Bus Insurer Found to Owe Primary UM Coverage Benefits to Passenger for Injuries from Accident with Uninsured Vehicle

UM – EFFECTIVENESS OF VEHICLE INSURER'S CANCELLATION – BUS PASSENGER – PRIORITY OF COVERAGE
Matter of State Farm Mut. Auto. Ins. Co. v. Thomas
(2nd Dept., decided 7/27/2010)

State Farm's insured, Gracy Thomas, was injured when a bus in which she was riding as a passenger was struck by an allegedly uninsured vehicle being driven by Lawrence Dock on the Garden State Parkway in New Jersey.  She made a UM claim to State Farm and demanded arbitration.  State Farm commenced this special proceeding to permanently stay that arbitration, asserting that: (1) respondents had failed to establish that the offending vehicle was uninsured; and (2) because Thomas was a passenger on the bus insured by National Interstate, National Interstate owed primary UM coverage, and State Farm was not liable for such coverage until National Interstate had exhausted its policy limits, and then only to the extent that State Farm's UM coverage limit exceeded the UM coverage limit of the National Interstate policy.

Suffolk County Supreme Court (Cohalan, J.) denied the petition, finding that the evidence established that Dock's vehicle was uninsured at the time of the accident. The court did not determine the merits of State Farm's second argument concerning the priority of the National Interstate (bus) and State Farm (claimant's car) policies. 

In AFFIRMING the order denying and dismissing State Farm's petition, the Appellate Division, Second Department held that under New Jersey law, Dock's New Jersey auto policy with Mercury Insurance Company had been effectively cancelled three days before the accident.  The Second Department also concluded, however, that Supreme Court should have reached and decided the issue of priority of coverage, and because both New Jersey and New York law would resolve this issue on the basis of the language in the applicable policies, there was no conflict of laws on this issue:

A provision of [State Farm']s SUM endorsement in its policy with Thomas pertaining to priority of coverage indicated that, where an insured was entitled to SUM coverage under more than one policy, the order of priority was to be:

"(a) A policy covering a motor vehicle occupied by the injured person at the time of the accident;

(b) A policy covering a motor vehicle not involved in the accident under which the injured person is a named insured; and

(c) A policy covering a motor vehicle not involved in the accident under which the injured person is an insured other than a named insured [emphasis supplied]."

Coverage under a lower priority policy was to apply "only to the extent that it exceeds the coverage of a higher priority policy."  Here, Schoolman's [the bus company's] policy with National Interstate covered the vehicle occupied by Thomas at the time of the accident.  The petitioner's policy with Thomas covered a motor vehicle not involved in the accident under which Thomas was a named insured.  Thus, under the terms of the petitioner's policy, National Interstate's policy was higher in priority than the petitioner's.

Meanwhile, Schoolman's policy with National Interstate contained a provision which stated, in part,

"Other Insurance. With respect to bodily injury to an insured while occupying a motor vehicle not owned by the named insured, the coverage under this UM endorsement shall apply only as excess insurance over any other similar insurance available to such insured and applicable to such motor vehicle as primary insurance, and this UM endorsement shall then apply only in the amount by which the limit of liability for this coverage exceeds the applicable limit of liability of such other insurance. [emphasis supplied]"

 Here, Schoolman, National Interstate's insured, owned the bus in which Thomas was a passenger when it collided with the Dock vehicle.  Thus, this "Other Insurance" policy provision, on which National Interstate relies in support of its contention that the petitioner's policy is higher in priority, was, by its terms, inapplicable to the circumstances presented here (see Matter of Lancer Ins. Co. v Robayo, 28 AD3d 664, 665). 

Accordingly, National Interstate's policy constituted the primary insurance policy for all coverage, and Thomas may resort to the petitioner's policy only in the event that National Interstate's policy is insufficient to fully compensate her, and then "only to the extent that it exceeds the coverage of a higher priority policy." 

Outcome:  Bus insurer owed primary UM coverage and State Farm's policy owed excess UM coverage only to the extent that its UM policy limit exceeded the National Interstate policy's UM policy limit. 

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. 

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.

