On July 25, 2019, Justice Crane of the New York County Supreme Court issued a decision in American Empire Surplus Lines Ins. Co. v. Burlington Ins. Co., 2019 NY Slip Op 32221(U), holding that a CGL carrier was required to provide a defense to an additional insured for a personal injury claim, but concluding that, absent a showing of prejudice to the insured, the insurer’s delay in issuing a reservation of rights letter was not a basis to impose a duty to defend.

Justice Crane’s decision provides a helpful overview of the role of an insurer’s reservation of rights letter under New York law:

New York permits an insurer to assume the defense of its insured subject to a reservation of rights, thus allowing the insurer the flexibility of fulfilling its obligation to provide its insured with a defense, while continuing to investigate the claim further.

Reservation of rights letters operate to prevent equitable estoppel and waiver from attaching before determination of the insured’s liability is determined.

By reserving its rights, the insurer is not imposing conditions on its defense. The defense remains unqualified; the insurer, by reserving its rights, is merely putting the insured on notice of what the insurer believes are its existing rights under the policy. Notwithstanding the foregoing, the insured has the right to reject the conditions the insurer is seeking to impose, by objecting or requesting separate counsel. To be sure, the insurer’s reservation affects only the insurer’s duty to indemnify, not its duty to defend, and, unlike some nonwaiver agreements, reservation of rights letters do not require that the insured make any concessions with regard to the insurer’s duty to indemnify.

(Citations omitted).

Although the Court found that the insurer (Burlington) had a duty to defend the additional insured under the applicable policy, Justice Crane explained that Burlington’s delay in issuing a reservation of rights letter was not a basis to impose any duty on the insurer, explaining:

In 206-208 Main St. Assoc., Inc. v Arch Ins. Co., 106 AD3d 403, 407-408 [1st Dept 2013]), the court held that the insured has the burden on a motion for summary judgment to present evidence showing that it was prejudiced by the insurer’s late reservation of rights as a matter of law. The court ruled that the posture of litigation is a relevant factor but determined that the insured had not been prejudiced here as the subject reservation of rights was issued when the underlying litigation was, by the insured’s own admission, still in its “early phase” (id. at 407). The court further held that the insured had also failed to establish prejudice on the basis that “plaintiff insurer had taken advantage of information defense counsel had communicated to it to form the basis for the eventual disclaimer” (id. at 408).

The court notes filed the underlying action on November 5, 2015 and that the parties were still engaged in discovery, on May 26, 2016, the time Burlington issued its reservation of rights letter. Thus, plaintiff has not established that the underlying litigation was in an advanced stage, nor did plaintiff present any evidence sufficient to demonstrate that it was prejudiced by Burlington’s alleged late reservation of rights. Thus, this Court will not impose a duty to defend on Burlington merely because of the timing of its reservation of rights letter.

Notably, the coverage issues in this case did not involve an exclusion to coverage.  However, where an insurer seeks to invoke a policy exclusion to deny liability coverage for a death or bodily injury claim, the New York Insurance Law requires the insurer to “give written notice as soon as is reasonably possible of such . . . denial of coverage.” N.Y. Ins. Law § 3420(d)(2).  Failure to do so can result in a waiver of the exclusion.  While the determination whether the insurer has provided notice “as soon as is reasonably possible” is fact specific and not subject to a strict bright-line rule, Courts have found delays of more than 30 days to be unreasonable.

On August 15, 2019, Justice Perry of the New York County Supreme Court issued a decision in Villas of Ocean Dunes Assn., Inc. v. First Specialty Ins. Corp., 2019 NY Slip Op 32435(U), denying an insured’s petition to compel an excess insurer to submit a disputed property damage claim to appraisal under an appraisal provision in the primary policy.

