Crane Lessor Obtains $11 Million in Coverage for 2008 Crane Accident

New York Crane & Equipment v. Zurich American Insurance Co., Index No: 603218/09 (J. Feinman, 11/11/11).
In a recent decision by Judge Paul G. Feinman, New York Supreme Court, this writer recently obtained a declaratory judgment that the owner of a tower crane that collapsed in 2008, was entitled to $11 million of insurance coverage from the insurance carrier of the crane lessee/operator with respect to the various wrongful death, personal injury and property damage claims.

Zurich American Insurance Co. (“Zurich”), the carrier for the crane lessee Sorbara Construction (“Sorbara”), disclaimed coverage on the grounds that the additional insured coverage for NY Crane only existed to the extent that the accident occurred as a result of Sorbara’s work for NY Crane. Zurich argued that Sorbara was operating the crane for the general contractor, not NY Crane and thus, there was no coverage for NY Crane. Zurich relied on a 2011 First Department decision, Admiral v. East 51st Street, which involved an identical situation involving another Manhattan crane collapse in 2008. Notwithstanding, this decision appeared to be exactly on point, I was able to distinguish it on the grounds that the “working for” requirement in the Zurich endorsement only applied where the accident arose out of the work of an entity working for the named insured. Here, because Sorbara itself was operating the crane, the “working for” condition was inapplicable. The argument involved a comparative analysis of the Zurich additional insured endorsement and the Admiral endorsement and turned on the precise punctuation and indentation in the Zurich endorsement.

The Court also granted NY Crane’s motion to strike Zurich’s attempted reservation of rights based on the expected/intended acts exclusion that was set forth as an affirmative defense in an amended answer served after the District Attorney secured an indictment based on the collapse. I argued that the amended answer was procedurally defective since it was served without leave of court. I also argued that the assertion of the exclusion was untimely as a matter of law based on Insurance Law Section 3420(d).

Finally, the court agreed that the $11 million of Zurich’s excess coverage would contribute on a pro-rata basis with NY Crane’s own excess coverage even though the lease only required the lessee to provide $5 million in coverage.

Unfortunately, the court would not declare that NY Crane was entitled to be indemnified under the Zurich policy, holding this was an issue that required resolution by the trier of fact. The court found it was pre-mature to determine that the accident occurred, in part, due to the acts or omissions of Sorbara, notwithstanding that Sorbara was operating the crane at the time of the incident. I anticipate the the matter will go up on appeal and if so, NY Crane may cross appeal this finding.

Second Department Significantly Undermines the Asbestos Exclusion

Great American Restoration Services, Inc. v. Scottsdale Ins.
78 A.D.3d 773, 911 N.Y.S.2d 142
N.Y.A.D. 2 Dept.,2010.

This coverage case demonstrates that one must never underestimate the courts’ tendency to interpret insurance policies in favor of the insured. Here, the Court found that an asbestos exclusion did not apply because because of the purported ambiguity as to whether it applied to the accidental dispersal of asbestos. It must have been a surprise to the carrier that this ubiquitous exclusion only applied to insureds who intentionally disturbed asbestos.

The Court also did not find that asbestos was a “pollutant” excluded by the pollution exclusion, even though the Court of Appeals has found otherwise Continental Cas. Co. v. Rapid-American Corp., 80 N.Y.2d 640, 609 N.E.2d 506 N.Y.,1993 (“Asbestos could certainly be an irritant, contaminant or pollutant of the type encompassed by the [pollution exclusion] clause).

Here, plaintiff was retained to perform “emergency water damage service” at a commercial premise. After plaintiff’s work allegedly caused asbestos to be “dispersed throughout the building and premises” the building owner’s insurance carrier brought a subrogation action against plaintiff for property damage. The complaint alleged that plaintiff held itself out as “possessing staff” trained in water damage cleaning and asbestos removal. Plaintiff denied ever holding itself out as a company that performs asbestos removal or disposal and contended that it immediately ceased all work at the facility when it was informed that asbestos had been found in the past.

Plaintiff’s carrier Scottsdale Insurance Company (hereinafter Scottsdale), disclaimed coverage based upon the asbestos exclusion clause in the policy or based on the policy's pollution exclusion clause.

The asbestos exclusion provides inter alia that coverage does not apply to “bodily injury” or “property damage” arising out of the “removal” of asbestos from products or structures, or the “...disposal” of asbestos or products containing asbestos. The pollution exclusion states that coverage does not apply to “'property damage’ arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants.’ ” “Pollutants” are defined as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.”