No Liability Clause of Car Dealership's Garage Liability Policy Found to Negate Coverage for Driver of Loaner Vehicle

AUTO – LOANER VEHICLE – NO LIABILITY CLAUSE – PRIORITY OF INSURANCE
Progressive Cas. Ins. Co. v. Harco Natl. Ins. Co.
(4th Dept., decided 2/11/2010)

Jason Webb borrowed a loaner vehicle from Burdick Pontiac-GMC while his own vehicle was being repaired by the car dealership. His son, Justin Webb, was driving the loaner vehicle when he collided with a vehicle operated by Andrea Walker. Walker thereafter commenced the underlying against Justin Webb and Burdick seeking damages for injuries that she allegedly sustained in the accident.

The loaner vehicle was insured under a garage liability policy issued to Burdick by Harco National Insurance Company, and the Webbs were insured under a family motor vehicle policy issued by plaintiff, Progressive Casualty Insurance Company. The Harco policy contained what is commonly known as a "no liability clause," which provided coverage to a customer of its insured only if the customer "[h]as no other available insurance (whether primary, excess or contingent)" or "[h]as other available insurance (whether primary, excess or contingent) less than the compulsory or financial responsibility law limits where the covered auto' is principally garaged." The Progressive policy contained an "excess" clause, which stated that any insurance provided for a vehicle, other than a covered vehicle, "will be excess over any other valid and collectible insurance."

Progressive commenced this action seeking a declaration that Harco was obligated to provide primary coverage to defend and indemnify Justin Webb in the underlying action, and Harco asserted a counterclaim seeking a declaration that Progressive is the primary insurance carrier for Webb and thus was obligated to defend and indemnify him to the limits of its policy. Onondaga County Supreme Court granted Progressive's motion for summary judgment declaring that Harco was obligated to provide primary coverage to Justin Webb and that Progressive's coverage was excess to Harco's.  Harco appealed.

In REVERSING the order appealed from and declaring that Progressive owed primary coverage to Justin Webb and Harco owed no coverage, the Fourth Department gave effect to the no liability clause of the Harco policy:

We agree with Harco and Burdick that the Webb defendants are excluded from coverage pursuant to the express terms of the Harco policy. Under the Harco policy, a customer is excluded from the definition of an "insured" unless the customer possesses insufficient insurance to meet the minimum requirements set forth in New York's financial responsibility laws. In granting the motion of Progressive, the court relied on the general rule that, "[i]n cases in which one insurance policy has a no liability clause and the other insurance policy has an excess clause, . . . the no liability clause is not given effect" (Kipper v Universal Underwriters Group, 304 AD2d 62, 65; see Utica Mut. Ins. Co. v Travelers Ins. Co., 213 AD2d 983, 984). That was error, inasmuch as "[a]n exception to the general rule arises [where, as here,] the no liability clause expressly provides that other available insurance' includes both primary and excess insurance coverage. In that case, the no liability clause is given effect and the excess insurance carrier is the primary carrier" (Kipper, 304 AD2d at 65; see Mills v Liberty Mut. Ins. Co., 36 AD2d 445, affd 30 NY2d 546; Davis v De Frank, 33 AD2d 236, 241, affd 27 NY2d 924). Here, the Harco policy specifically provides that "other available insurance" includes "primary, excess or contingent insurance" (emphasis added), and it is undisputed that the liability limits contained in the Progressive policy exceed the minimum statutory requirements. Thus, the exception to the general rule applies, the no liability clause contained in the Harco policy is given effect, and Progressive is the primary insurer for the Webb defendants (see Davis, 33 AD2d at 241). 

The appellate court also rejected Progressive's argument that the "Other Insurance" clause of the Harco policy rendered Harco liable for coverage in this case:

Contrary to the contention of Progressive, that clause does not in fact render Harco liable to provide insurance coverage with respect to all vehicles owned by Burdick. Rather, it simply clarifies that, where coverage exists under the substantive provisions of the Harco policy, coverage is primary with respect to all vehicles owned by Burdick and excess with respect to non-owned vehicles. 

