were what triggered Virginia Surety's exceedingly broad duty to defend.
2. Having failed to establish as a matter of law that there was no possible factual or legal basis on which it might eventually be obligated to indemnify the Village under any policy provision, Virginia Surety was obligated to defend the Village in the underlying actions, with the issue of indemnification to await the proof at trial in those actions.
3. Virginia Surety waived any policy exclusions not raised or invoked in its original disclaimer.
4. Coverage for the Village under Virginia Surety's policy was primary and needed to be exhausted before the Village's own insurer was required to contribute under its policy.
5. Virginia Surety was obligated to reimburse the Village's insurer for costs incurred to date in defending the underlying actions. 

For the most part, I take no issue with the Third Department's rulings on issues 1, 2, 4 and 5, and you can read the decision yourself for the court's discussion of those.  I do, however, believe the Third Department missed the mark, again, with its ruling on the third issue:

To the extent that defendant argues that certain exclusions contained in the policy provide an alternate basis for denying coverage, it failed to invoke these grounds in its notice of disclaimer, instead raising them for the first time in opposition to plaintiffs' motion for summary judgment. Since "'an insurer's disclaimer is strictly limited to those grounds stated in the notice of disclaimer, which disclaimer must clearly apprise the insured of the grounds on which the disclaimer is based'" (City of Kingston v Harco Natl. Ins. Co., 46 AD3d 1320, 1321 [2007], lv dismissed 10 NY3d 822 [2008], quoting Maroney v New York Cent. Mut. Fire Ins. Co., 10 AD3d 778, 780-781 [2004], affd 5 NY3d 467 [2005] [internal quotation marks and citation omitted]; see Clayburn v Nationwide Mut. Fire Ins. Co., 58 AD3d 990, 991 [2009]; Kokonis v Hanover Ins. Co., 279 AD2d 868, 870 [2001]), defendant cannot now rely on uninvoked exclusions as a basis for denying coverage.^[FN1]

Footnote 1: Even were we to find no waiver on the part of defendant, we would nevertheless find that its attempt to disclaim based on these exclusions was untimely as a matter of law. Defendant failed to advance any justification or explanation for the three-year delay in raising these exclusions (see Kokonis v Hanover Ins. Co., 279 AD2d 868, 870 [2001]; Dependible Janitorial Servs. v Transcontinental Ins. Co., 212 AD2d 946, 947 [1995], lv denied 85 NY2d 811 [1995]).

As Tom E. recognized, the coverage defense preclusive impact of violating the timely disclaimer and denial requirement of Insurance Law § 3420(d)(2) only applies to death or bodily injury claims;  it does not apply to property damage claims.   The Village brought this DJ action for defense and indemnification coverage in relation to two underlying property damage actions.  All of the cases cited by the Third Department on this issue involved wrongful death or bodily injury claims, not property damage.  It is simply incorrect for the court to have utilized the defense preclusive impact of 3420(d)(2) to rule that Virginia Surety could not raise and rely on initially uninvoked exclusions to deny coverage to the Village.  Moreover, waiver is defined as the intentional relinquishment of a known right, something Virginia Surety likely did not do with respect to the initially uninvoked exclusions.  As Tom E. points out, the doctrine of equitable estoppel could apply, however, if the Village justifiably relied to its detriment on something Virginia Surety initially did or said.  With a denial of coverage having already been issued to the Village, it's unlikely that Virginia Surety could have subsequently done or said anything that the Village would have been justified in relying on to its detriment.  Thus, in the absence of 3420(d)(2) preclusion, waiver, or estoppel, the Third Department should have permitted Virginia Surety to raise even initially uninvoked exclusion-based coverage defenses.  
 
Send me an email, Tom, and I'll contact you to make arrangements to get you what you won.

