Duty to Defend, Additional Insured Endorsement, and Potential Liability
June 17, 2014
The owner and manager of a building brought an action for declaratory judgment that a contractor's insurer and the unit owners' secondary insurer were obligated to defend the owner and manager in an action brought by the contractor's employee. This case is Soho Plaza Corporation v. Birnbaum, 108 A.D.3d 518 (2013).
Utica First Insurance Company issued a contractors special insurance policy to Diamond Era Construction. Diamond entered into a contract with the Birnbaums to renovate a cooperative apartment. The building was owned and managed by Soho Plaza. The Birnbaums and Soho agreed that Soho would be named as an additional insured under the Utica policy. In addition, the Birnbaums obtained personal insurance coverage from Vigilant Insurance Company as primary insurer and from Progressive Casualty Insurance Company as secondary insurer.
Nolasco, an employee of Diamond, commenced an action against Soho to recover damages for personal injuries he sustained while working in the Birnbaums' apartment. Soho tendered the lawsuit to Utica but the insurer disclaimed coverage on the grounds that the policy contained an exclusion for bodily injury to any employee of any insured if the claim arises out of and in the course of his employment. Soho then commenced this lawsuit for a judgment seeking a declaration that Utica and Progressive are obligated to defend and indemnify Soho. Utica countered that the employee exclusion clause prevented coverage under its policy and Progressive argued that its policy did not apply since Soho was not an insured under its policy because it was not vicariously liable for the incident.
The Supreme Court, Kings County, sided with Utica, but not with Progressive. Soho still appealed.
The Supreme Court, Appellate Division, Second Department, New York noted that the plain meaning of the employee exclusion was that Utica did not provide coverage for damages arising out of bodily injury sustained by an employee of ANY insured in the course of his employment. The fact that the additional insured endorsement contained its own additional exclusions did not eliminate the exclusions in the Utica policy. Therefore, the ruling in favor of Utica was upheld.
As for Progressive, the court said that the evidence submitted by Progressive was insufficient to resolve all the factual issues so as to determine the rights of the parties as a matter of law. The court said that Soho may be held vicariously liable under the state's labor law and Progressive did not show that there is no reasonable possibility of coverage under its policy. Therefore, the ruling against Progressive was upheld.
The case was remitted to the Supreme Court, Kings County for the entry of judgment.
Editor's Note: The Appellate Court applied the plain language of the employee exclusion and found that Utica had no duty to defend Soho. The court said that an insurer's duty to defend is not triggered when the only possible interpretation of the allegations against the insured is that the factual predicate for the claim falls wholly within a policy exclusion. Nolasco was an employee of an insured under the Utica policy and was injured in the course of employment and so, the exclusion applied.
Progressive could not present clear evidence that Soho, as the owner and manager of the apartment building, might not be held vicariously liable under the state's labor laws for the injuries suffered by Nolasco. Therefore, the insurer's motion was held to be properly dismissed since an insurer must defend whenever the allegations of a complaint in an underlying action suggest a reasonable possibility of coverage.