Finally, and although the court twice stated that Justin Webb was "excluded" from coverage pursuant to the Harco policy's restrictive definition of an  insured, the Fourth Department also rejected Progressive's contention that Harco had a duty to provide a timely disclaimer for the subject accident:

Finally, because the Harco policy does not provide coverage for the Webb defendants, there is no merit to Progressive's contention that Harco had a duty to provide a timely disclaimer for the subject accident (see State Farm Mut. Auto. Ins. Co. v John Deere Ins. Co., 288 AD2d 294, 297). Thus, even assuming, arguendo, that the written disclaimer provided by Harco was insufficient, we conclude that "the failure to disclaim coverage does not create coverage which the policy was not written to provide" (Zappone v Home Ins. Co., 55 NY2d 131, 134). 

I'm confused.  Why would Walker have sued the father, Jason Webb?  This decision contains contradictory references (compare "Walker thereafter commenced the underlying action against Justin Webb and Burdick seeking damages" to "Harco is not obligated to defend or indemnify the Webb defendants in the underlying action").  In all likelihood, Jason Webb was not named as a defendant in the underlying action, only his son, Justin Webb, was as the loaner vehicle's driver, along with the vehicle's owner, Burdick.  And Justin was not Burdick's customer; his father, Jason, was.  Shouldn't that have made a difference?  If Justin wasn't Burdick's customer, the "your customers" exception to coverage for permissive users of Burdick's vehicles should not have applied.  Surely Progressive argued that point, but, as sometimes happens, the Fourth Department did not address it, like it had in its decision in Graphic Arts Mut. Ins. Co. v Russell, 50 AD3d 1611 (4th Dept. 2008). 

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. 

Policy for Dominos Pizza Deliveryman's Personal Auto is Primary

AUTO – OTHER INSURANCE – PRIORITY OF COVERAGES – NON-OWNED AUTO
Eveready Ins. Co. v. Illinois Natl. Ins. Co.
(1st Dept., decided 5/5/2009)

Plaintiff insurer brought this declaratory judgment action todetermine the parties' respective obligations to contribute towards a settlement of an underlying personal injury action, which had stemmed from an accident involving a Dominos Pizza deliveryman's use of his personal auto to deliver a pizza.  Plaintiff insured the deliveryman under a personal auto policy; defendant insured Dominos under a commercial auto policy and took the position that its coverage was excess to plaintiff's.  New York Supreme granted defendant's motion for summary judgment, declaring that defendant was not required to contribute to the underlying settlement in the proportion that the limits of its policy bears to the total of the limits of both its policy and plaintiff's policy. 

Finding the "other insurance" clause of defendant's policy to be clear and unambiguous, the First Department AFFIRMED, holding:

The clear and unambiguous "other insurance" clause of defendant's policy limits its policy to "excess" coverage where a covered accident involves a vehicle not owned by its insured, Dominos Pizza. As it was undisputed that the vehicle involved in the accident belonged to plaintiff's insured, a deliveryman for Dominos Pizza who was making a pizza delivery, defendant is an excess insurer required to contribute to the settlement only after the exhaustion of plaintiff's policy (Federal Ins. Co. v Ryder Truck Rental, 189 AD2d 582, affd 82 NY2d 909 [1994]). There is no merit to plaintiff's argument that this "excess" provision of the other insurance clause is contradicted and negated by the "proportionate payment" provision of the same clause. The latter, by its terms, only applies to coverage that is "on the same basis," i.e., where the policy is primary and there are other primary policies, the policy will pay pro rata with the other primary policies, and where the policy is excess and there are other excess policies, the policy will pay pro rata with the other excess policies (General Acc. Fire & Life Assur. Corp. v Piazza, 4 NY2d 659, 669). Here, plaintiff's policy is primary and defendant's policy is excess.

45-Day Delay in Disclaiming Additional Insured Coverage Held to be Unreasonable as a Matter of Law

CGL – ADDITIONAL INSURED – UNTIMELY DISCLAIMER – PRIORITY OF COVERAGES
Pav-Lak Indus., Inc. v. Arch Ins. Co.
(1st Dept., decided 11/13/2008)

Arch Insurance Company insured B&J Welding  & Iron Works, n/k/a Mid Island Steel Corporation.  Zurich American Insurance Company insured Pav-Lak Industries.  Pav-Lak was the general contractor on a high school construction project and contracted with B&J for steel fabrication and erection work.  B&J did the fabrication work and subcontracted the erection work to Ranger Steel Corporation.  An employee of Ranger Steel was injured during that project and sued Pav-Lak and other parties.  On behalf of Pav-Lak, Zurich tendered that claim for defense and indemnification to Arch under B&J's policy. 