The insured in Villas of Ocean Dunes was a condominium in Florida that suffered damage during Hurricane Irma.  The condominium had two insurance policies covering property damage:  a primary policy issued by Westchester Surplus Lines Insurance Company, and an excess policy issued by First Specialty Insurance Corporation.  The primary policy contained a provision requiring the parties to submit disputes concerning the value of a claim to an appraisal proceeding.  In such an insurance appraisal, each side retains an appraiser to assess the value of the claim. If the parties’ appraisers are unable to reach agreement, they select a neutral umpire to resolve the dispute.  (As discussed in an earlier post on this blog, the scope of the appraisal is limited:  it cannot be used to resolve legal questions regarding the interpretation of the policy, but only to determine the amount of the covered loss.)

The excess policy “followed the form,” meaning that it generally incorporated the terms of the primary policy, except to the extent the excess policy had express terms that were “inconsistent” with the primary policy (in which case the excess policy’s terms would “supersede” those of the primary policy).  The excess policy was silent on this issue of appraisal, but contained a mandatory forum selection clause, stating that the parties “irrevocably” agreed that all disputes would be determined in the “exclusive” jurisdiction of the courts of the State of New York and that the “parties expressly waive all rights to challenge or otherwise limit such jurisdiction.” The insured reached an impasse with the excess insurer and filed a petition to compel an appraisal, pursuant to the appraisal provision in the primary policy. 

Justice Perry held that the New York forum selection clause in the excess policy superseded the appraisal provision in the primary policy, and dismissed the petition, explaining:

Petitioner’s attempt to avoid the unambiguous language of First Specialty’s forum selection clause in favor of the appraisal provision set forth in the Westchester primary policy is unavailing. Even abiding a liberal construction of the pleadings and giving petitioner every favorable inference, does not alter the plain language of the terms, conditions and endorsements set forth in First Specialty’s excess surplus lines policy.

This court has reviewed the language of the policies at issue and notes that the excess policy contains a forum selection clause that is clear and unambiguous. Notably, unlike the primary policy, the excess policy does not contain an appraisal provision. Moreover, the choice of law and forum selection clause is mandatory and unmistakable in its scope, providing that “[t]he laws of the State of New York, without regard to any conflict of laws rules that would cause the application of the laws of any other jurisdiction, shall govern the construction, effect, and interpretation of this insurance agreement.” Additionally, the forum selection clause provides that the parties “irrevocably” agreed that all disputes are to be determined in the “exclusive” jurisdiction of the courts of the State of New York and the “parties expressly waive all rights to challenge or otherwise limit such jurisdiction.”

Granting the relief sought in the Amended Petition, would be tantamount to this court rewriting the terms of the contract the parties negotiated and agreed to be bound by. The First Specialty excess contract expressly states that the “provisions, terms, conditions and exclusions . . . shall supersede, for the purposes of coverage under this Policy, any provisions of the Followed Policy that are inconsistent with this Policy. No endorsement . . . to the Followed Policy or to any primary, underlying or any other insurance shall alter the provisions . . . of this Policy, including without limitation, any Attached Endorsement.”  As such, First Specialty has demonstrated that the terms of its excess contract require that all disputes be resolved exclusively in New York courts and that the policy does not contain the appraisal provision on which petitioner relies in seeking to compel First Specialty to participate in an appraisal.

(Some citations omitted).

This decision illustrates the complications that can arise in construing a “follow the form” excess insurance policy. 

But was the forum selection clause in the excess policy “inconsistent” with the primary policy’s appraisal provision, as Justice Perry held? Notably, in the context of another ADR procedure (arbitration), the First Department held that a contract provision “vesting the courts of this State with exclusive jurisdiction in all actions and proceedings” did not negate an arbitration clause in the same agreement.  Rather, in light of New York’s “strong policy favoring arbitration,” the “exclusive jurisdiction provision” was interpreted as merely fixing “the required venue of applications to compel arbitration or confirm or reject arbitration awards.” Isaacs v. Westchester Wood Works, Inc., 278 A.D.2d 184, 185 (1st Dep’t 2000). At least arguably the same public policy applies with respect to insurance appraisal.         

On May 29, 2019, Justice Crane of the New York County Supreme Court issued a decision in Continental Cas. Co. v KB Ins. Co., Ltd., 2019 NY Slip Op 31513(U), holding that an exclusion for “Knowing Acts” did not excuse a CGL carrier’s duty to defend Lanham Act claims against the insured. 