The Supreme Court denied Scottsdale's motion for summary judgment and the Second Department affirmed finding that “neither of the particular exclusory provisions relied upon by Scottsdale negates its duty to defend under the facts in this case.” The Second Department went further and granted the plaintiff’s cross motion declaring that Scottsdale was obligated to defend it in the underlying action.

The Court stated “[a]lthough the asbestos exclusion clause states that no coverage is provided for property damage arising out of the “removal,” “disposal,” or “use” of asbestos, the subject clause includes no terms indicating that coverage will not be provided for damages arising out of the unknowing or accidental release or dispersal of asbestos.” Here, the Court clearly seems to be over-reaching as there appears nothing ambiguous about the exclusion. Indeed, it seems clear that the Court is improperly reading ambiguity into the exclusion. Exclusions frequently exclude for events, such as nuclear war or fire, flood or smoke. Whether such conditions were accidental or intentional would not otherwise appear relevant to the construction of the exclusion. Nor does the Court cite to any authority in support of its contention.

Can Carrier Commit Bad Faith After Successfully Disclaiming for Late Notice?

Cirone v. Tower Ins. Co. of New York
--- N.Y.S.2d ----, 2010 WL 3632360
N.Y.A.D. 1 Dept.,2010.

This recent case contains a rare interesting twist on the issue of late notice, with a touch of bad faith thrown in. The interesting question raised in the title of this blog unfortunately was not addressed by the majority and only obliquely referenced in the dissent. It nevertheless raises an interesting scenario.

The underlying personal injury action involved plaintiffs injured by a restaurant’s delivery man. The restaurant’s carrier disclaimed coverage on the grounds of late notice and obtained a declaratory judgment confirming the propriety of the disclaimer. After the plaintiffs obtained a judgment in the personal injury action against the restaurant they brought their own DJ action against the carrier to recover the judgment pursuant to Insurance Law § 3420(b)(1). The court granted plaintiffs summary judgment, finding they gave the carrier proper notice of the accident, even if the insured did not.

Thereafter, the insured assigned all of its rights and claims against the carrier to the plaintiffs, who commenced an action for the carrier’s alleged bad faith in failing to settle the personal injury action within the policy limits.

The motion court dismissed the bad-faith claims which the appellate court affirmed. Although the result seemed pre-ordained, given the unlikelihood that any carrier would or should consider a substantial settlement after its disclaimer was confirmed on appeal, the Judge Catterson writing in dissent, suggested that the carrier still owed the insured a duty to settle the case within the policy limits given the plaintiffs' success in putting the policy limits in play.

The majority found that the carrier owned its insured nothing, given the late notice, but it is not altogether clear that they really understood the argument. The majority relied on hornbook law that “[A]n assignee never stands in any better position than his assignor” ( Madison Liquidity Invs. 119, LLC, 57 AD3d at 440) [internal quotation marks and Citations omitted]. Thus, plaintiffs' rights were equal to the rights of the insured restaurant, no more. The Court found that since the insured failed to give the carrier timely notice, it would be “estopped” from having a claim of bad faith to assign. The majority's use of the word “estopped” was inappropriate. This author recently pointed out that the First Department has misunderstood the concept of estoppel for decades. See NYLJ, 9/20/10, Outside Counsel, Coverage by Estoppel? It May Depend on the Court, p. 4, col. 1. The reason the court was saying that the insured had no bad faith claim was not due to estoppel, which involves detrimental reliance, but more prosaically, because the carrier owed the insured nothing(not even a defense), much less a duty to settle the case.

While this seems simple enough, is it correct? Judge Catterson, besides a clumsy attempt to distinguish the case relied upon by the majority, Zeldin v. Interboro Mut. Indem. Ins. Co. (44 A.D.3d 652, 834 N.Y.S.2d 366 (2d Dept.2007)), seems to ultimately ask an excellent question. If plaintiffs' notice was timely, does not the carrier owe its insured a duty to settlement within policy limits, even if it does not owe its insured a duty to defend?

The argument goes like this. Since the assignees' notice was timely, the policy provides indemnity coverage to the injured plaintiffs even if does not not provide the insured with a defense. Under such a scenario, Judge Catterson is saying that the carrier would owe its insured a good faith duty to settle the case within policy limits despite the fact it has no duty to defend. What the majority should have addressed is whether the insured’s late notice vitiated such duty? I do not believe this question has been addressed by any New York court, but I have not done the research.