A Bad Penny Turns Up Again in the Third Department

CGL – ADDITIONAL INSURED – DUTY TO DEFEND – WAIVER – PRIORITY OF COVERAGE
Village of Brewster v. Virginia Sur. Co., Inc.
(3rd Dept., decided 2/18/2010)

Readers:  this is an interactive post.  Can you spot the bad penny in this decision?  The ruling that diverges from established tenets of New York insurance coverage law?  The part that raises one or both of your eyebrows and evokes an audible "huh?" when you read it?  One of the components of this decision stands alone as the Third Department's own rule of law.  I'll give you a hint.  It's the issue for which the Third Department cites only its own cases, perpetuating what I believe is a relatively longstanding error of insurance coverage law, at least in the Third Department.  It's like a bad penny that keeps showing up.  You know what they say about repeating something often enough. 

If you think you've spotted the peculiar rule, leave a comment on this post.  First correct answer wins something.  I don't know what yet, but it'll be something.  Let me make this a multiple choice quiz.  The component issues/rulings from this decision, and thus your answer choices, are:

1. Regardless of whether it must ultimately indemnify the additional insured Village of Brewster in the underlying property damage actions, Virginia Surety Company must defend the Village because the allegations of the underlying complaints are what trigger Virginia Surety's exceedingly broad duty to defend.
2. Having failed to establish as a matter of law that there is no possible factual or legal basis on which it might eventually be obligated to indemnify the Village under any policy provision, Virginia Surety must defend the Village in the underlying actions, with the issue of indemnification to await the proof at trial in those actions.
3. Virginia Surety waived or is precluded from asserting any policy exclusions not raised or invoked in its original disclaimer.
4. Coverage for the Village under Virginia Surety's policy is primary and must be exhausted before the Village's own insurer is required to contribute under its policy.
5. Virginia Surety must reimburse the Village's insurer for costs incurred to date in defending the underlying actions.  

See?  You already have a 20% chance of picking the right issue.  Answers without explanations, however, won't count.  I'll re-post this case one week from today, on Friday, February 26th, with my identification and explanation of the bad penny.  Until then, have a look at the decision by clicking on its link above and let us know what you think.

Fourth Department Holds that Additional Insured's Asserted Belief in Nonliability Was an "Insufficient Excuse" to Its Three-Month Late Notice of Suit

CGL – ADDITIONAL INSURED – LATE NOTICE OF SUIT – GOOD FAITH BELIEF IN NONLIABILITY – TIMELY DISCLAIMER
Lehigh Constr. Group, Inc. v. Lexington Ins. Co.
(4th Dept., decided 2/11/2010)

On February 23, 2007, Lehigh Construction Group received suit papers from an employee of a subcontractor who allegedly had been injured on a construction site on which Lehigh had been acting as the general contractor.  Although Lehigh had been named as an additional insured on the subcontractor's CGL policy with Lexington, Lehigh did not notify Lexington of the occurrence until April 17, 2007 and did not forward a copy of the complaint to Lexington until May 8, 2007.  Lexington's policy required notice of an occurrence, claim or suit "as soon as practicable".

By letter dated May 15, 2007, Lexington denied defense and indemnification coverage to Lehigh in relation to the underlying action based upon Lehigh's failure to provide notice of its receipt of the complaint as soon as practicable.  Lehigh commenced this declaratory judgment action, attempting to excuse its delay in forwarding the complaint by arguing that its delay was based upon a reasonable belief in nonliability, namely, because it was only a "pass through" defendant with respect to the underlying action.  Erie County Supreme Court denied Lexington's motion for summary judgment based on its determination that there were issues of fact regarding whether Lehigh's notice to Lexington was timely.

In REVERSING the order appealed from and granting summary judgment to Lexington, the Appellate Division, Fourth Department, held that plaintiff's assumption that other parties would bear the ultimate responsibility for the underlying plaintiff's injuries was an insufficient excuse for failing to provide Lexington with timely notice of the underlying action's commencement.  The appellate court ruled that although an insured's good faith belief in nonliability may excuse that insured's failure to provide timely notice of an occurrence, Lehigh's asserted belief in nonliability was an "insufficient excuse" for its late notice of the lawsuit:

In opposing the motion, plaintiff contended that its delay was based upon a reasonable belief in nonliability because it was only a "pass through" defendant with respect to the underlying action. Although a good faith belief in nonliability may excuse a failure to provide timely notice of an occurrence (see Great Canal Realty Corp. v Seneca Ins. Co., Inc., 5 NY3d 742, 743), here there was a failure to provide timely notice of the actual commencement of the underlying action. We thus conclude under these circumstances that, as a matter of law, plaintiff's assumption that other parties would bear the ultimate responsibility for Sherk's injuries is an insufficient excuse for failing to provide Lexington with timely notice of the fact that the underlying action had been commenced (see Philadelphia Indem. Ins. Co. v Genesee Val. Improvement Corp., 41 AD3d 44, 47).  

