George Campbell Painting Reprised

CGL – BLANKET ADDITIONAL INSURED – EMPLOYEE INJURY EXCLUSION – UNTIMELY DISCLAIMER – INSURANCE LAW § 3420(D)(2)    
Endurance Am. Specialty Ins. Co. v. Utica First Ins. Co.
(1st Dept., decided 10/8/2015)

New York Insurance Law § 3420(d)(2), where applicable, requires that written notice of a disclaimer or denial be sent "as soon as is reasonably possible ... to the insured and the injured person or any other claimant."

Since 2012 when the First Department issued its decision in George Campbell Painting, liability insurers doing business in New York have been on notice, and on guard, that a disclaimer or denial which implicates Insurance Law § 3420(d)(2) -- one for bodily injury or death claims based on either the applicability of a policy exclusion or the breach of a policy condition -- should not await the methodical completion of the insurer's coverage investigation where at least one exclusion-based or condition-based ground for disclaiming or denying coverage is already apparent or known.  To wait to disclaim or deny until the insurer completes its coverage investigation under such circumstances is to risk having the declination challenged and found to to have not been "as soon as [was] reasonably possible" in violation of § 3420(d)(2).

This case effectively arguably extends or enlarges the preclusive impact or scope of George Campbell Painting, at least in the First Department.  New York commercial general liability insurers take note.

Plaintiff Endurance American Specialty Insurance Company insured contractor Adelphia Restoration Corporation.  Defendant Utica First Insurance Company insured subcontractor CFC Contractor Group, Inc.  The Utica First policy contained a blanket additional insured endorsement providing additional insured coverage to entities for which CFC was required to procure additional insured coverage under a written agreement executed prior to a loss.  However, the Utica First policy also contained a broad exclusion for bodily injuries sustained by employees of any insured, or by contractors or employees of contractors "hired or retained by or for any insured."

October 16, 2011 -- employee of CFC allegedly injured on the job
November 16, 2011 -- Utica First receives first notice of accident from Rockville Risk Management, TPA for Endurance (Adelphia)
November 21, 2011 -- Utica denies defense/indemnification overage to CFC; letter copied to Rockville but not to Adelphia
May 10, 2012 -- Rockville tenders Adelphia's defense and indemnity to Utica First, noting that CFC had contracted with Adelphia, but does not provide copy of contract
November 20, 2012 -- Rockville again tenders Adelphia's D&I to Utica First; requests response to tenders
January 25, 2013 -- Rockville sends copy of contract between Adelphia and CFC to Utica First
January 28, 2013 -- Utica First receives copy of contract
January 29, 2013 -- Utica First denies D&I coverage to Adelphia based on employee exclusion

Adelphi conceded that on its face, the employee exclusion in Utica First's policy with CFC precluded coverage to it and to CFC; however, Adelphi contended that the timing of Utica First's disclaimer to it precluded Utica First from denying it coverage. The First Department agreed:

Utica's disclaimer of liability for coverage by letter dated November 21, 2011 to its named insured, defendant CFC, did not constitute notice to additional insured Adelphi under Insurance Law § 3420(d)(2) (see Sierra v 4401 Sunset Park, LLC, 24 NY3d 514 [2014]). Further, although Utica knew by November 21, 2011, at the latest, that the employee exclusion applied to the employee's alleged accident, Utica did not immediately disclaim coverage on that basis; it instead waited to disclaim coverage until January 29, 2013 — one day after it had received the contract that triggered the blanket endorsement. However, Insurance Law § 3420(d) "precludes an insurer from delaying issuance of a disclaimer on a ground that the insurer knows to be valid . . . while investigating other possible grounds for disclaiming" (George Campbell Painting v National Union Fire Ins. Co. of Pittsburgh, PA, 92 AD3d 104 [1st Dept 2012]; see also City of New York v. Northern Ins. Co. of N.Y., 284 AD2d 291 [2d Dept 2001], lv dismissed 97 NY2d 638 [2001]).  

