First Department Discusses Scope of Arising Out Of Lanaguage In Additional Insured Endorsement

Regal Const. Corp. v. National Union Fire Ins. Co. of Pittsburgh
--- N.Y.S.2d ----, 2009 WL 2015419
N.Y.A.D. 1 Dept.,2009.
This First Department case nicely illustrated the breadth of the language in additional insured endorsements requiring that the property or bodily injury claim “arise out of” the work of the named insured for the additional insured. In Regal, the plaintiff, an employee of the general contractor (“GC”), slipped on plywood that he claimed was recently painted by an employee of the construction manager (“CM”). The CM sought additional insured coverage from the GC’s carrier, who took over the defense under a reservation of rights, but then instituted a declaratory judgment action seeking to disclaim on the grounds that the injury did not arise out of the work of the GC, since the complaint alleged the CM was negligent. Not surprisingly, the complaint did not allege any negligence against the employer GC.

The First Department held for the CM and its carrier, finding that notwithstanding the specific allegations of the complaint, the accident arose out of the work of the GC. To support its conclusion the Court noted that the GC “had responsibilities that encompassed all of the demolition and construction work to be done.” It noted that the plaintiff had “testified that it would have been [the GC’s] responsibility to paint the floor…if instructed to do so by [the CM].” Therefore, the Court found a causal connection between the injury and the GC’s work as the prime contractor, the risk for which coverage was provided.

The Court distinguished the the Court of Appeals’ decision in Worth Constr. Co., Inc. v. Admiral Ins. Co. (10 NY3d 411 [2008]), relied upon by the dissent, where involved a plaintiff who was injured on a staircase that had been erected by the defendant’s insured. The Court found that the defendant’s policy did not provide additional insured coverage, because the injury was due to the alleged negligence of another contractor who had applied fireproofing to the stairs. The Court held that the staircase was “merely the situs of the accident,” and ruled that there was no connection between the accident itself and [staircase erector’s] work. (id. at 416).

First Department Decisions In Conflict Over "Other Insurance" Provisions

Sport Rock Intern. Inc. V. American Cas. Co. of Reading PA, __N.Y.S.2d __, 2009 WL 1290266 (1st Dep't May 12, 2009)

Please see my article discussing this case in the July 13, 2009 edition of the New York Law Journal, Outside Counsel feature.

http://www.gordon-silber.com/pdf/7-13-09-NYLJ-1st-Dept-Decisions-in-Conflict-Over-Other-Insurance-Provisions-Jon-Lichtenstein.pdf

Does A Policy For the "Mutual Benefit" of Two Parties Provide Additional Insured Coverage to One?

Kassis v. Ohio Cas. Ins. Co.
--- N.E.2d ----, 2009 WL 1789223 (N.Y.), 2009 N.Y. Slip Op. 05207
In this case, the Court of Appeals addressed the issue whether the provision in a lease requiring a tenant to procure a commercial general liability policy for the “mutual benefit” of the tenant and landlord, was sufficient to allow the landlord to claim additional insured status pursuant to the broad form additional insured endorsement of the policy?

This obviously was not an easy question. After the landlord obtained summary judgment, the Fourth Department reversed with two justices dissenting. The Appellate Division found that the purchase of insurance by the tenant for itself provided a mutual benefit on both the landlord and the tenant, even if the landlord was not an additional insured. If the lease had intended additional insured coverage, it should have so indicated. The Court of Appeals however, in a unanimous decision, reversed the Fourth Department.

It noted that the subject lease provided that the tenant “at its sole cost and expense and for the mutual benefit of Landlord and Tenant, shall maintain a general liability policy ... providing coverage against claims for bodily injury, personal injury and property damage” with specified aggregate and per occurrence coverage amounts.

The Court framed the issue by asking whether the lease required the tenant to ensure the landlord received coverage equivalent to the coverage the tenant enjoyed. The Court of Appeals found that “the natural and intended meaning of the term “mutual benefit” as used in this provision is that [the landlord and the tenant] are intended to enjoy the same level of coverage. The Court found evidence of this in several other insurance related provisions which required either joint or singular coverage. The court found that where coverage for to be joint, it was so noted.

Given the Court’s reliance on other language in the contract to establish the meaning of the term mutual benefit, it is not altogether clear whether the Court was holding that the term “mutual benefit” is now hereinafter the equivalent to the term “shall name an additional insured.” It is assumed that they are now the equivalent, but such might still be challenged where there is some compelling evidence suggesting this was not the intent.

First Department Applies New Jersey Law Due to Domicile of Insured

Travelers Cas. and Sur. Co. v. Honeywell Intern., Inc.
880 N.Y.S.2d 66, (1st Dept., 2009)

In a case involving a choice of law between New Jersey and New York, with respect to certain asbestos-related claims, the trial court chose New Jersey law and the First Department unanimously affirmed.

The court reaffirmed the settled doctrine that a contract of liability insurance is generally “governed by the law of the state which the parties understood was to be the principal location of the insured risk” citing to Certain Underwriters at Lloyd's, London v. Foster Wheeler Corp., 36 A.D.3d 17, 822 N.Y.S.2d 30 [2006], affd. 9 N.Y.3d 928, 844 N.Y.S.2d 773, 876 N.E.2d 500 [2007]. In Certain Underwriters, the First Department had held that “where it is necessary to determine the law governing a liability insurance policy covering risks in multiple states, the state of the insured's domicile [at the time of contracting] should be regarded as a proxy for the principal location of the insured risk” (id. at 24, 822 N.Y.S.2d 30), and that, for such purposes, a corporate insured's domicile is the state of its principal place of business, not the state of its incorporation (id. at 25, 822 N.Y.S.2d 30; see also Appalachian Ins. Co. v. Di Sicurata, 60 A.D.3d 495, 875 N.Y.S.2d 57 [2009] ).

Since it was undisputed that the principal place of the insured's business was New Jersey, it was immaterial that the insured had used a New York address on some of the policies, that it had used New York brokers, or that it had used New York amendatory endorsements on some of the policies. The court found it relevant that the "parties knew that the risks were spread nationwide". As such, it was appropriate to apply the law of the insured's domicile.

Practioner's Note:
This question of choice of law should not be confused with the issue of whether a policy was "issued for delivery in New York" for the purposes of New York Insurance Law 3420(d). See Preserver Insurance Co. v. Ryba, 10 N.Y.3d 635, 862 N.Y.S.2d 820(2008); American Ref-Fuel Company, v. Employers Insurance Co., 265 A.D.2d 49, 705 N.Y.S.2d 67 (2d Dep't 2000). Seemingly, a court could find that New Jersey law applied, and also find that the policy was issued for delivery in New York as long as there was a New York risk being insured.