The Fourth Department further held that Lexington's disclaimer, issued after Lexington's investigation of the matter and within four weeks of its first notice of the accident and underlying action, was timely as a matter of law.

Pay attention.  This appears to be a new rule, at least in the Fourth Department.  An insured's asserted good faith belief in nonliability will not serve to excuse its failure to comply with a liability insurance policy's timely notice of claim or suit condition.  That excuse will only apply to the insured's failure to comply with the policy's notice of accident or occurrence condition.   Remember -- most liability policies contain tandem but distinct notice conditions:  (1) notice of accident or occurrence; and (2) notice of claim or suit.  In the opinion of the Fourth Department, an insured's asserted good faith belief in nonliability applies only to the former condition, not the latter.

The Dam Project and Its Dam Additional Insured Coverage for the Dam Failure

CGL – ADDITIONAL INSURED – "ONGOING OPERATIONS" – REQUIRED BY WRITTEN CONTRACT – DUTY TO DEFEND
Town of Fort Ann v. Liberty Mut. Ins. Co.
(3rd Dept., decided 1/28/2010)

Juvenile title, I know.  Sorry, just couldn't resist. 

Plaintiff Town of Fort Ann retained engineering firm Heynan Teale Engineers and construction company Kubricky Construction Corporation to reconstruct its Hadlock Pond dam in 2004 and 2005.  On July 2, 2005, the reconstructed dam catastrophically failed, releasing a billion-gallon torrent of water that destroyed homes, cars and roadways for hundreds of yards downstream from the spillway. Upstream and downstream property owners brought multiple property damage lawsuits against the Town, which sought liability coverage an an additional insured from Heynan's CGL insurer, Steadfast Insurance Company, and Kubricky's CGL insurer, Liberty Mutual Insurance Company.  Steadfast and Liberty both denied any obligation to the Town asserting, among other things, that the Town did not qualify as an "additional insured" under the terms of their respective policies.

The Town and its CGL insurer commenced this declaratory judgment action for defense and indemnification coverage from Steadfast and Liberty, and breach of contract damages against Kubricky, and, following the completion of discovery, moved for summary judgment.  All defendants cross-moved for summary judgment.  Albany County Supreme Court granted plaintiffs' motion to the extent of finding that Steadfast was obligated to defend the Town in the underlying property damage actions and denied all other motions and cross motions.  All parties appealed.

In MODIFYING the order appealed from to declare that Liberty also had a duty to defend the Town in the underlying property damage actions, the Third Department found that additional insured coverage was triggered under both Kubricky's (Liberty's) and Heynan's (Steadfast's) policies.

Kubricky's policy with Liberty extended additional insured status to an entity when Kubricky's written contract to provide work for the entity required such coverage.  The written contract between Kubricky and the Town required Kubricky to maintain such insurance until the Town accepted the completed project. Liberty argued that the Town's additional insured coverage had ceased since the policy provided that such coverage remained in effect only so long as Kubricky had ongoing operations at the project.

In rejecting Liberty's argument that Kubricky's operations had ended before the dam breached, the Third Department noted that there had yet to be a final inspection of Kubricky's work and held:

The term "ongoing operations" is interpreted broadly in New York (see generally Wausau Underwriters Ins. Co. v Cincinnati Ins. Co., 198 Fed Appx 148, 150 [2d Cir 2006]; Liberty Mut. Fire Ins. Co. v E.E. Cruz & Co., 475 F Supp 2d 400, 411 [SD NY 2007]). Work may be considered as ongoing during a short lapse of time necessary to conduct tests designed to assure proper performance where such testing is an essential element of the work by the insured (see Perez v New York City Hous. Auth., 302 AD2d 222, 222 [2003]; cf. 9A Couch on Insurance 3d § 129:24). While major construction by Kubricky had ended one to two months before the dam's failure, inspection of the project by the engineer, which was required before Kubricky's work was considered completed under the contract, had not yet occurred. In light of the nature of the project, such inspection was not merely a minor after-the-fact detail. We find that the Town adequately established that it was an additional insured for purposes of the broad duty to defend. The exclusions in the policy urged as applicable by Liberty Mutual, which must be construed narrowly, do not vitiate Liberty Mutual's expansive obligation to provide a defense (see generally Automobile Ins. Co. of Hartford v Cook, 7 NY3d 131, 137 [2006]). 