Perhaps the answer is in the timing. Whether the carrier acted in bad faith involves a question of what the carrier knew at the time it was provided with a chance to settle. If at the time of the carrier's opportunity to settle, the plaintiffs had not yet obtained declaratory relief on its claim against the policy pursuant to 3420(b)(1), the underpinning of Judge Catterson's argument would be missing. In fact, the decision suggests that plaintiffs only obtained declaratory relief after they obtained a verdict in excess of the policy. It would not seem likely that a bad faith claim could be predicated on the mere possibility that a third party might establish coverage pursuant to 3420(b)(1), but if plaintiffs put the carrier on notice as soon as reasonably possible, such a legal possibility just might be viable.

If anyone has any thoughts on the matter, your comment would be appreciated.

Third-Party Coverage Through Supplementary Payments Provision in CGL Policy?

Hargob Realty Associates, Inc. v. Fireman's Fund Ins. Co.--- N.Y.S.2d ----, 2010 WL 1912249
N.Y.A.D. 2 Dept.,2010.

In this recent case, the Second Department reviewed some well worn concepts of insurance coverage law, but with a creative wrinkle thrown in. Here, Hargob Realty entered into a construction contract with a demolition contractor pursuant to a one-page proposal that contained a hold harmless agreement.

The defendant issued a CGL policy to the demolition contractor with an additional insured endorsement providing coverage to “any entity the Named Insured is required in a written contract to name as an insured….”

Plaintiff brought an action against Fireman’s seeking additional insured coverage based on the one page proposal along with a certificate of insurance provided by the demolition contractor. The Second Department hewing closely to the wording of the policy rejected plaintiff’s claim noting that the hold harmless agreement did not contain any requirement that plaintiff be named as an additional insured. With respect to the certificate of insurance, the Court noted it was “insufficient to alter the language of the policy itself, especially since the certificate recited that it was for informational purposes only, that it conferred no rights upon the holder, and that it did not amend, alter, or extend the coverage afforded by the policy ( see School Constr. Consultants, Inc. v. ARA Plumbing & Heating Corp., 63 AD3d 1029; Home Depot U.S.A., Inc. v. National Fire & Mar. Ins. Co., 55 AD3d 671, 673; Metropolitan Heat & Power Co., Inc. v. AIG Claims Servs., Inc., 47 AD3d 621).

The wrinkle in this case was plaintiff’s argument that the supplementary payments provision of the policy, which obligates the defendant insurer to defend an indemnitee of the named insured when certain specified conditions are met, provided it with liability coverage. The Second Department rejected this contention, finding that the “supplementary payments provision did not demonstrate an intent by the defendant insurer to afford the plaintiff coverage solely on the basis that it is an indemnitee of the named insured, in the absence of the plaintiff's addition as “an insured” under Section II of the subject policy pursuant to the additional insured endorsement ( see Stainless, Inc. v. Employers Fire Ins. Co., 69 A.D.2d at 33). Liability coverage under the policy is afforded by Section I, not the supplementary payments provision.”

Thus, the Court found that plaintiff was not entitled to liability coverage under the subject policy pursuant to the supplementary payments provision.

Appellate Division Strikes Down Claim of Good Faith Belief in NonLiability Defense

Tower Ins. Co. of New York v. Christopher Court Housing
71 A.D.3d 500, 897 N.Y.S.2d 63
N.Y.A.D. 1 Dept.,2010.

Although it is generally known that an insured may assert the good-faith belief in nonliability as a defense to a carrier's claim of late notice, there are few good decisions determining what constitutes "good faith." Here, the First Department reversed Judge Louis York’s denial of summary judgment, rejecting as a matter of law, the insured’s claim of good-faith belief in nonliability.

The case involved the claim by a residential tenant in defendant's building that she was assaulted in the hallway outside her apartment. A security guard generated an incident report which was submitted to the defendant property manager. The report indicated that the tenant claimed she was “grabbed” by the assailant and that police and emergency medical personnel were called to the scene, with “no evidence” of the assailant.

There also was a police report, which the property manager did not obtain, which reported that the assailant grabbed the tenant, pulled her hair, knocked off her glasses and scratched her arm leading her to have an “anxiety attack,” for which she was taken to the hospital.

