Court Limits Contribution of CGL Policy Based on Policy Provision of Unrelated Policy

State Ins. Fund v. American Hardware Mut. Ins. Co.
882 N.Y.S.2d 300
N.Y.A.D. 2 Dept.,2009.

This case presents an interesting scenario and policy provision. The matter arose from the injuries sustained by an employee of World of Hitches N Rental, Inc. (hereinafter World of Hitches), when a container of kerosene he was filling exploded. The defendants brought a third-party action for contribution against World of Hitches. The action was settled for $1,475,000 which was primarily paid by the plaintiff’s workers’ compensation carrier State Insurance Fund (hereinafter SIF), because the defendant carriers, which held a commercial general liability policy and a garage policy, had disclaimed coverage based on the employee exclusion provision.

After the settlement, SIF sought a judgment declaring that the defendants were obligated to pay their proportionate share of the settlement and defense costs. The court held in favor of plaintiff, finding that the defendant’s disclaimer was untimely under Insurance Law § 3420(d), since the defendants' disclaimer was issued more than four months after receiving notification of the third-party action.

The interesting part of the decision however, was the Court’s limitation of the defendants’ contribution. Although the Court acknowledged that defendants would normally have to “pay their proportionate share of the settlement (see Hawthorne v. South Bronx Community Corp., 78 N.Y.2d 433, 576 N.Y.S.2d 203, 582 N.E.2d 586) and defense costs incurred in the underlying action,” it nevertheless enforced a policy provision in the garage policy which provided that “all of the defendants' policies were mutually exclusive in that if more than one policy applied to the same accident, the maximum limit of liability under all the policies would not exceed the highest applicable limit under one policy. Thus, the maximum amount the defendants were required to contribute to the settlement was $300,000, and the judgment must be modified accordingly.

Presumably, each defendant paid $150,000. This odd but presumably correct result, allowed the commercial general liability carrier to save $150,000 of its $300,000 policy, solely based on a provision of an unrelated policy.