The Arch policy contained a Blanket Additional Insured endorsement, which amended the "Who Is An Insured" clause of the Arch policy "to include as an insured the person or organization as an insured where required by contract but only with respect to liability arising out of your [the named insured's] operations ... or your [the named insured's] work".  The policy defined "your work" as "(a)(1) work or operations performed by you or on your behalf; and (a)(2) materials, parts or equipment furnished in connection with such work or operations".  By its contract with Pav-Lak, B&J was required to obtain general liability insurance coverage of at least $6 million, naming Pav-Lak as an additional insured to that coverage. The Arch policy also contained a “Designated Operation or Entities Exclusion Endorsement", which excluded liability coverage  for any claims arising out of the “operations” of Ranger Steel ("the Ranger Steel exclusion").

Zurich tendered Pav-Lak's defense and indemnification to Arch by letter dated March 22, 2005, which Arch received on March 28, 2005.  In its tender letter, Zurich informed Arch that the "claimant, an employee of your subcontractor, Ranger Steel, fell from a height[.]"   Forty-five days later, on May 12, 2005, Arch sent a letter to B&J advising that because the claimed injuries were sustained by a Ranger Steel employee while working for Ranger Steel, the injured party's claims arose out of Ranger Steel's operations and thus were excluded by the Ranger Steel exclusion.  The disclaimer letter was copied to Pav-Lak and other parties.

Pav-Lak and Zurich commenced this declaratory judgment action for primary additional insured coverage under the Arch policy.  New York Supreme denied plaintiffs' motion and granted Arch's cross motion for summary judgment, declaring, among other things, that Zurich's policy was primary to Arch's policy, and that Arch was not obligated to defend Pav-Lak in the underlying personal injury action.

The First Department REVERSED, holding that Pav-Lak was entitled to liability coverage from Arch as an additional insured under B&J's policy:

The additional insured coverage endorsement of Arch's policy extends coverage to injuries sustained by the sub-subcontractor's employee, because those injuries arose out of the operations or work of the subcontractor (see Tishman Constr. Corp. of N.Y. v CNA Ins. Co., 236 AD2d 211 [1997]; Consolidated Edison Co. of N.Y. v Hartford Ins. Co., 203 AD2d 83, 83-84 [1994]). Thus, Arch was required to disclaim coverage. Arch's disclaimer letter dated May 12, 2005 was effective as against Pav-Lak because Pav-Lak received a copy of it (see Schlott v Transcontinental Ins. Co., Inc., 41 AD3d 339 [2007], lv denied 9 NY3d 817 [2008]), and, further, the grounds of disclaimer were stated with sufficient specificity (see Realm Natl. Ins. Co. v Hermitage Ins. Co., 8 AD3d 110 [2004]). However, Arch's 45-day delay in disclaiming coverage was unreasonable as a matter of law.  There was no need for an investigation, because the basis for the disclaimer was readily apparent from Zurich's tender letter, which Arch received on March 28, 2005 (see West 16th St. Tenants Corp. v Public Serv. Mut. Ins. Co., 290 AD2d 278 [2002], lv denied 98 NY2d 605 [2002]; McGinley v Odyssey Re (London), 15 AD3d 218 [2005]).

By failing to give Pav-Lak timely notice of its disclaimer, Arch waived its reliance on the Ranger Steel exclusion as a basis for disclaiming coverage (see Markevics v Liberty Mut. Ins. Co., 97 NY2d 646, 648-649 [2001]). In any event, however, resolving the ambiguity of the language of the exclusion against Arch, the exclusion does not apply to Pav-Lak (see Belt Painting Corp. v TIG Ins. Co., 100 NY2d 377, 383 [2003]).

Arch's policy with B&J contained an endorsement that provided for a $1 million deductible.  Pav-Lak and Zurich argued that by not timely asserting that deductible in a disclaimer letter, Arch waived its right to rely on that deductible in accordance with Insurance Law § 3420(d).  Both the lower court and the First Department disagreed, holding: 

Arch did not waive the $1 million deductible in its policy, because the deductible endorsement does not bar coverage or implicate policy exclusions and therefore is not subject to the time requirements for disclaiming coverage under Insurance Law § 3420(d) (see Power Auth. of State of N.Y. v National Union Fire Ins. Co. of Pittsburgh, 306 AD2d 139 [2003]).  Nor is the endorsement a warranty under Insurance Law § 3106(a), since it contains no condition precedent to coverage.