In the underlying litigation, the insured, Value Wholesale, Inc. (Value), was sued by the patent holder for FreeStyle blood glucose test strips for allegedly selling imported test strips not authorized for sale in the United States and selling them in FreeStyle product boxes.  The action asserted claims for “trademark and trade dress infringement, fraud, racketeering, unfair competition, and other illegal and wrongful acts.”  One of Value’s CGL carriers (Continental) agreed to defend the case under the coverage for “personal and advertising injury.”  Continental then commenced a coverage action seeking contribution from another CGL carrier (KBIC), which had disclaimed defense coverage under an exclusion that applies if Value acted “with knowledge that the act would violate the rights of another,” or published material “with knowledge of its falsity.” 

Justice Crane held that the exclusion did not excuse KBIC’s duty to defend, explaining:   

KBIC has not satisfied its heavy burden. The underlying complaint alleges that all the defendants participated in a deliberate scheme to substitute unapproved test strips in place of the approved strips. However, Abbott can establish Value’s liability even without a finding that Value knew that its conduct would violate Abbott’s rights and inflict the advertising injury at issue. . . .

Neither the parties nor the court has found a controlling First Department case with parallel facts. However, the Fourth Department has addressed the issue. In Cosser v One Beacon Ins. Group (15 AD3d 871, 873 [4th Dept 2005]), the plaintiffs sought a declaration that the defendant insurer owed them a defense in a Lanham Act action. The Court concluded that a duty existed because the plaintiffs “may be liable … in the underlying action without a showing of intentional or knowing conduct on [their] part”.  A few decisions from justices in this county have utilized similar reasoning to rule that the insurer had a duty to defend (see, e.g., The Andy Warhol Found. For Visual Arts, Inc. v Phi/a. Indem. Ins. Co., 37 Misc 3d 1229 [A], 2012 NY Slip Op 52228 [U], *6 [Sup Ct, NY County 2012] [Sherwood, J.]; Sarin v CAN Fin. Corp., 21 Misc 3d 1101 [A], 2008 NY Slip Op 51909 [U] [Sup Ct, NY County 2008] [Fried, J.]).  The duty to defend exists whenever the complaint alleges any facts or grounds which bring the action within the protection purchased.

(Some citations omitted). 

This decision illustrates both the breadth of the duty to defend and the narrow construction courts apply to policy exclusions.

On April 25, 2019, Justice Sherwood of the New York County Commercial Division issued a decision in Westchester Fire Ins. Co. v. Schorsch, 2019 NY Slip Op 31188(U), holding that a D&O policy’s “insured versus insured” exclusion did not preclude coverage for claims against corporate officers by a Creditor Trust.

In Schorsch, corporate officers sought coverage under the corporation’s D&O policies for claims brought against them by a Creditor Trust set up in the corporation’s Chapter 11 bankruptcy proceedings.  Two of the excess insurers disclaimed coverage based on an “insured versus insured” exclusion that precludes coverage for losses in connection with any claim brought “by, on behalf of, or at the direction of the Company or Insured Person.”  Justice Sherwood disagreed, and granted summary judgment to the insureds, explaining:

. . . [T]he insured versus insured exclusion . . . is intended to prevent a company from recovering business losses that it was in a position to avoid by more carefully supervising its own officers and directors.  The exclusion has exceptions for a bankruptcy trustee or a similar authority, since the funds recovered will be used for the benefit of creditors, rather than the company, and are subject to supervision by the bankruptcy court or a regulatory authority. Plaintiff has asserted that the Creditor Trust is not a bankruptcy trustee, examiner, receiver, liquidator or a creditor committee. However, the Primary Policy uses the phrase “comparable authority” which phrase is not defined.  The phrase is ambiguous and therefore must be construed against the insurer, particularly since it is being invoked to exclude coverage.  Plaintiff and RSUI have not shown that the exclusion prevents defense and coverage under their respective policies.

(Citations omitted).

