A New York judge ruled that the State of New York is not entitled to coverage as an additional insured because the occurrence took place outside of the prescribed policy period. The case is Riccobono v. State, 57 Misc. 3d 737 (N.Y. Ct. Cl. 2017).
The Underlying Issue
In January 2014, Thomas Riccobono was driving under the 168th Street overpass on Grand Central Parkway in Queens County, New York when a chunk of concrete dislodged from the bridge above and landed on his windshield. Riccobono brought a personal injury action against the State of New York for negligent inspection and maintenance of the bridge.
The State subsequently filed a third-party lawsuit against Stantec Consulting Services, the company contracted to inspect the bridge intermittently, and Zurich American Insurance, who has issued a CGL policy to Stantec.
The Inspection Contract
The State had a legal obligation to inspect public bridges every two years and contracted with Stantec to perform those inspections. As part of the contract, Stantec was required to purchase multiple insurance policies to protect itself and the State, including professional liability coverage, workers compensation, and general liability policies. However, Stantec purchased only a single CGL policy from Zurich and, as the contract required, added the State as an additional insured. There was also a clause obligating Stantec to defend and indemnify the State against future claims related to the inspection contract.
The CGL policy was effective from May 1, 2011 to May 1, 2012 and applied to covered occurrences within that time frame. Though the policy applied to “bodily injuries caused by acts or omissions resulting from work performed pursuant to a written agreement,” it also included a specific exclusion for “bodily injuries arising out of engineering services including conducting inspections and preparing reports.”
Third-Party Lawsuit
The last inspection before Riccobono’s accident occurred in February 2012, just a few weeks shy of two years later. That report stated the 168th Street bridge was in “fair” condition with no indications of a safety issue. The New York Department of Transportation, therefore, conducted no follow-ups or repairs.
The State alleged that the February 2012 report had been negligent, and that Stantec’s negligence in inspecting the bridge directly influenced the State’s determination that no follow-up was necessary, which in turn made Stantec responsible for the falling concrete that had injured Mr. Riccobono. Stantec was, according to the State, vicariously liable for Riccobono’s injuries based on the negligent inspection.
The State sought a declaratory judgment that Zurich was obligated to provide a defense because the State was an additional insured on the CGL policy Stantec had purchased. If Zurich declined the defense, the court should order Zurich to do so by virtue of the contract.
Additional Insureds
Zurich claimed Stantec was not contractually obliged to name the State as an insured on the CGL policy, so the State could not be an additional insured and was therefore not owed a defense. The court said Zurich had “overlooked key portions of the contract and its own policy” (emphasis added).
The contract between the State and Stantec specifically stated that the latter was responsible for “procuring and maintaining … insurance … covering all operations under this Agreement,” where the “Agreement” referred to the inspection contract. When Stantecc purchased its CGL policy from Zurich, it added specific language to the policy definition for an “additional insured” that stated “any person or organization who you [Stantec] are required to add as an additional insured on this policy under a written contract or written agreement” (emphasis added) was to be afforded coverage as an “additional insured.” Since the inspection contract between Stantec and the State required Stantec to “procure and maintain” coverage, the State counted as an additional insured within the meaning of the policy.
Engineering and Negligence
The State asserted that the claim was covered because the policy specifically provided for liability coverage in relation to bridge inspections. Zurich, on the other hand, argued that the inspections were subject to a specific policy exclusion that barred coverage.
Courts in New York “liberally construed” an insurer’s duty to defend its insureds. This duty, which has a much broader scope than the duty to indemnify, may be overcome if the insurer can prove one of two situations: either there was “no possible factual or legal basis” that could be covered, or that the claim came under the umbrella of a policy exclusion and could not be removed. Unlike the duty to indemnify, it is not necessary to prove liability in order to find that an insurer’s duty of defense has been triggered.
Stantec’s policy stated coverage would not apply to “bodily injury … arising out of the rendering or failure to render any professional architectural, engineering or surveying services,” (emphasis original) and the excluded services listed “supervisory, inspection, architectural or engineering activities” (emphasis original). A glance at the policy definition for “insured contract” showed that the policy “did not include that part of any contract or agreement: … 2. That indemnifies an architect, engineer, or surveyor for injury or damage arising out of: (a) Preparing, approving or failing to prepare or approve maps, shop drawing, opinions, reports, surveys, field orders, change orders or drawings and specifications….” (emphasis original).
The whole reason Stantec entered a contract with the state in the first place was to provide engineering services in the form of periodic inspections and the subsequent issuance of reports on the condition of the bridges inspected. And these inspections were not limited to simple visual inspections, either. A structural engineer for the New York Department of Transportation testified there was a “hands-on” component to inspecting the bridges, such as “using a hammer as part of a sound test to figure out if the structure was secure or in disrepair.”
This view of the Zurich policy, the court admitted, did narrow the scope of coverage, but just because a policy has limited applicability doesn’t render it illusory. Coverage under the CGL policy issued to Stantec could extend to auto accidents caused by negligence, or damages that occurred during the course of an actual inspection.
The Policy Period
The State claimed that, though the actual accident occurred in 2014, the allegedly negligent inspection that led to the accident occurred between May 1, 2011 and May 1, 2012. Zurich countered that the actual accident had to have occurred during the policy period, and Riccobono’s claim had occurred nearly two years after the policy expired.
The court sided with Zurich. The State’s interpretation of the policy period would lead to ambiguity, because the policy period would be unclear. Furthermore, the State’s version of the policy period had the potential to expose Zurich to the risk of occurrences that occur even later down the road than Riccobono’s, which ran entirely contrary to the intent of the parties.
Conclusion
The court determined that the policy Zurich issued to Stantec excluded coverage for negligence stemming from Stantec’s provision of engineering services and was not illusory, and that the occurrence referenced in the underlying complaint had occurred outside of the policy period. For these reasons, the court ruled that the State was not entitled to a third-party defense from Zurich.
Editor’s Note: In an occurrence-based policy, claims that occur during the policy period are covered, even if the claim is made beyond the policy period. In a claims-made policy, the claim must be made during the policy period.
The State tried to make an argument that the policy was occurrence-based and not claims-made, but it failed because the actual occurrence had taken place outside the policy period. Since there was no occurrence during the policy period, Zurich was not obligated to provide a defense.