Finally, with respect to the priority of coverage between the Arch and Zurich policies, the First Department looked to both contract and policy language in holding that Arch's policy was primary and Zurich's was excess:

In its contract with Pav-Lak, defendant B&J Welding & Iron Works agreed to name Pav-Lak as an additional insured on a primary basis and agreed that Pav-Lak's own general liability insurance would be excess only and non-contributory to B & J's policy. In accordance with that contract, B&J obtained the Arch policy, which contained an additional insured endorsement providing coverage to any entity that B&J was contractually required to insure for liability arising out of B&J's work or operations. This additional insured endorsement unambiguously applied to Pav-Lak (see e.g. Tishman Constr. Corp. of N.Y. v American Mfrs. Mut. Ins. Co., 303 AD2d 323, 324 [2003]). Pav-Lak's commercial general liability policy, the Zurich policy, provided that its coverage would be excess over "[a]ny other primary insurance available to you covering liability for damages arising out of the premises or operations for which you have been added as an additional insured by attachment of an endorsement." Thus, the Zurich policy is excess to the Arch policy (see id.).

Many of the background facts of this DJ action come not from the First Department's decision, but from the July 14, 2008 decision of New York County Supreme Court Justice Doris Ling-Cohan in what must be a related DJ action, also entitled Pav-Lak Industries, Inc. v Arch Ins. Co., 2008 NY Slip Op 31987(U) (Sup. Ct., New York Co., decided 7/14/2008).  The First Department's decision in this case mirror's Justice Ling-Cohan's decision in that matter.

Coverage Calculus -- Determing the Priority of Coverage Between Owner/General Contractor's and Subcontractor's GL Policies

CGL – ADDITIONAL INSURED – OTHER INSURANCE – PRIORITY OF COVERAGES
Briarwoods Farm, Inc. v. Central Mut. Ins. Co.
(Sup. Ct., Orange Co., decided 10/29/2008)

I'll start with the last footnote of this decision:  "Despite this Court's best efforts in examining the approximately fifty(52) pages of single space, multiple columned pages that Central's counsel submitted as the Central Policy, no clauses concerning 'method of sharing' or 'contribution' could be found."  No one ever said this insurance coverage stuff was going to be easy.  There's nothing wrong with excerpting and highlighting relevant coverage provisions into separate exhibits for the court's ease of reference.  We do it in my office all the time. 

Briarwood Farms and its shareholders sought coverage as additional insureds under a commercial general liability (CGL) policy issued by Central Mutual Insurance Company to subcontractor Leonard Rosado, who was injured while working on Briarwood's job site and later died.  The wrongful death action was settled by Briarwood's CGL insurer, Indian Harbor Insurance Company, which presumably financed this declaratory judgment and coinsurance action in the name of Briarwood against Central Mutual, seeking to recover primary additional insured coverage under Rosado's policy.

In finding both Central Mutual and Indian Harbor policies to owe co-primary coverage for the wrongful death action, Orange County Supreme Court Justice William Giacomo held:

This Court holds that under the present law, absent a showing that a general contractor was actually seeking excess coverage rather than primary coverage, a subcontract's language calling for coverage of the general contractor/owner as an "additional insured" requires the subcontractor to provide primary coverage. Accordingly, this Court concludes that the insurance afforded under the Central Policy to the Herskowitz Plaintiffs was primary coverage.

This Court also holds that under the present state of the law, a determination that the insurance policy of the subcontractor is primary coverage to the general contractor/owner, does not preclude a determination that the insurance policy of the general contractor/owner also provides primary coverage. Thus, even though the Central Policy provides primary coverage to the Herskowitz Plaintiffs as "additional insureds", the Herskowitz Plaintiffs' own policy also provides for primary coverage rendering both policies equally obligated to cover the costs associated with the settlement of the underlying wrongful death action.

In other words, a binocular comparison of the competing "other insurance" clauses of the owner/GC's and subcontractor's policies is still necessary to make a  priority of coinsurance determination,  Pecker Iron Works of New York, Inc. v. Traveler's Ins. Co. (99 NY2d 391 [2003]) notwithstanding.  See the decision for Justice Giacomo's methodical analysis of the coinsurance issues.  

