Hurwitz & Fine, P.C. | Law Firm

Coverage Pointers

Volume VII, No. 5
Friday, September 9, 2005

A Biweekly Electronic Newsletter
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In 3-2 Decision, Majority holds To a Broad Definition of “Arising out of the Work” as to the Additional Insured Endorsement

Here is a common fact pattern that gives us the opportunity to revisit an issue the courts have struggled with over the years: Where there is an additional insured provision in the general contractor’s agreement with a subcontractor, what claims fall under the policy?

Plaintiff Turner Construction Company, as general contractor, contracted with plaintiff Albanese Development Corporation for the construction of a high-rise apartment building owned by plaintiff Chelsea Associates. Plaintiff Liberty Mutual Insurance Company insured Turner, Chelsea and Albanese. Turner subcontracted the concrete work to defendant Laquila-Pinnacle. The subcontract contained an indemnification provision wherein Laquila agreed to defend, indemnify and hold harmless Turner from all claims of bodily injury by Laquila's employees, regardless of any negligence on Turner's part. Laquila was required to procure general liability insurance naming Turner and Chelsea as additional insureds, and such insurance was to be primary. Gerling thereafter issued the insurance Laquila was required to obtain.

Vincent Langella, a laborer employed by Laquila, commenced an action against Turner, Chelsea and Albanese arising from injuries allegedly sustained when, en route to his work, he tripped on plywood used as a temporary ramp near the entrance to the job site.

The majority, in a 3-2 decision, holds that the three members of the Turner group were additional insureds on Laquila's policy with Gerling and that such insurance was deemed primary. Furthermore, the majority finds that the plaintiff “was injured as he was entering the job site, en route to his work assignment….and therefore the "instant injuries, occurring during such a movement, must be deemed as a matter of law to have arisen out of the work” Finally, the majority finds that any negligence by the Turner group is not material to an additional insured endorsement.

The majority cites its own decision in Consolidated Edison v. Hartford Insurance Company, 203 A.D.2d 83 (1994) in support of its decision. In the Con Ed case, the additional insured endorsement read:

The 'Persons Insured' provision is amended to include as an insured [Con Edison] but only with respect to liability arising out of operations performed for such insured by or on behalf of the named insured [Tara].

(The) above quoted policy language focuses not upon the precise cause of the accident, as defendants' urge, but upon the general nature of the operation in the course of which the injury was sustained. Here, Mr. Calise, an employee of a subcontractor hired by Tara, was working in furtherance of his duties under Tara's contract with Con Edison when the steam valve exploded resulting in his injuries. Specifically, Mr. Calise was injured while conducting operations for plaintiff by or on behalf of Tara in the course of removing debris and other material accumulated from Tara's contracted insulation work. The fact that the cause of the injury may have been plaintiff's fault, or due to plaintiff's negligence, is immaterial.

Thus, the majority holds that entering the work site arose “out of the work” of the subcontractor. Furthermore, they find that the subcontract expressly exempted the Turner group from any disclaimer of coverage based on its own negligence.

The dissent takes the position that there was neither an obligation to defend nor to indemnify plaintiffs in the underlying personal injury lawsuit against them by Langella. They find the additional insured clause has limited application as it applies "only with respect to liability arising out of [Laquila's] work performed for [plaintiffs] by [Laquila] or on [Laquila's] behalf." Absent a showing of liability on plaintiffs' part arising out of Laquila's work, the additional insured clause was never triggered.

The dissent disagrees with the majority’s reliance on the Con Ed decision. The dissent sees the clause as not extending additional insured coverage for "your [i.e., Laquila's] work" performed for the named insured (as the majority holds), but only for the additional insured's liability arising out of Laquila's work. The dissent deems the majority's interpretation as a “distortion of the clause's clear language.”

So, we have in this case the two sides of the additional insured argument played out between the majority and the dissent. Pursuant to CPLR 5601(a), an appeal as of right can be taken to the Court of Appeals. Watch this channel for more on this important issue.

Appellate Division, First Department
Pre-Transportation Equity Act Case Finds Question of Fact On Rental’s Owner and Serious Injury

Here’s a case soon to be extinct with the advent of the Transportation Equity Act that removes vicarious liability from lessors of automobiles in New York. Here, there was a question of fact whether Budget was the owner of the vehicle due to successor liability. The Court also found

triable issues of fact as the plaintiffs had not, as a result of the accident, sustained serious injuries pursuant to Insurance Law § 5102[d]. Plaintiffs' expert conducted cervical and lumbosacral range-of-motion tests, compared each plaintiff's ranges of motion to the norm, and designated numeric loss-of-range-of-motion percentages ranging from 25 to 50 percent. This evidence was sufficient to raise factual issues as to whether the alleged injuries were serious within the meaning of the statute.

