Posted: February 10, 2021

Knowledge of Risk of Hazardous Consequences Does Not Establish Intent to Cause Harm Sufficient to Bar Coverage Under CGL Policy

Posted by Bradley J. Nash, Litigation Partner

On December 29, 2020, Justice Masley of the New York County Commercial Division issued a decision in Certain Underwriters at Lloyd’s London v NL Indus., Inc., 2020 NY Slip Op 34331(U), denying CGL carriers’ motions for summary judgment, despite a final judgment in the underlying action holding the insured liable for “intentionally and affirmatively promoting lead paint for interior residential use with actual knowledge of the public health hazard that it would create.”

The coverage dispute in NL Industries involved some “320 insurance policies spanning over 70 years.” Some of the policies contained express exclusions for an “expected or intended” harm.  The insurers argued that such exclusions were triggered given the finding that the insured (NL Industries) intentionally promoted its lead paint despite knowledge of the public health risks it posed.  Even in the absence of such an exclusion, the insurers argued that coverage was barred by the so-called “fortuity doctrine,” pursuant to which “insurance is not available for losses that the policyholder knows of, planned, intended, or is aware are substantially certain to occur.”

Justice Masley denied the insurers’ motions for summary judgment, explaining:

As to the policies that do contain the exclusion, New York courts tended to read the ‘expect or intend’ provisions fairly narrowly, meaning the courts generally read ‘expect or intend’ provisions to exclude only those losses or damages that are not accidental.  In general, what makes injuries or damages expected or intended rather than accidental are the knowledge and intent of the insured.  It is not enough that an insured was warned that damages might ensue from its actions, or that, once warned, an insured decided to take a calculated risk and proceed as before.

Conduct engaged in with the intent to cause injury is not covered by insurance.  However, it is a well-established insurance principle that there can be liability coverage for an insured’s liability arising out of his own intentional act if the resulting injury or damage was not intended. . . .

It is not legally impossible to find accidental results flowing from intentional causes, i.e., that the resulting damage was unintended although the original act or acts leading to the damage were intentional.  The general rule remains that more than a causal connection between the intentional act and the resultant harm is required to prove that the harm was intended. . . .

[I]n New York, there is a distinction between knowledge of the risk of hazardous consequences, and the intention to cause harm.  For example, in Union Carbide v Affiliated FM Ins. Co., 101 AD3d 434 (1st Dept 2012), the First Department held that the insured’s sale of asbestos with knowledge of its risk of harm, was not equivalent to the insured’s intention to cause harm. The First Department found that “[p]laintiff’s ‘calculated risk’ in manufacturing and selling its products despite its awareness of possible injuries and claims does not amount to an expectation of damage.” . . .  Thus, the Insurers have failed to meet their burden on this motion as they have failed to make a prima facie case that NL’s conduct is uninsurable under policies containing the exclusion.

(Emphasis added; some citations omitted).

Justice Masley similarly rejected the insurers’ argument that NL Industries’ conduct was uninsurable under the fortuity doctrine, concluding that “the intention to cause injury” was the “standard by which the fortuity doctrine applies,” and there was “no evidence demonstrating an intent to cause harm when NL promoted the lead paint.”

This decision illustrates that foreseeability of injury is not alone sufficient to exclude coverage under a CGL policy.  As previously discussed on this blog, the New York Courts are more likely to find that a claim is excluded from coverage where the “damages . . . flow directly and immediately from an intended act” rather than “a chain of unintended though expected or foreseeable events that occurred after an intentional act.”  Brooklyn Law Sch. v. Aetna Cas. & Surety Co., 849 F.2d 788, 789 (2d Cir. 1989) (citation omitted).  Thus, a lawsuit alleging that the insured committed an intentional assault might be excluded from coverage.

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