A Primary Policy By Any Other Name Is Still a Primary Policy

CGL – COINSURANCE – PRIORITY OF COVERAGE
233rd St. Partnership, L.P. v. Twin City Fire Ins. Co.
(1st Dept., decided 6/10/2008)

State National Insurance Company provided primary CGL coverage to the plaintiff with respect to an underlying personal injury action. Twin City contended that its coverage was excess. New York Supreme agreed with Twin City and declared that it was not obligated to reimburse plaintiffs for their defense expenses in the underlying action.

The First Department REVERSED, holding:

The court erred in basing its determination that defendant's policy was excess solely on the wording of that policy. We find that since, among other things, there is no primary insurance underlying defendant's policy, and its coverage is subject only to the payment of a deductible, the policy is not a true excess policy, but rather is a primary policy that, under certain circumstances, purports to shift losses to other available insurance (see Bovis Lend Lease LMB, Inc. v. Great Am. Ins. Co., __ AD3d __, 2008 NY Slip Op 3150, *9-10 [1st Dept 2008]; Cheektowaga Cent. School Dist. v. Burlington Ins. Co., 32 AD3d 1265 [2006]). Since we find that both State National's and defendant's policies are primary, their other insurance clauses cancel each other out, and both insurers are rendered co-primary (citations omitted).

Fourth Department Coverage Decisions -- April 25, 2008

UM COVERAGE – VENUE OF ARBITRATION HEARING
Matter of the Arbitration Between Erie Ins. Co. and Malcolm
(4th Dept. decided 4/25/2008)
The venue of an uninsured motorists coverage arbitration may not be held more than 100 miles from the insured's residence.
In Matter of the Arbitration Between Erie Ins. Co. and Malcolm, the court granted the insurer's CPLR article 75 petition to change the venue of the insured UM arbitration from Kings County to Erie County. In originally granting the insured's request to change the venue from Erie County to Kings County, the AAA arbitrator violated that AAA's own rule that an arbitration hearing may not be held more than 100 miles from an insured's residence. The insured's listed residence was in West Seneca, Erie County.

SUBROGATION – WAIVER OF SUBROGATION
American Motorists Ins. Co. v. Louis Ciminelli Construction Co.
(4th Dept. decided 4/25/2008)
In American Motorists Ins. Co. v. Louis Ciminelli Construction Co., the court affirmed the lower court's granting of summary judgment to the general contractor and sprinkler system subcontractor based on the waiver of subrogation provision of the general contract. The court also rejected the subrogating insurer's contention that the waiver of subrogation provision does not apply to postconstruction losses.

CGL – COINSURANCE – ADDITIONAL INSURED – PRIORITY OF COVERAGE
B.F. Yenny Construction Co. v. OneBeacon Ins. Grp.
(4th Dept. decided 4/25/2008)
In B.F. Yenny Construction Co. v. OneBeacon Ins. Grp., the court ruled that the lower court erred in relying on construction subcontract language rather than the language of the two insurance policies to determine the priority of coverage between those policies. Pursuant to the "other insurance" and "method of sharing" provisions of those policies, both One Beacon (which insured the GC as an additional insured) and Selective (which insured the GC as a named insured) were found obligated to provide primary coverage and to share equally in the costs of the GC's defense and indemnification in the underlying action.

CGL – GARAGE LIABILITY POLICY – "YOUR CUSTOMERS" – WHO IS AN "INSURED"
Graphic Arts Mutual Ins. Co. v. Russell
(4th Dept. decided 4/25/2008)
In Graphic Arts Mutual Ins. Co. v. Russell, the court affirmed the lower court's ruling that Graphic Arts Mutual was obligated to defend and indemnify defendant who was test driving a vehicle owned by the plaintiff's car dealership insured. The Graphic Arts garage liability policy excluded by definition from coverage customers of the dealership who had liability insurance of at least mandatory minimum limits. The court rejected Graphic Arts Mutual's argument that the defendant was its named insured dealership's "customer", holding that the defendant, who had had no contact with the dealership and transacted no business with the dealership, could not be construed to fall within the "[y]our customers" language of the garage liability policy.