If Adelphi was not entitled to coverage because of the employee exclusion, it did not matter one way or the other whether it was an additional insured under the CFC/Utica policy, and Utica therefore did not need to investigate Adelphi's status in order to disclaim coverage under the exclusion (see George Campbell Painting, 92 AD3d at 111-112). Indeed, given its statement that it would not indemnify "our insured or any other party for any judgment awarded," Utica must have known that the employee exclusion was effective not only as to CFC but also as to Adelphi, and therefore, Utica should have immediately disclaimed to Adelphi on that basis. Thus, Utica's investigation as to whether Adelphi was an additional insured was insufficient as a matter of law as the basis for a disclaimer.

Practice Pointer:  When it appears a policy exclusion applies broadly to negate coverage to the named insured and all other persons or entities, issue the declination not only to the named insured, but also directly and separately to those persons or entities who may have claims to coverage under the policy, regardless of whether it is known for certain that those persons or entities qualify as insureds or additional insureds.  

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.  

Split Panel Reverses and Grants Summary Judgment to CGL Insurer on Employee Exclusion for Injuries to "Contracted For" Worker

CGL – EMPLOYEE INJURY EXCLUSION – DEFINITION OF "EMPLOYEE" – "CONTRACTED FOR" WORKER
Nautilus Ins. Co. v. Matthew David Events, Ltd.
(1st Dept., decided 1/14/2010)

Bloomberg, LLC and Bloomberg, Inc., hired Matthew David Events, Ltd. to plan, design and manage a corporate party sponsored by Bloomberg.  MDE contracted with United Stage Service, Inc. to perform work, labor and services for the Bloomberg event. Timothy Shea, then an employee of Stage, worked as a stagehand at the event. While working the party, Shea allegedly was injured when he fell off a utility vehicle in which he had been riding.

Two days shy of the 3-year SOL, Shea commenced a personal injury action against Bloomberg, MDE, and others.  The following day, MDE notified Nautilus, its commercial liability insurer, of the accident and lawsuit.  Nautilus immediately disclaimed liability coverage on the grounds that MDE failed to provide timely notice of the claim and that Shea's injury was excluded by the policy's employee injury exclusion, which negated coverage for bodily injury to an "employee" of the insured "arising out of and in the course of: (a)[e]mployment by the insured; or (b)[p]erforming duties related to the conduct of the insured's business."  The policy defined "employee" as including but not limited to, any person or persons "hired by, loaned to, leased to, contracted for, or volunteering services to the insured, whether or not paid by the insured."  Nautilus then commenced this declaratory judgment action to confirm its denial of defense and indemnification coverage to MDE. 

Prior to the commencement of discovery, Nautilus moved for summary judgment and for a declaration that it was not  obligated to defend or indemnify MDE and/or Shea in the underlying action, and to dismiss all counterclaims against it. In opposition, MDE argued that that the language of the employee exclusion was ambiguous since it was not clear whether or not employees of a contractor were included within the scope of the exclusion.  MDE also argued that Nautilus' motion was premature since discovery had not yet commenced and it was necessary to determine the relationship between MDE and Stage.  Nautilus replied that the language of the employee exclusion was clear, and since Shea was an "employee" of MDE at the time of the accident, liability coverage under the policy was precluded.

New York County Supreme Court denied Nautilus' motion and, upon searching the record, granted reverse summary judgment to defendants dismissing the employee exclusion-based cause of action of Nautilus' DJ complaint.  The motion court found that it was not clear whether Shea, as Stage's employee, would be a person "contracted for" by MDE and excluded from coverage.  Because the policy did not define the phrase "contracted for," the motion court concluded that it was susceptible to more than one meaning, noting that, for instance, the phrase could be narrowly defined to include only a temporary worker whom MDE contracted from a temporary employment agency.  Nautilus appealed.  

