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Property Owner Entitled to Defense Coverage as Additional Insured Under General Contractor’s CGL Policy; Fact Issues Preclude Summary Judgment on Indemnity Coverage

On May 11, 2018, Justice Lebovits of New York County Supreme Court issued a decision in Touro College v. Arch Specialty Ins. Co., Index No. 652642/2016, holding that a property owner was entitled to defense coverage for a personal injury action as an additional insured under a general contractor’s CGL policy.  The Court ruled that the issue of indemnity coverage, however, would have to await the determination of the contractor’s liability in the underlying injury action. This case involves a policy provision that was the subject of a recent Court of Appeals decision covered on this blog - the blanket “additional insureds” endorsement to a contractor’s liability policy.  In connection with construction projects, project owners typically require contractors to obtain 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 Touro College, the college sought coverage as an additional insured under the CGL policy of its general contractor (All Pro) for a personal injury lawsuit filed by an employee of a subcontractor for injuries suffered when a piece of sheet rock fell on him at the construction site. All Pro’s CGL policy (issued by ARCH Specialty Insurance Company) contained the following blanket additional insured endorsement:

SECTION II - WHO IS AN INSURED is amended to include as an additional insured those persons or organizations who are required under a written contract with you to be named as an additional insured, but only with respect to liability for 'bodily injury’, 'property damage', or 'personal and advertising injury' caused, in whole or in part, by your acts or omissions or the acts or omissions of your subcontractors in the performance of your ongoing operations or 'your work', including 'your work' that has been completed; or In connection with your premises owned by or rented to you.

Thus, to qualify for additional insured coverage under All Pro’s CGL policy, Touro had to establish (1) that it was “required under a written contract with [All Pro] to be named as an additional insured” in the policy; and (2) that the claim involved “‘bodily injury . . . caused, in whole or in part, by [All Pro’s] acts or omissions or the acts or omissions of [its] subcontractors.” With regard to the first element, Touro’s contract with All Pro required All Pro to name “Touro College” as an additional insured under “[All Pro]’s insurance policies, such insurance to include:  (i) all risk builder’s insurance . . . and (ii) hazard (including fire) insurance.”  ARCH declined to provide defense or indemnity coverage to Touro for the personal injury claim, asserting that All Pro was not contractually required to name Touro as an additional insured under the CGL Policy, but only the all risk builder’s insurance and hazard insurance policies specially referenced in the contract.  Justice Lebovits rejected this argument, explaining:

The plain language of the Construction Contract's policy procurement provision requires All Pro to name Touro as an additional insured on its policies, which is all that the plain language of the Additional Insured Endorsement calls for. That the policy procurement provision goes on to specify the types of policies that All Pro must provide does nothing to restrict the preceding independent clause, calling for additional insured coverage under All Pro's policies generally. As English Oxford Living Dictionaries explains, while the word "include" may be used to imply that the items listed comprise the whole, "it is also used in a non-restrictive way, implying that there may be other things not specifically mentioned that are part of the same category." English Oxford Living Dictionaries (2018) (Note: online version). Here, the appearance of "to include," after the language requiring All Pro to list Touro as an additional insured on its insurance policies, conveys such non-restrictive usage of the phrase. Therefore, contrary to ARCH's reading, the Construction Contract requires that Touro be named as an additional insured on All Pro's policies, including the Policy.

As for the second element, Justice Lebovits held that it was “premature to decide whether ARCH has a duty to indemnify Touro as an additional insured,” as “there has not been a determination of All Pro’s liability” in the underlying action.  However, Justice Lebovits held that the allegations in the personal injury action were sufficient to trigger ARCH’s duty to defend Touro as an additional insured, explaining:

While it may be that All Pro's acts or omissions were not the proximate cause of Padilla’s injury, the allegations in the Underlying Action "suggest . . . a reasonable possibility of coverage", which triggers the duty to defend. Therefore, ARCH has a duty to defend Touro in the Underlying Action and it is in breach of that obligation.

As a remedy for ARCH's breach of the duty to defend, the Court ordered ARCH to pay the “costs and expenses incurred in defending the Underlying Action.”  What about the fees Touro incurred suing ARCH to enforce its rights as an additional insured under the policy?  Those fees were not recoverable.  Under a quirk in New York law, fee-shifting is available in a coverage litigation only when the insurance company commences a declaratory judgment action, thus, “cast[ing]” the insured “in a defensive posture.” Mighty Midgets v. Centennial Ins. Co., 47 N.Y.2d 12, 21 (1979).  Insureds generally “may not recover the expenses incurred in bringing an affirmative action against an insurer to settle its rights under the policy.” New York Univ. v. Continental Ins. Co., 87 N.Y.2d 308, 324 (1995).  In Madison 96th Assoc., LLC v. 17-e Owners Corp., 2014 NY Slip Op 50569(U), Justice Kornreich of the New York County Commercial Division questioned the wisdom of this double standard and took the unusual step of encouraging the plaintiff to appeal her decision denying fee-shifting, so that the Court of Appeals might revisit the issue.  For now, however, it remains the law.

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