This decision underscores the well-established principle that coverage exclusions are narrowly construed, with any ambiguities resolved in favor of coverage.  Also of note: because the insurers initiated this coverage action (and lost), the insureds were entitled to fee shifting under the Court of Appeals’ decision in Mighty Midgets, Inc. v. Centennial Ins. Co., 47 N.Y.2d 12, 21 (1979).

Posted by Bradley Nash, Litigation Partner

This evening at 6, I will be making a presentation to the White Collar Crime Committee of the New York City Bar on D&O Coverage for White Collar Defense Attorneys.  I will be discussing insurance coverage issues in the Platinum Partners hedge fund case, which is now on trial in the Eastern District of New York.   As previously reported on this blog (see posts here, here, and here), I represented one of the insureds in coverage litigation with three excess D&O insurers, and successfully briefed and argued, on behalf of all the insureds, a motion for a preliminary injunction directing the insurers to advance $15 million in defense costs.

On April 3, 2019, the Second Circuit issued a decision in Milligan v. CCC Information Servs. Inc., Dkt. Nos. 18-1405-cv, 18-1407-cv, holding that the appraisal procedure in a property insurance policy could not be used to resolve legal questions regarding the interpretation of the policy, but only to determine the amount of the covered loss.

Milligan is a putative class action, alleging that GEICO “violated Regulation 64, a New York State insurance regulation,” incorporated into the Policy, “which requires an insurer, in the case of a total loss of a current model year vehicle, to reimburse the owner for the reasonable purchase price less any applicable deductible and depreciation allowances.”  GEICO argued that its valuation methodology complied with Regulation 64, and it moved to compel an appraisal of the dispute.  Property insurance policies frequently allow for “appraisal” of a dispute over the value of the loss – a form of ADR that is similar in some respects to arbitration.  The appraisal provision at issue here allowed either party to demand “appraisal” of the amount of the loss.  In the event of such a demand, the insurer and the insured would each pick a “competent appraiser” each of whom would separately determine the amount of the loss.  The appraisers, in turn, would select an “umpire” to resolve the loss valuation if they could not agree.

The district court dismissed GEICO’s motion to compel an appraisal on various grounds, and “suggested that appraisal was inappropriate in this case because the appraisal sought would effectively constitute an opinion on the extent and nature of the coverage provided under the Policy, and under New York law an appraiser may not resolve legal questions regarding interpretation of the Policy.”  The Second Circuit affirmed, explaining:

In Amerex Grp., Inc. v. Lexington Ins. Co., 678 F.3d 193, 204–05 (2d Cir. 2012), we explained that an appraiser may not resolve coverage disputes raising legal questions about the interpretation of an insurance policy. That principle has been applied in several cases decided under New York law. In Kawa v. Nationwide Mutual Fire Ins. Co., 174 Misc.2d 407 (N.Y. Sup. Ct. 1997), for example, the insured residence was damaged in a windstorm. Id. at 407. The defendant insurer contended that the relevant policy required that it indemnify the insured only in a manner that would return the residence to its pre-windstorm condition.  The insured claimed that the relevant policy required replacement of the entire damaged aluminum siding with new vinyl siding. Id. The court deemed this a dispute over the proper interpretation of the policy’s coverage, which could be resolved only by the court’s legal analysis.

Similarly, in Duane Reade, Inc. v. St. Paul Fire & Marine Ins. Co., 279 F. Supp. 2d 235, 241–42 (S.D.N.Y. 2003), aff’d 411 F.3d 384 (2d Cir. 2005), the district court reserved for itself how to interpret the term “Restoration Period” under a policy indemnifying Duane Reade for certain business income losses following the terrorist attacks of September 11, 2001. Duane Reade asserted a right to recover under the policy for business interruption losses for the entire period until the complex which would replace the World Trade Center was rebuilt.  The insurer argued that the Restoration Period terminated when Duane Reade could have restored operations at locations other than the World Trade Center.  Holding that this was not a dispute to be resolved by appraisal, the district court decided as a matter of law that the Restoration Period ended when Duane Reade was able to resume operations in the location where its World Trade Center store once stood.