In a 3-2 split decision, the First Department REVERSED the order appealed from and granted summary judgment to Nautilus, finding that the employee injury exclusion was broad and unambiguous and applied to negate liability coverage to MDE for the underlying personal injury action.  The three-justice majority found:

In this case, Nautilus met its burden of demonstrating that the exclusion provision relied upon by the court to dismiss the third cause of action clearly applies to the underlying action. The policy contained an "Employee Exclusion," which excluded from coverage bodily injury to an "employee" of the insured "arising out of and in the course of: (a)[e]mployment by the insured; or (b)[p]erforming duties related to the conduct of the insured's business." The employee exclusion is very broad. The exclusion defined "employee" as including but not limited to, any person or persons "hired by, loaned to, leased to, contracted for, or volunteering services to the insured, whether or not paid by the insured." Moreover, the exclusion was applicable whether the insured was liable as an employer or in any other capacity and applied to any obligation to share damages with or repay someone else who must pay damages because of the injury. 

We agree with Nautilus that giving the words "contract for" their plain and ordinary meaning, MDE's retention of a subcontractor to perform work for the Bloomberg event at Randalls' Island constituted services for the insured and thus falls within the scope of the employee injury exclusion. Indeed, the "contract for" language of the Employee Exclusion clearly contemplates that a contractor could be retained by a party other than the insured on the insured's behalf, and that an injury to that contractor or its employee would fall within the scope of the exclusion (see U.S. Underwriters Ins. Co. v Beckford, 1998 WL 23754, 1998 US Dist LEXIS 574 [ED NY 1998]). The argument that this language may be interpreted to apply only to persons who contract directly to work for MDE renders the explanatory language that the term "employees" includes those providing "services to the insured, whether or not paid by the insured" a nullity. It is a well settled principle of contract law that a court should not adopt a construction of a contract "which will operate to leave a provision of a contract . . . without force and effect. An interpretation that gives effect to all the terms of an agreement is preferable to one that ignores terms or accords them an unreasonable interpretation" (Ruttenberg v Davidge Data Sys. Corp., 215 AD2d 191, 196 [1995] [internal quotation marks and citations omitted]; see also Consolidated Edison Co. of NY, Inc. v United Coastal Ins. Co., 216 AD2d 137 [1995], lv denied 87 NY2d 808 [1996]).

Writing for the two-justice dissent, Justice Mazzarelli focused on the prepositions used in the policy's definition of "employee" and found that definition and its related exclusion to be ambiguous, opining:

The exclusion invoked by plaintiff is ambiguous because it is eminently reasonable to interpret the definition in the endorsement of the term "employee" as extending only to those who are engaged directly by the insured. Such an interpretation is based on the policy definition which describes "employee[s]" as persons having been "hired by," "loaned to,", "leased to," and "volunteering services to" the insured. The emphasized prepositions strongly suggest the necessity for privity between the insured and the person being employed by it if a claim is to be excluded.

* * * * *

Again, the overall context of the definition of "employee" suggests that the parties intended that only those engaged directly by the insured would be covered by the exclusion. Indeed, this is consistent with the notion that at least one of the purposes of hiring a subcontractor is to insulate oneself from liability. The interpretation urged by plaintiff would defeat this purpose by depriving the insured of coverage for injuries to employees of subcontractors.

In addition, the phrase "a person . . . contracted for . . . the insured" is ambiguous on its face. Indeed, a reasonable person, if he or she could make any sense of the phrase at all, would be confused as to who had contracted with whom. Even if some sensible meaning could be ascribed to the phrase, reasonable people could differ about what it means. One person could, like plaintiff, interpret it as referring to a person who, like Shea, works for a company with which the insured enters into a contract. However, another person could, as Supreme Court did, interpret the phrase as referring to a person furnished directly to the insured pursuant to a contract entered into between the insured and third-party, such as a temporary employment agency. Because the term is reasonably susceptible of more than one interpretation, it is ambiguous (see Chimart Assoc. v Paul, 66 NY2d 570, 573 [1986]).

A reversal with two dissents resulting in a final judgment, as in this case, means an appeal by right to the New York Court of Appeals.  If MDE exercises that right, look for a decision from the Court of Appeals some time later this year. 