In this feature to the newsletter, we highlight recent no-fault arbitration awards. The compilation and publication of these awards is not at the same level as traditional reported case law. There is no single source to conduct comprehensive research in the area. This feature seeks out notable current awards and judicial determinations and provides them to our subscribers.

We encourage the submission of no-fault awards, including Master Arbitration awards that address interesting issues. These can be submitted to Audrey Seeley at aas@hurwitzfine.com. With all submissions, we ask that you forward a redacted version of the award omitting the parties’ names and that the document be in PDF format. For copies of these decisions, contact Audrey.

8/29/05 In the Matter of the Arbitration between the Applicant and Respondent

CPLR Requirement For Infant’s Representative To Obtain Court Order To Commence Arbitration Applies To No-Fault Arbitrations.

Here is the Angle: Eligible injured person, who is an infant, assigns his benefits to provider but the provider, as applicant in the no-fault arbitration, needs court approval, pursuant to CPLR §1209, prior to commencement of the proceeding. Remember, the assignee stands in the shoes of the assignor, BUT NEVER stands in a better position than the assignor. The fact that the eligible injured person is not the Applicant is of no consequence as to whether the assignee/Applicant must obtain prior court approval to commence the arbitration.

The eligible injured person, who was an infant, was injured in a July 16, 2004, motor vehicle accident. The infant assigned his rights to his medical provider who is the Applicant in this arbitration. Arbitrator Hirschhorn denied the claim without prejudice as the Applicant failed to obtain court approval, pursuant to CPLR §1209, to commence the arbitration. Arbitrator Hirschhorn noted that the fact the Applicant was the assignee is of no consequence. The assignee never stands in a better position that the assignor. See, Int. Ribbon Mills Ltd. v. Arjan Ribbons, Inc., 36 NY2d 121, 126 (1975). Moreover, it should be noted that CPLR §1209 was amended to exclude UM and SUM arbitrations from requiring court approval, but no-fault arbitrations were not excluded.

9/6/05 In the Matter of the Arbitration between the Applicant and Respondent

Applicant Lacks Standing As Purported Assignment of Benefits Assigned Right of Provider/Applicant To Hold Eligible Injured Person Liable For Medical Bills If Insurer Did Not Pay.

Here is the Angle: If the assignee is going to accept and assignment of benefits from the patient/eligible injured person then the assignee has to take all rights and liabilities.

The Analysis: Arbitrator Brackman denied Applicant/assignor’s claim as it lacked standing to maintain it. The assignment produced was not a transfer of all rights and benefits to the Applicant. The Applicant had the ability to revoke the assignment to hold the eligible injured person personally liable for the medical bills if the insurer did not pay the claim. Arbitrator Brackman held that this vitiates the claim’s viability and is contrary to the plain meaning of assignment of rights.

Across Borders

Visit the Hot Cases section of the Federation of Defense & Corporate Counsel website, www.thefederation.org ranked among the top five legal research websites in an article published in Litigation News, a publication of the Litigation Section of the American Bar Association. Dan Kohane serves as the FDCC’s Website Editor Emeritus.

Self-insured Entity Not entitled to Advantages by Virtue of Position as Insurer and Insured
The plaintiff, Raymond Hassett, a lieutenant with the New Haven police department, brought this uninsured motorists action against the defendant city of New Haven n1 seeking damages under the city's self-insured uninsured motorists policy. The action arose from an accident in which the plaintiff, while on duty in his police vehicle, was struck by a negligent uninsured motorist. Because of the accident, the plaintiff was unable to work for approximately three weeks. The defendant claims that the court improperly concluded that economic damages, determined pursuant to General Statutes § 52-572h, included (1) the difference between the amount of medical bills incurred and the amount paid, which subsequently was forgiven by the medical care providers voluntarily, not pursuant to any insurance plan or contract and (2) lost wages paid by workers' compensation. n2 The defendant claims, in the alternative, that the difference between the medical bills incurred and the amount paid should be deducted as a collateral source pursuant to General Statutes § 52-225b. A self-insured entity, like the defendant, is not entitled to advantages by virtue of its position as both insurer and insured that are not open to commercial insurers. In so holding, the Court restated the goal of the legislature in creating a uniform scheme of uninsured motorist coverage, regardless of the nature of the insurer.