An appraisal is appropriate not to resolve legal questions, but rather to address factual disputes over the amount of loss for which an insurer is liable. . . .

Applying these principles, we conclude that appraisal is not appropriate in this case. The dispute here concerns a legal issue about the meaning of Regulation 64. Milligan is not claiming simply that the value of her loss was greater than GEICO’s calculation. Rather, her complaint is that by calculating her loss using the average of three comparable vehicles available in the market (the methodology used in the Market Valuation Report), GEICO failed to comply with Regulation 64, which is incorporated into the Policy.

Defendants’ argument that this case does not present a coverage issue because GEICO paid Milligan’s claim under the Policy misses the mark. Whether a loss is covered is not the only legal question presented in an insurance case.  Questions over the extent of coverage and how to define the amount of loss also present legal questions of contract interpretation. The dispute here concerns the meaning of “the reasonable purchase price to the insured on the date of loss of a new identical vehicle.” That is a legal question requiring the interpretation of Regulation 64.

(Some citations omitted).

Appraisal can be a useful tool for resolving valuation disputes with property insurers.  However, as this decision illustrates, the scope of such an appraisal is limited to factual matters relating to the amount of the loss and does not include legal issues concerning the interpretation of the policy, which must be resolved by a Court.

On March 28, 2019, Judge Crotty of the SDNY issued a decision in Federal Ins. Co. v. Weinstein, Case No. 18 Civ. 2526 (PAC), granting an insured’s motion to stay a coverage action on the issue of the insurer’s duty to indemnify, pending the resolution of underlying civil and criminal proceedings against the insured, but denying the stay motion as to the duty to defend.

This coverage action arose from the numerous civil and criminal actions (some eighteen in total) against Hollywood producer Harvey Weinstein.  Chubb commenced the action seeking a declaration that it is not obligated to defend or indemnify Weinstein in the underlying actions.  Weinstein moved to stay Chubb’s coverage action on the ground that the coverage issues were intertwined with the issues to be resolved in the underlying dispute.  Judge Crotty denied the motion in part (as to the duty to defend), and granted it in part (as to the duty to indemnify), explaining:

It has long been well-established that a liability insurer may bring an action for a declaratory judgment against the parties in an underlying lawsuit involving its insured without waiting for the underlying action to proceed to judgment.  Nonetheless, federal courts have stayed declaratory judgment actions, or even declined to exercise jurisdiction at the onset, after finding that issues raised in the actions before them either turn on, or would be resolved in part by, determinations of liability yet to be made in the parallel proceedings. . . .

A stay is not warranted here as to Chubb’s duty to defend claims. Weinstein argues that the insurance coverage issues “overlap with, and are derivative of underlying liability issues,” but when it comes to the duty to defend, that is squarely not true. Under both New York and Connecticut law, an insurance provider’s duty to defend is determined solely by comparing the allegations on the face of the underlying complaint(s) to the terms of the policy.  Thus, questions of fault and liability in the Underlying Lawsuits are wholly irrelevant, and in fact, inadmissible evidence, to the duty to defend inquiry the Court will make in this action. . . .

As to the duty to indemnify, however, a stay is warranted in this action. Under both New York and Connecticut law, the duty to indemnify is narrower and distinct from the duty to defend.  In contrast to the duty to defend, “a duty to indemnify cannot be triggered by the mere possibility of coverage; rather, it is triggered by an independent factual finding that the insured’s liability is within the coverage provided by the policy.  As such, courts considering actions for declaratory relief have generally declined to rule on the issue of indemnity until resolution of the underlying liability claim.  Consistent with these cases, the Court will exercise its discretion and order the duty to indemnify claims stayed until resolution of the Underlying Actions.

(Citations omitted).