Bronx Supreme Reluctantly Declines to Invalidate the Coverage-Negating Employee Injury, Roofing Work and Contractual Liability Exclusions

CGL – ADDITIONAL INSURED – EMPLOYEE INJURY EXCLUSION – ROOFING WORK EXCLUSION – CONTRACTUAL LIABILITY EXCLUSION – DUTY TO DEFEND
720-730 Fort Wash. Ave. Owners Corp. v. Utica First Ins. Co.
(Sup. Ct., Bronx Co., decided 11/4/2009)

Plaintiff owned a property on which a subcontractor's employee was injured during construction.  Plaintiff had contracted with DNA Contracting, which had hired the injured party's employer, subcontractor Rauman Construction Company, to do the masonry and roof replacement work. DNA's contract with Rauman required that Rauman purchase CGL and name DNA and plaintiff as additional named insureds. Rauman purchased insurance from Utica First which named those entities as additional insureds, but the policy contained three exclusions at issue:  (1) an "employee" exclusion, (2) an exclusion for "roofing work", and (3) an exclusion for any liabilities assumed under contract or agreement.

The "employee exclusion" provided:

This insurance does not apply to:

(i) bodily injury to any employee of any insured, to any contractor hired or retained by or for any insured or to any employee of such contractor, if such claim for bodily injury arises out of and in the course of his/her employment or retention of such contractor by or for any insured, for which any insured may, liable in any capacity;

(ii) any obligation of any insured to indemnify or contribute with another because of damage arising out of the bodily injury; or

(iii) bodily injury sustained by the spouse, child, parent, brother or sister of an employee of any insured, or of a contractor, or of an employee of a contractor of any insured as a consequence of the bodily injury to such employee, contractor or employee of such contractor, arising out of and in the course of such employment or retention by or for any insured.

The "roofing work" exclusion stated:

It is hereby understood and agreed that such insurance as is afforded by coverage L-bodily injury, property damage coverage and coverage N-products/completed work coverage does not apply to bodily injury, property damage, products or completed work arising out of any roofing operations, which involve any replacement roof or recovering of the existing roof.

The exclusion for liabilities assumed under contract or agreement read:

1. "We" do not pay for "bodily injury", "property damage", "personal injury", or "advertising injury" liability which is assumed by the "insured" under a contract or an agreement.

This exclusion does not apply to:

a. Liability that an "insured" would have had in the absence of the contract or agreement; or

b. "Bodily injury or property damage" covered under the contractual liability coverage, provided that the "bodily injury" or "property damage" occurs after the effective date of the contract or agreement.

The injured employee commenced a personal injury action against plaintiff, alleging causes of action for violations of §§ 200, 240 and 241 of New York's Labor Law, as well as a cause of action for common law negligence.  Plaintiff tendered that action to Utica First for defense and indemnification, and Utica First disclaimed coverage based on the employee injury, roofing work and contractual liability exclusions.  DNA's CGL insurer, Liberty International Underwriters, assumed plaintiff's defense and commenced this declaratory judgment action, in plaintiff's name, against Utica First for coverage under Rauman's policy.

Prior to the completion of discovery, Utica First moved for summary judgment based on the employee and roofing work exclusions.  Plaintiff opposed the motion based on its arguments that: (1) the Utica First policy was illusory and should be held to be against public policy since it does not provide any of the insureds with the usual construction site coverage required under plaintiff's agreement with DNA and Rauman;  (2) discovery has not yet been completed;  (3) questions of fact remained as to whether or not Rauman's employee was, in fact, working in the course of his roofing duties with Rauman at the time of the accident that caused his injuries; and (4) Utica First must defend under the policy even if it need not indemnify, since the duty to defend is greater than the duty to indemnify.

In response to plaintiff's opposition, Utica First argued that since plaintiff had admitted that Rauman's employee was working in the course of his employment with Rauman, and performing roofing operations, no further discovery was necessary since both the "employee" and "roofing" exclusions applied.   As to plaintiff's argument that the Utica First policy was violative of public policy, Utica First argued that exclusions are necessary to precisely define the scope of coverage.  Lastly, Utica contended that, although the duty to defend is broader than the duty to indemnify, it does not attach, when, as here the complaint and claims are so totally baseless.

