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Property Owner Entitled to Additional Insured Coverage Under Contractor’s CGL Policy Despite No Proof of Negligence by Contractor

On December 26, 2019, the First Department issued a decision in Fireman’s Fund Ins. Co. v. State Nat’l Ins. Co., 2019 NY Slip Op 09399, holding that a property owner was entitled to coverage for a personal injury lawsuit as an additional insured under a contractor’s CGL Policy, even though the injuries were not caused by the contractor’s negligence.

This case involves a frequently-litigated policy provision in construction-related insurance coverage matters:  the blanket “additional insureds” endorsement to a contractor’s liability policy. (See our previous posts on this endorsement). Construction project owners often require contractors to procure liability coverage for “upstream” parties (e.g., construction managers or property owners).  The contractor accomplishes this by purchasing a blanket additional insured endorsement covering any party the insured is contractually obligated to name as an additional insured.  Thus, determining who qualifies as an additional insured requires examining both the language of the endorsement and the underlying contracts.

In this case, the contractor’s additional insured endorsement provided coverage for “any person or organization to whom the Named Insured has agreed by written contract to provide coverage, but only with respect to operations performed by or on behalf of the Named Insured.”. The underlying injury lawsuit involved a woman who fell while walking through a passageway where the contractor had performed renovation work.  It was ultimately determined that the injuries were not connected to any negligence by the contractor.  However, as the First Department explained, citing the Court of Appeals decision in Worth Constr. Co., Inc. v. Admiral Ins. Co., 10 N.Y.3d 411 (2008), “generally, the absence of negligence, by itself, is insufficient to establish that an accident did not arise out of an insured's operations”; “the focus of a clause such as the additional insured clause here is not on the precise cause of the accident but the general nature of the operation in the course of which the injury was sustained.” (Id. at 416.) The Court concluded that the contractor’s policy provided additional insured coverage for the property owner because “there was a connection between the accident and the named insured's operations” – “the plaintiff slipped and fell on a walkway that had been waterproofed by Upgrade, although her fall was not caused by any negligence” on the part of the contractor.

As is always the case, the scope of coverage depends on the language of the policy.  Other CGL policies provide narrower additional insured coverage than the policy at issue in this case.  For example, in a case previously covered on this blog, the additional insureds endorsement in the contractor’s policy applied only with respect to liability for ‘bodily injury’ . . . caused in whole or in part by” the subcontractor’s acts or omissions.  (Emphasis added).  Under New York law, the phrase “caused in whole or in part” requires proximate causation of the injuries.  See Burlington Ins. Co. v. NYC Transit Auth., 29 N.Y.3d 313 (2017).  Thus, additional insured coverage under that endorsement was not triggered unless the contractor proximately caused the underlying injury.

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