An insurer is generally precluded from litigating in a coverage action matters that are at issue in the underlying proceedings for which the insured seeks coverage.  Here, the insurer was allowed to proceed with a declaratory judgment action as to its duty to defend, while the underlying actions were pending, but only because the insurer’s arguments for avoiding coverage did not rely on any disputed facts, but rather only the language of the policies and the allegations in the underlying actions.  By contrast, in another case I litigated, Freedom Specialty Ins. Co. v. Platinum Mgt. (NY), LLC, 2017 NY Slip Op 32728(U), Justice Sherwood of the New York County Commercial Division stayed discovery altogether, holding that “the demand for discovery in furtherance of the Excess Insurers’ putative defenses against coverage” was “premature” because “[a] declaratory judgment action cannot be used to conduct discovery regarding the very facts at issue in the EDNY Indictment and the SEC Complaint.”

On March 5, 2019, the First Department issued a decision in M&M Realty of N.Y., LLC v. Burlington Ins. Co., 2019 NY Slip Op 01513, holding the extrinsic evidence of the parties’ intent precluded summary judgment on a property owner’s status as an additional insured under a contractor’s CGL policy.

The standard additional insured endorsement at issue in this case provided coverage to any “person or organization” for the whom the contractor was performing services if the contractor had “agreed in writing in a contract or agreement that such person or organization be added as an additional insured on [the contractor’s] policy.”  In a decision previously covered on this blog, Justice Edmead of the New York County Supreme Court held that (1) the contract between the property owner and the contractor was ambiguous as to the intent to name the property owner as an additional insured (it required that “insurance” be provided but did not define the “necessary . . . insurance”); but (2) extrinsic evidence in the form of deposition testimony established “the parties’ intent to confer additional insured status” on the property owner.  The First Department reversed, holding that “the extrinsic evidence properly considered by the motion court does not conclusively demonstrate the parties’ intent . . . but presents an issue of credibility to be determined by a factfinder.”

This decision illustrates the importance of ensuring – before work on a construction project commences – that the underlying agreements have the necessary language to trigger the additional insured endorsements in a contractor’s or sub-contractor’s CGL policy.  A great deal of collateral litigation (including depositions, a summary judgment motion, a trip to the First Department, and now a trial on remand) could have been avoided if the property owner had coverage counsel review the agreements and the CGL policy in advance.

On February 20, 2019, Justice Lebovits of the New York County Supreme Court issued a decision in Flintlock Constr. Servs. LLC v. Technology Ins. Co., 2019 NY Slip Op 30392(U), examining the “other insurance” clauses of two applicable insurance policies to determine the priority of coverage.

In some cases, more than one insurance policy may provide coverage for a given loss.  It is therefore necessary to determine the “priority of coverage” – i.e., whether one policy is “primary”, and therefore, must be exhausted before another “excess” policy kicks in, or whether coverage will be apportioned among co-primary policies.  This determination is governed by a standard policy provision, known as the “other insurance” clause.

Justice Lebovits explained how such “other insurance” clauses are interpreted:

Where several policies cover the same risk, each of which was sold to provide the same level of coverage, as here, the priority of coverage between the policies is determined by comparison of their “other insurance” clauses. Such clauses limit an insurer’s liability where other insurance may cover the same loss. This may be accomplished by providing that the insurance provided by the policy is excess to the insurance provided by other policies, in which case the “other insurance” clause is known as an excess clause. On the other hand, an “other insurance” clause may limit the insurer’s liability by providing that, if other insurance is available, all insurers will be responsible for a stated portion of the loss; an “other insurance” clause of this kind is known as a pro rata clause.

In this case, the applicable “other insurance” clause of the Liberty Policy is an excess clause, because it provides that the insurance was “excess of such [other valid and collectible] insurance” and that Liberty had no duty to defend. The “other insurance” clause in the Technology Policy is a pro rata clause, because it provides that where other primary insurance is available, “we will share with all that other insurance,” either by equal shares or in proportion to policy limits. The First Department has held that

where one of two concurrently applicable insurance policies contains an excess “other insurance” clause and the other contains a pro rata “other insurance” clause, the excess clause is given effect, meaning that the coverage under the policy containing the excess clause does not come into play, and the carrier’s duty to defend is not triggered, until the coverage under the policy containing the pro rata clause has been exhausted.

On the other hand, where both policies contain excess “other insurance” clauses, so that if both excess clauses are given effect the result would leave the insured without any coverage, then the clauses are deemed to cancel each other out, and the insurers must cover the loss on a pro rata basis, as co-primary insurers.