Noting that plaintiff was not contending that the three exclusions at issue were vague, ambiguous or inapplicable, Bronx County Supreme Court Justice Paul Victor identified the sole issues for determination to be whether those three exclusions are violative of public policy, and whether, despite the language of those exclusions, Utica First might still be obligated to defend the plaintiff.  The court answered those questions with a no, and a no. 

New York Supreme Dismisses All Claims for Coverage Against Employer's CGL Insurer Following Insured's Confession of Judgment in Favor of Owner

CGL – BLANKET ADDITIONAL INSURED ENDORSEMENT – EMPLOYEE INJURY EXCLUSION – CONTRACTUAL LIABILITY EXCLUSION – CERTIFICATE OF INSURANCE – FILING AND PRE-APPROVAL OF POLICY PROVISIONS
Cipriani USA, Inc. v. Utica First Ins. Co.
(Sup. Ct., New York Co., decided 8/18/2009)

For those involved in construction accident, contractor-subcontractor, CGL and additional insured coverage matters, this decision is worth reading from beginning to end.  New York County Supreme Court Justice Carol Edmead does an excellent job outlining the parties' arguments and analyzing the salient coverage issues.

Cipriani hired Indigo Blue Group, Utica First's named insured under a CGL policy, to perform work at Cipriani's premises pursuant to a contract, dated June 11, 2003.  In October 2003 an employee of Indigo was injured during that work and sued Cipriani, which in turn impleaded Indigo for contractual indemnification.  In February 2004, Utica First issued separate letters to Indigo and Cipriani, denying coverage to each based on various policy exclusions.  In October of 2007, Indigo consented to the settlement of the underlying lawsuit for $75,000 and to judgment over in Cirpiani's favor for contractual indemnification in the amount of $88,462.64, which included attorneys' fees.  Indigo then assigned and transferred all rights, title and interest to Cipriani for all claims, demands and causes of action which Indigo had against Utica First, Gary G. Emmanual Brokerage, Inc. and Morstan Agency, Inc. in consideration of Cipriani's payment of the settlement.  Cipriani then brought this action against Utica First, the agent and the broker for payment of Indigo's confession of judgment.

Utica First moved pursuant to CPLR 3211(a)(1) [documentary evidence] and (7) [fails to state cause of action] to dismiss the complaint and all cross claims against it and requested that since there were no question of material fact, the court treat the motion as one for summary judgment pursuant to CPLR 3211(c) and declare, pursuant to CPLR § 3001, that Utica First had no obligation to defend or indemnify either Cipriani or Indigo in relation to the underlying action.

In GRANTING Utica First's motion and declaring that it was not obligated to defend or indemnify either Cipriani or Indigo in relation to the underlying action, Justice Edmead held:

►  Utica First had made an adequate showing of documentary evidence to merit relief under CPLR 3211(a)(1);

►  by virtue of Indigo's post-confession of judgment assignment of its rights against Utica First and its agent and broker, Cipriani did have legal standing to maintain this action;

►  the policy's blanket additional insured provision was not triggered and did not afford independent liability coverage to Cipriani because the contract between Cipriani and Indigo explicitly did "not require the Contractor to include the Owner, Architect or other persons or entities as additional insureds on the Contractor's Liability insurance"; contract language that merely requires the purchase of insurance will not be read as also requiring that a contracting party be named as an additional insured;

►  even if Cipriani were deemed an additional insured, the policy's employee injury exclusion and contractual liability exclusion unambiguously applied to negate liability coverage in favor of Cipriani and Indigo;

►  the employee injury exclusion in Indigo's policy with Utica First is not against public policy;

►  the certificate of insurance issued to Cipriani did not raise a question of fact because "a certificate of insurance purporting to afford a party coverage, which on its face states that it is issued for informational purposes only, cannot by itself establish coverage";

►  the indemnity clause in Indigo’s contract with Cipriani likewise did not create coverage under Indigo's policy with Utica First; 