The Court noted that in order to excuse a failure to give timely notice, a good-faith belief in nonliability “must be reasonable under all circumstances, and it may be relevant on the issue of reasonableness, whether and to what extent, the insured has inquired into the circumstances of the accident or occurrence” *65 (Security Mut. Ins. Co. of N.Y. v. Acker-Fitzsimons Corp., 31 N.Y.2d 436, 441, 340 N.Y.S.2d 902, 293 N.E.2d 76 [1972], see White v. City of New York, 81 N.Y.2d 955, 958, 598 N.Y.S.2d 759, 615 N.E.2d 216 [1993] ).

The insured argued that its delay in giving notice was reasonable given the absence of evidence she was knocked down. It also relied on the fact that security told the property manager that a problematic rear door was closed at the time of the incident, and the property manager observed the tenant to be uninjured and was rebuffed by the tenant when she attempted to talk to her about the incident.

Notwithstanding, the Court found this was unreasonable as a matter of law since had the property manager inquired whether a police report had been filed, she would have learned that the tenant was in distress and had been taken from the building by ambulance. She would have also learned of her knowledge of a fire exit door that was sometimes found propped open. Thus, the Court found that a proper investigation would have have alerted the property manager to the possibility of a claim (see SSBSS Realty Corp. v. Public Serv. Mut. Ins. Co., 253 A.D.2d 583, 677 N.Y.S.2d 136 [1998]).

This case highlights the difficulty with this defense - that the insured cannot hide behind his own incuriousity and ignorance.

Even Baseless Allegations Trigger Duty to Defend

Village of Brewster v. Virginia Sur. Co., Inc.
--- N.Y.S.2d ----, 2010 WL 547082
N.Y.A.D. 3 Dept.,2010.

In a case that nicely emphasizes the extent that even baseless allegations against an insured can trigger the duty to defend an additional insured, the Third Department reversed the trial court's finding that an issue of fact as to whether the defendant carrier owed the plaintiff Village a defense to underlying property claims arising from a water main break. The Village hired the defendant's insured to construct new potable water distribution and wastewater collection systems. As part of its contract, the contractor purchased CGL coverage with an additional insured endorsement naming the plaintiff but “only with respect to liability arising out of [Laws'] work for [the Village].” During the relevant time period, the Village also had its own CGL policy.

Nine days after the completion of the contractor's work on the new water system, the old system suffered a water main break 10 miles from the work of the contractor. When two residents brought action against the Village, it tendered its defense to defendant which disclaimed coverage on the basis that the contractor's 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 its insured's work.

The Village commenced a declaratory judgment action and moved for summary judgment. In opposition, defendant argued that it was not responsible for the maintenance and operation of the old water systems and that its insured only worked on the new system, which was void of water and 10 miles away from the site of the main break, that its insured had completed its work on the new system nine days earlier, and that although its insured voluntarily provided the Village with a backhoe to make repairs at the site, but did not perform any work at that site.

Based on such evidence, the trial court found a triable issue of fact sufficient to withstand summary judgment with respect to its duty to defend and indemnify the Village.

Notwithstanding the seemingly baseless nature of the claims against the contractor, the Third Department found that the Supreme Court erred in denying that portion of plaintiffs' summary judgment motion seeking a declaration that defendant was obligated to defend the Village in the underlying actions. The Court noted based its decision on the fact that the the complaint contained allegations of negligence against the contractor. It noted that any allegations that would "bring the claim even potentially within the embrace of the policy, the insurer must defend its insured, “no matter how groundless, false or baseless the suit may be” (Automobile Ins. Co. of Hartford v. Cook, 7 NY3d at 137 [internal quotation marks and citation omitted]; see Town of Massena v. Healthcare Underwriters Mut. Ins. Co., 98 N.Y.2d 435, 443-444 [2002]; Technicon Elecs. Corp. v. American Home Assur. Co., 74 N.Y.2d 66, 73 [1989] ). Further, “ ‘[e]ven where there exist extrinsic facts suggesting that the claim may ultimately prove meritless or outside the policy's coverage, the insurer cannot avoid its commitment to provide a defense’ “ (Durant v. North Country Adirondack Coop. Ins. Co., 24 AD3d 1165, 1166 [2005], quoting Fitzpatrick v. American Honda Motor Co., 78 N.Y.2d 61, 66 [1991]; see Automobile Ins. Co. of Hartford v. Cook, 7 NY3d at 137).