Steadfast's policy with Heynan provided that a client of Heynan would be an additional insured when "required by written contract executed and effective before the performance of 'your work' or 'covered operations.'"  The written contract between Heynan and the Town, which was executed before Heynan's work on the project commenced, stated that "[c]ertificates of insurance will be furnished upon request naming the Town of Fort Ann . . . as additional insured."  The Town did not request the certificate of insurance until well after the dam had failed.  Because the Town had not requested certificates of insurance from Heynan before its work or the dam breach, Steadfast argued that Heynan's written contract with the Town did not require that the Town be named as an additional insured on Heynan's policy.

In rejecting that argument, the Third Department reasoned that an agreement prospectively to provide certificates of additional insured insurance reflected or constituted an agreement to provide AI insurance:

So long as a clear written intent to include an entity as an additional insured is manifested prior to the loss, the fact that certificates of insurance are not issued until after the loss does not compel the conclusion that such entity is not an additional insured (see United States Fid. & Guar. Co. v Shorenstein Realty Servs., LP, 591 F Supp 2d 966, 968-969 [ND Ill 2008]; Atofina Petrochemicals, Inc. v Continental Cas. Co., 49 Tex Sup Ct J 225 185 SW3d 440, 443-444 [2005]; 3 Couch on Insurance 3d § 40:29). Applying rules for construing contracts (see National Abatement Corp. v National Union Fire Ins. Co. of Pittsburgh, Pa., 33 AD3d at 571), we observe that the underlying contract, which had been drafted by Heynan, addresses the full extent of insurance coverage in just one paragraph, three sentences in length. The fact that Heynan agreed in the contract that it was prepared to supply certificates of insurance upon request reflects a clear intent to include the Town as an additional insured in Heynan's work on the dam project. The status of the Town as an additional insured is not made contingent upon the request for a certificate of insurance. We agree with Supreme Court that, under these circumstances, Steadfast Insurance has a duty to defend the Town. 

Credit to the Bay Ridge Volunteer Fire Department for use of its Hadlock Pond dam and damage photos.

Subcontractor's CGL Insurer Found to Owe Primary, Noncontributory Additional Insured Coverage to Project Owner and General Contractor

CGL – ADDITIONAL INSURED – PRIORITY OF COVERAGE – PECKER IRON WORKS
William Floyd School Dist. v. Maxner
(2nd Dept., decided 12/15/2009)

When a project's general contractor and one of its subcontractors both obtain additional insured (AI) coverage for the project owner, are the AI coverages co-primary, or is one AI insurer excess over the other?  Not surprisingly, the Second Department has ruled that the answer depends on policy language.

William Floyd Union Free School District contracted with Aurora Contractors, Inc., to be the general contractor of a construction project to build a new middle school. The contract required Aurora to provide the District with primary insurance coverage.  Aurora had a policy with QBE Insurance Corp., and provided the District with a certificate of liability insurance listing it as an additional insured on that policy. Aurora subcontracted the obligation to supply kitchen equipment to Premium Supply Company.  The subcontract required Premium to provide Aurora with insurance.  Premium was insured by Royal Insurance Company of America, a division of Royal & SunAlliance, and provided Aurora with a certificate of liability insurance listing Aurora and the District as additional insureds on that policy. The Royal policy provided that additional insureds were covered "with respect to liability arising out of [Premium's] ongoing operations performed for that additional insured by the named insured at the location designated in the written contract."  Premium subcontracted some of the contracting work to Dee's Associated. Frank Maxner, an employee of Dee's Associated, allegedly was injured while performing this work.