►  Utica First's alleged failure to file its employee injury exclusion with the New York State Insurance Department for approval did not create an issue of fact because "the failure of plaintiff to file an endorsement with the Insurance Department for approval 'does not, by itself, void the policy clause, but rather carries its own penalties for non-filing. Further, such clause is void only if the substantive provisions of the clause are inconsistent with other statutes or regulations' (National Union Fire Ins. Co. of Pittsburgh, Pa. v Ambassador Group, 157 AD2d 293,556 NYS2d 549 [lst Dept 1990]). Here, there is no showing that the Exclusions are inconsistent with other statutes or regulations"; and

►  there was no indication that additional discovery would raise an issue as to Utica First's liability under the policy.

Umbrella Carrier's Application Misrepresentation Defense Rejected

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

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

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

This policy does not apply to:

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

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

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

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

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

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

Additional Insured Coverage Denied

CGL – ADDITIONAL INSURED – CERTIFICATE OF INSURANCE – EMPLOYEE INJURY EXCLUSION
ALIB, Inc. v. Atlantic Cas. Ins. Co.
(1st Dept., decided 6/26/2008)

In AFFIRMING Bronx County Supreme Court's order declaring that plaintiff was not entitled to coverage as an additional insured under its subcontractor's CGL policy with Atlantic, the First Department ruled: (1) ALIB was not afforded additional insured status under the CGL policy issued by Atlantic to AFA Construction because the written contract entered into between AFA and ALIB did not require AFA to name ALIB as an additional insured, as required by the subject policy; (2) the certificate of insurance, which contained the disclaimer that it was "issued as a matter of information only and confers no rights upon the certificate holder" and that it did not "amend, extend or alter the coverage afforded" by the subject policy, did not confer additional insured status, even if assurances were provided that ALIB was an additional insured; and (3) even if ALIB did qualify as an additional insured, coverage was negated by the policy's employee exclusionary clause, and Atlantic's disclaimer, issued 20 days after receiving notice of the claim, was timely.

5 Month Delay in Disclaiming Found Untimely As a Matter of Law

CGL – ADDITIONAL INSURED – INSURANCE LAW § 3420(D) – UNTIMELY DISCLAIMER
Rael Automatic Sprinkler Co., Inc. v. Schaefer Agency(2nd Dept., decided 6/17/2008)

On December 11, 2001, an employee of Rael Automatic Sprinkler Company was injured from a fall while installing sprinklers at the Metropolitan Museum of Art. MMA was insured by Gulf Insurance Company, and Rael was insured by Clarendon National Insurance Company. Although Rael had requested blanket contractual liability coverage, the Clarendon policy contained an exclusion from coverage where the obligation to pay damages arose by the "assumption of liability in a contract or agreement," unless the agreement constituted an "insured contract". The policy also excluded coverage for Rael's employees if bodily injury sustained by those employees arose "out of and in the course of employment by the insured".In May 2002, the Rael employee commenced a personal injury action against MMA and the general contractor. On May 16, 2002, Gulf requested that Rael and Clarendon defend and indemnify MMA. On August 8, 2002, Clarendon disclaimed coverage to MMA and the general contractor on the ground that those defendants were never added as additional insureds under Rael's policy. On August 16, 2002, Clarendon disclaimed coverage based upon the contractual liability exclusion and the employer's liability exclusion.Ther personal injury action settled with Rael and its insurance broker, Schaefer Agency, each contributing $250,000. Rael then brought this action against Schaefer for its alleged failure to procure blanket contractual liability coverage, and Schaefer impleaded Clarendon, among others. In AFFIRMING the Nassau County Supreme Court's order granting Schaefer's cross motion for summary judgment against Clarendon, declaring that it was obligated to defend and indemnify Rael in the underlying action, the Second Department held:

Since Clarendon's disclaimer was based on policy exclusions, Clarendon was required to provide Rael with timely notice of its disclaimer under Insurance Law § 3420(d) (citations omitted). In response to a request for interrogatories, Clarendon indicated that it began investigating the grounds for disclaiming coverage as early as March 5, 2002. On May 22, 2002, Clarendon's insurance administrator received a letter from Gulf Insurance Group, requesting that it defend and indemnify MMA. In view of the foregoing, Clarendon's disclaimer in August 2002 was untimely as a matter of law (citations omitted), and it is obligated to defend and indemnify Rael.