Therefore, giving effect to the Liberty Policy’s excess “other insurance” clause, Flintlock’s coverage as a named insured under the Liberty Policy is excess to Flintlock’s additional insured coverage under the Technology Policy. Thus, it is declared that Liberty’s obligation to defend Flintlock in the Underlying Action from this point forward will not be triggered until Flintlock’s coverage under the Technology Policy has been exhausted.

(Citations omitted).

On January 31, 2019, Justice of Engoron of the New York County Supreme Court issued a decision in Southwest Mar. & Gen. Ins. Co. v. Main St. Am. Assur. Co., 2019 NY Slip Op 30240(U), holding that a blanket additional insured endorsement to a subcontractor’s CGL policy required that the subcontract be executed prior to the underlying injury in order to establish coverage.

This case involves a frequently-litigated coverage issue in construction-related matters:  determining who qualifies as an additional insured under a blanket additional insured endorsement to a contractor’s CGL policy.  Property owners, construction managers and general contractors typically require “downstream” parties on a construction project (i.e., subcontractors) to provide CGL coverage to them.  This is usually accomplished by means of a blanket additional insureds endorsement on the contractor’s policy.

Here, a general contractor (ADC) sought defense coverage as an additional insured under the CGL policy of a subcontractor (Northstar) for a lawsuit by an injured Northstar employee.  Northstar’s CGL policy, issued by Main Street America Assurance Company (MSA), provided that “Any person(s) or organization(s) for whom you are performing operations is . . . an additional insured, when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy.”  (Emphasis added).  Northstar disclaimed coverage and a lawsuit followed.

Justice Engoron denied summary judgment, finding that there was an issue of fact as to whether ADC’s subcontract with Northstar was executed prior to the date of the underlying injury.  The Court explained:

Contrary to the argument advanced by ADC, this Court finds that that clear and unambiguous language of the policy issued to Northstar by MSA requires that ADC and Northstar had to have executed a written subcontract agreement prior to the date of the underlying accident in order to trigger coverage for “[a]ny person(s) or organization(s) for whom you are performing operations.” We reject MSA’s reliance on Travelers Indemnity Co. of America v Royal Insurance Co. of America, 22 AD3d 252 (1st Dep’t 2005), as persuasive on this issue. The policy language at issue in Travelers is distinguishable in that it had a comma between the phrase “written contract” and the word “agreement,” leading the First Department to find ambiguity in the coverage requirements. This Court finds, as a majority of other jurisdictions have found, that use of the words “written contract or agreement” unambiguously requires a written document. Persuasive on this issue is Quincy Mutual Fire Ins. Co. v. Imperium Ins., 636 F. App’x 602, 605 (3d Cir. 2016) (holding that “to read it otherwise would render ‘written’ meaningless”).

However, an issue of fact remains as to when the written agreement between ADC and Northstar was executed, and accordingly, an issue of fact as to whether the additional coverage of Northstar’s policy applies to ADC. MSA met its initial prima facie burden of demonstrating that the contract was executed after the underlying accident, by providing the deposition testimony of Mr. Barcelos, shifting the burden to ADC. However, ADC sufficiently rebutted such a showing by submitting the affidavit of its administrative assistant, Ms. Mehl, who asserts it was her custom and practice to date the documents on the date the subcontractor signs.

This decision highlights the need for would-be additional insureds to ensure that their relationship with the named insured is structured to meet the requirements of the additional insured endorsement.  Here, the court concluded that the language in the additional insureds endorsement requiring that the parties have “agreed in writing in a contract or agreement” means that an executed agreement is a necessary condition of coverage.  However, other courts have distinguished between policy language requiring a “written agreement” and an “executed agreement.”  See, for example, our previous post on J.T. Magen & Co., Inc. v. Atlantic Cas. Ins. Co., 2018 NY Slip Op 31584(U) (Schecter, J.) (unsigned purchase order could be sufficient to trigger additional insured coverage where the policies “merely require a written agreement, not an executed agreement”).