Maxner and his wife commenced a personal injury action against the District, the middle school, and Aurora.  The District parties and their insurer, Transportation Insurance Company, then commenced this action, seeking a judgment declaring that the District plaintiffs were entitled to defense and indemnification coverage as additional named insureds under Aurora's policy with QBE. Aurora and QBE commenced a third-party action against Royal, seeking a judgment declaring that the District plaintiffs and Aurora were entitled to primary, noncontributory defense and indemnification coverage as additional named insureds under Premium's policy with Royal.  Supreme Court declared that QBE and Royal were obligated, as co-insurers, to defend the District plaintiffs in the underlying action, and QBE appealed.

In REVERSING the order appealed from, the Second Department initially held that Royal was obligated to defend and indemnify the District plaintiffs and Aurora in the underlying action because Maxner allegedly was injured while performing work encompassed within Premium's subcontract with Aurora.

On the issue of priority of AI coverages afforded by QBE and Royal, the Second Department quoted policy language:

[T]he Royal policy issued to Premium provides:

"When an additional insured is added under this provision, and the written contract, written agreement or written permit requires the insurance to be primary and noncontributory, then this insurance is primary except when the Excess Provision under condition 4. Other Insurance in Section IV Commercial Liability Conditions applies. If this insurance is primary our obligations are not affected unless any of the other insurance is also primary. Then, we will share with all that other insurance by the Method of Sharing provision under condition 4."

The subcontract between Premium and Aurora required Premium to provide Aurora with insurance in accordance with a sample certificate of insurance, which listed Aurora and the school district plaintiffs as additional insureds. This agreement to name them as additional insureds was an agreement to provide them with primary coverage, triggering the above provision (see Pecker Iron Works of N.Y. v Traveler's Ins. Co., 99 NY2d 391).

The QBE policy issued to Aurora provides:

"4. Other insurance

If other valid and collectible insurance is available to the insured for a loss we cover . . . our obligations are limited as follows: . . .

"b. Excess Insurance

This insurance is excess over: . . .

"(2) Any other insurance, whether primary, excess, contingent or any other basis that is valid and collectible insurance available to you as an additional insured under a policy issued to:

(a) A contractor performing work for you."

Under this provision, there is no question that QBE's named insured coverage for Aurora was excess over Royal's AI coverage for Aurora, but what about with respect to the District plaintiffs?  Could the "you" in the QBE policy's excess insurance provision be construed to apply to the District plaintiffs?  Citing the Court of Appeals' 2003 decision in Pecker Iron Works, the Second Department concluded it could and held:

Contrary to the plaintiffs' contention, this provision applies to the school district plaintiffs, as well as to Aurora. In the absence of unambiguous contractual language to the contrary, an additional insured "enjoy[s] the same protection as the named insured" (Pecker Iron Works of N.Y. v Traveler's Ins. Co., 99 NY2d at 393). The additional insured endorsement which provides for primary coverage for additional insureds does not vitiate this provision. The endorsement and the policy must be read together "and the words of the policy remain in full force and effect except as altered by the words of the endorsement" (Penna v Federal Ins. Co., 28 AD3d 731, 732, quoting County of Columbia v Continental Ins. Co., 83 NY2d 618, 628). Since the school district plaintiffs and Aurora are additional insureds under the Royal policy issued to a subcontractor, the QBE policy provides them with coverage excess to that provided to them under the Royal policy.

Further, the QBE policy provides that when its insurance is excess, QBE will have no duty to defend the insured if another insurer has such duty. Accordingly, the Supreme Court should have granted those branches of QBE's cross motion, made jointly with Aurora, which were for summary judgment on the third-party complaint declaring that Royal is obligated to defend and indemnify the school district plaintiffs and Aurora in the underlying action on a primary, noncontributory basis, and that the coverage provided by QBE is excess to that provided by Royal. Upon searching the record, we award summary judgment to QBE declaring that it is not obligated to defend the school district plaintiffs and Aurora in the underlying action unless no other insurer is obligated to defend those parties in the underlying action.

For an excellent analysis of this decision, head over to Jon Lichtenstein's Let's Talk Coverage blog.