Employment-Related-Practices Exclusion And The Refusal To Employ Exclusion Preclude Coverage
Plaintiffs commenced an action against Employers and Minnesota Fire, seeking a declaration that those insurers breached a duty to defend the plaintiffs against claims and to satisfy that portion of the settlement that was not paid by Fidelity and Deposit and Farm Bureau Mutual. The petition further asserted that both insurers had acted in bad faith in handling the claims and sought recovery of attorney fees incurred by the plaintiffs. With respect to Employers, the court concluded that it did not act in bad faith in refusing to defend these claims. As a result of policy exclusions, it did not insure either Plaintiff against liability or costs of defense and was not liable for the sums awarded against it by the district court. The court applied the employment-related-practices exclusion and the refusal to employ exclusion to preclude coverage. The court found that the employment-related-practice exclusion was based on a type of conduct that caused the alleged personal injury, while the refusal to employ exclusion was based on a particular consequence befalling the third-party claimant, i.e., a loss of employment.

Insurance Company Required to Defend Former Insured for Damages Accrued While Policy Existed.
The Sixth Circuit held that State Farm had to provide a legal defense for a former insured building owner for damages resulting from negligence that occurred while the building owner was insured by State Farm. Owner McGowan owned a four unit apartment building. One of the units was occupied by the injured party. McGowan sold the building to a third party in May of 2001, but the injured occupants continued to occupy the premises. In September of 2001, McGowan cancelled the policy, effective August 1, 2001. During a thunderstorm in October of 2001, a decaying tree next to the building fell through the roof of the injured party, killing one of the occupants. The injured party subsequently filed a lawsuit in state court to recover damages against McGowan. Her complaint alleged that McGowan had been negligent during the time that he owned the property by failing to correct the dangerous condition created by the presence of the rotting tree, and that McGowan's negligence caused or contributed to the death. Upon learning of the lawsuit, McGowan demanded that State Farm defend and cover the claims against him in the state-court action. State Farm refused. The court held that the policy was an occurrence policy, thus coverage is effective if the negligent act or omitted act occurs within the policy period, regardless of the date of discovery. McGowan contends that his failure to inspect and remove the decaying tree while he owned the apartment building was an occurrence within the meaning of the policy, to which the court agreed, requiring State Farm to provide a defense to McGowan in the Case.

Submitted by: Nancy R. Winschel, Esq. & Lisa A. Blackwood, Esq. ( Dickie, McCamey & Chilcote, P.C. )

Plaintiff’s Complaint Stated A Claim For Battery Which Was Covered Under the Policy
Defendant insurer argued that a policy did not provide coverage for claims of discrimination, constructive discharge, and IIED, on the grounds that the alleged damages were either caused by intentional acts or arose out of harassment and termination, such that the applicable exclusions would apply. The court concluded that the exclusion for damages arising out of harassment and termination applies to all three claims. The allegations of lewd and vulgar comments and unwelcome advances, intolerable working environment, and conduct causing emotional stress, all alleged damage that “arose out of harassment and termination. However the court found that plaintiff’s complaint stated a cause of action for battery (although it was not correctly identified) and the insurer had a duty to defend if allegations in the complaint stated a covered claim.

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No-Fault/SUM Arbitration Team

Reardon & Sclafani, P.C., Tarrytown (Vincent M. Sclafani of
counsel), for appellants.
Oshman & Mirisola, LLP, New York (David L. Kremen of
counsel), for Uton Ferguson and Burnett Robinson, respondents.
Kay & Gray, Westbury (Chris Katechis of counsel), for Baxter
Leach, respondent.

Order, Supreme Court, Bronx County (Alexander W. Hunter, Jr., J.), entered March 8, 2004, which, inter alia, denied defendant rental agencies' motion for summary judgment dismissing the complaint, unanimously affirmed, without costs.

Although the agencies maintain that they may not be held liable as owners of the allegedly offending rental vehicle, the record discloses triable issues as to the vehicle's ownership. The agencies' corporate representative testified that defendant Leach's rental agreement had been generated by the Ryder computer system and bore a Ryder number. The action as against Budget cannot be dismissed at this juncture since its corporate representative testified that Ryder had been merged with Budget, and accordingly Budget may have successor liability.