The Court noted that if the allegations in the complaints that the contractor's negligent construction and excavation work caused the water main to break, were proven to be true, such would bring the claims within the ambit of the protection afforded by defendant's coverage, thereby triggering defendant's duty to provide the Village with a defense (see BP A.C. Corp. v. One Beacon Ins. Group, 8 NY3d at 715; Durant v. North Country Adirondack Coop. Ins. Co., 24 AD3d at 1166).

The court ordered the defedant to reimurse the plaintiff's carrier defense costs after finding that the defendant's policy was primary.

Multi-Year Excess Policies' Aggregate Limit Found Not to be Annualized

Union Carbide Corp. v. Affiliated FM Ins. Co.
68 A.D.3d 534, 891 N.Y.S.2d 347
N.Y.A.D. 1 Dept.,2009.

This high profile case determined whether the aggregate limits of multi-year excess policies applied on an annual basis or applied over the three year term. This question involved no small amount of money. The policies had aggregate limits of $30,000,000. Union Carbide argued that the $30,000,000 aggegrate applied annually for an apparent total of $90,000,000 over the three year course of the policy.

The excess policies indicated that they followed form to the underlying insurance and “shall follow all the terms, insuring agreements, definitions, conditions and exclusions” of the applicable underlying insurance policy. The underlying policies each contained an “annual aggregate” limit of liability. Union Carbide argued that the excess policies thus were required to apply the annual aggregate provision set forth in the primary policies, since the excess policies did not expressly state the aggregate was for the life of the policy.

The majority however, adopted the analysis in an unreported federal case Maryland Cas. Co. v. W.R. Grace & Co., 1996 WL 169326, 1996 U.S. Dist. LEXIS 4500 [S.D.N.Y. 1996]. The majority found that the language in the excess policies in both cases were indistinguishable. The majority found no ambiguity and noted that Union Carbide was seeking “to alter the plain terms of the contract by adding the word ‘annual’ where it simply does not otherwise exist” (id. WL at *5, LEXIS at *15; see also Vermont Teddy Bear Co. v. 538 Madison Realty Co., 1 N.Y.3d 470, 475, 775 N.Y.S.2d 765, 807 N.E.2d 876 [2004] [“courts may not by construction add or excise terms”] [internal quotation marks omitted] ).

In view of what it found to be unambiguous language, the court was not bothered by the absence of any language that indicated the aggregate was not to be applied annually, citing Nissho Iwai Europe v. Korea First Bank, 99 N.Y.2d 115, 121-122, 752 N.Y.S.2d 259, 782 N.E.2d 55 [2002] [“ambiguity does not arise from silence, but from what was written so blindly and imperfectly that its meaning is doubtful”] [internal quotation marks omitted]).

Justice Tom filed a notable partial dissent. He pointed out some disenguity in the majorities' opinion. While the majority stated that the excess policy in W.R. Grace was indistinguishable, in fact those policies provided that they would follow form "except for limits". Thus, in W.R. Grace the argument the aggregate was annualized was much less cogent since following form with respect to limits was explictly excepted. Indeed, the fact the Union Carbide excess policies did not contain similar language, if anything, was evidence in favor of Union Carbide's position.

To the majority's credit, it did address this argument, but its answer was far from satisfactory. It noted that while the subject excess policy did not contain the phrase "except for limits", it did contain the phrase “subject to the declarations set forth below” of which one was the $30,000,000 aggregate limit. While the majority was right that "except for" and "subject to" are somewhat equivalent, its argument was nevertheless circular, since the meaning of aggregate limit language was what the case was about in the first place.

Justice Tom found the facts in Uion Carbide were more "consonant with those of Travelers Cas. & Sur. Co. v. ACE Am. Reins. Co., 392 F.Supp.2d 659 [S.D.N.Y.2005], affd. 201 Fed.Appx. 40 [2d Cir.2006], in which the court noted that the inclusion of a follow the form clause in a three-year reinsurance certificate creates a presumption of concurrency with the terms of the underlying policy that can only be overcome “through the placement of explicit liability limitations in the certificate itself” ( id. at 665). Thus, the court annualized the aggregate limit of liability, holding that because, as here, “the certificates do not clearly or explicitly limit the coverage terms of the underlying policy, the presumption of concurrency between the excess policy and the Three-Year Certificates is not overridden” ( id.).