Employee Injury Exclusion Upheld, Again

CGL – EMPLOYEE INJURY EXCLUSION
Burlington Ins. Co. v. Galindo & Ferreira Corp. Co.
(Sup. Ct., Queens Co., decided 6/9/2008)

Utica First Insurance Company sells a commercial liability policy in New York that contains an "Exclusion of Injury to Employees, Contractors, and Employees of Contractors", which reads:

This insurance does not apply to: (I) bodily injury to any employee of any insured, to any contractor hired or retained by or for any insured or to any employee of such contractor, if such claim for bodily injury arises out of and in the course of his/her employment or retention of such contractor by or for any insured, for which any insured may become liable in any capacity.

Galindo Contruction Company bought one of those Utica First policies, although it later alleged in this action that, despite this express exclusion, it "purchased the policy upon a reasonable belief that the policy provided, inter alia, a defense or indemnification of subcontractors alleging work-related injuries."

Property owner Galindo & Ferreira Corp. hired Galindo Construction Corp. and Galindo General Construction to serve as the general contractor and construction manager, respectively, on a project involving the erection of two new buildings on property on Roosevelt Avenue in Queens. Galindo Construction Corp. subcontracted concrete work to Concrete Builders Corp. and other work to Kandos Construction, which was also insured by Utica First.

During the construction project, several employees of Concrete Builders Corp. died or were seriously injured when the roof on one of the new buildings collapsed. Twelve days later, a wrongful death and personal injury action against Galindo & Ferreira Corp. and others followed.

Ten days after receiving notice of the accident, Utica First disclaimed coverage to Galindo Construction Corp. based on the policy's employee injury exclusion. Burlington Insurance Company was the property owner's CGL insurer and brought this DJ action against all contractors and subcontractor who had worked on the project and against their insurers, seeking, among other things, a declaration that Utica First owed defense and indemnification coverage to general contractor Galindo Construction Corp. and subcontractor Kandos.

Aside from the procedural nuances of this case (no default judgment granted on Utica First's late responses to Galindo Construction's cross claims; CPLR Rule 3211 motion to dismiss converted to a 3212 motion for summary judgment), Queens County Supreme Court Justice Augustus Agate upheld Utica First's employee injury exclusion and granted Utica First's motion as to both Galindo Construction and Kandos, holding:

The policy issued to Kandos Construction did not take effect until after the date of the accident. The policy issued to Galindo Construction Corp. did not cover the accident in which the subcontractor's workers sustained injury. "To negate coverage by virtue of an exclusion, an insurer must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case***." (citations omitted) The policy issued by defendant Utica to defendant Galindo Construction Corp. unambiguously excluded coverage for employees of subcontractors such as Concrete Builders Corp. injured while working on the project. *** First, a party cannot have the determination of a summary judgment motion postponed upon the mere speculation and hope that discovery will reveal facts supporting a cause of action or defense. (citations omitted) Second, Galindo's arguments against the validity of the employee exclusion clause based on ambiguity, unconscionability, etc. have no merit, and the court notes that employee exclusion clauses have been upheld and applied on numerous occasions. (See, e.g., Makan Exports, Inc. v U.S. Underwriters Ins. Co., 43 AD3d 883; Sixty Sutton Corp. v Illinois Union Ins. Co., 34 AD3d 386; Bassuk Bros., Inc. v Utica First Ins. Co., 1 AD3d 470; Hayner Hoyt Corp. v Utica First Ins. Co., 306 AD2d 806; Lake Carmel Fire Dept., Inc. v Utica First Ins. Co., 2 Misc 3d 1004[A][Table] Westlaw No. 11870/03 [Text]; U.S. Underwriters Ins. Co. v 614 Constr. Corp., 142 F Supp 2d 491, affd 23 Fed Appx 92.)