Triable issues of fact also precluded summary judgment dismissing the action upon the ground that plaintiffs had not, as a result of the accident, sustained serious injuries (see Insurance Law § 5102[d]). Plaintiffs' expert conducted cervical and lumbosacral range-of-motion tests, compared each plaintiff's ranges of motion to the norm, and designated numeric loss-of-range-of-motion percentages ranging from 25 to 50 percent. This evidence was sufficient to raise factual issues as to whether the alleged injuries are serious within the meaning of the statute (see Toure v Avis Rent A Car Sys., 98 NY2d 345, 350 [2002]; Lantigua v Williams, 305 AD2d 286 [2003]; Ramos v Dekhtyar, 301 AD2d 428, 429 [2003]). Plaintiffs' expert, on the basis of objective tests and examinations, also attributed each plaintiff's pain, stiffness and range-of-motion limitations to injuries sustained in the alleged accident, and opined that plaintiffs' injuries were permanent. He premised his conclusions additionally upon his review of contemporary MRIs, as well as treatment notes by other physicians, chiropractors and physical therapists.

While sustaining the action upon the aforementioned grounds, we note that the evidence [*2]does not disclose the existence of a triable issue as to whether plaintiffs were, by reason of injuries sustained in the alleged accident, prevented from performing substantially all of the material acts constituting their usual and customary activities for at least 90 of the first 180 days following the accident.

THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.

Mauro Goldberg & Lilling LLP, Great Neck (Anthony F.
DeStefano of counsel), for appellants.
Biedermann Hoenig Massamillo & Ruff, P.C., New York
(Joshua D. Bruch of counsel), for respondents.

Order, Supreme Court, New York County (Paul G. Feinman, J.), entered February 2, 2004, which denied plaintiffs' motion for summary judgment seeking a declaration that defendant Gerling America Insurance Company was required to defend and indemnify plaintiffs in an underlying personal injury action, reversed, on the law, without costs, the motion granted and a declaration made that Gerling is obligated to defend and indemnify plaintiffs and to pay all reasonable defense costs and disbursements and the settlement amount of the underlying action.

This appeal involves (1) whether a general contractor is entitled to insurance coverage as an additional insured despite claims that the injured worker was not engaged in an insured activity; (2) whether the general contractor was itself negligent; and (3) even assuming the general contractor should be covered, whether a hearing must be conducted by the IAS court to determine the reasonableness of the settlement in the underlying personal injury action.

Subsequently, Vincent Langella, a laborer employed by Laquila, commenced an action against Turner, Chelsea and Albanese (collectively, the Turner group) arising from injuries allegedly sustained when, en route to his work, he tripped on plywood used as a temporary ramp near the entrance to the job site.

The Turner group commenced the instant third-party action against Laquila based on separate indemnification and breach of contract causes of action. Following unsuccessful summary judgment motions by Langella and the Turner group, which were denied on findings that there existed various disputed issues of material fact, the latter settled with Langella for [*2]$305,000 and moved for summary judgment against Laquila and Gerling for defense and settlement costs incurred in the Langella litigation.

The IAS court denied the Turner group's motion, finding: (1) there was a question of fact regarding the Turner group's negligence liability to Langella, (2) there was no conclusive determination that Langella was actually injured while working, and (3) the Turner group's previous motion for indemnification had been denied.

There is no dispute that the three members of the Turner group were additional insureds on Laquila's policy with Gerling and that such insurance was deemed primary. It is clear that Gerling was legally obligated to defend and indemnify the
Turner group in the Langella action (see e.g. Structure Tone v Component Assembly Sys., 275 AD2d 603 [2000]; Consolidated Edison Co. of N.Y. v United States Fid. & Guar. Co., 266 AD2d 9 [1999]). It is further undisputed that Langella was injured as he was entering the job site, en route to his work assignment. The "contract could not be performed, of course, unless [the subcontractor's] employees could reach and leave their workplaces on the job site," and therefore the "instant injuries, occurring during such a movement, must be deemed as a matter of law to have arisen out of the work" (O'Connor v Serge El. Co., 58 NY2d 655, 657-658 [1982]). Any negligence by the Turner group is not material to an additional insured endorsement (see Consolidated Edison Co. of N.Y. v United States Fid. & Guar. Co., 263 AD2d 380, 382 [1999]). It is undisputed that the subcontract expressly exempted the Turner group from any disclaimer of coverage based on its own negligence. As to the contrary argument, the dissent itself acknowledges that several of our prior cases, starting with Consolidated Edison Co. of N.Y. v Hartford Ins. Co. (203 AD2d 83 [1994]), have declined to adopt its position, and we see no reason to adopt it now.

Finally, neither Laquila nor Gerling raised the issue now pressed on appeal, that the settlement amount of $305,000 agreed to by the Turner group to resolve the personal injury action was unreasonable, so a hearing on this issue would now be unwarranted (see Serio v Public Serv. Mut. Ins. Co., 7 AD3d 277 [2004]; Tishman Constr. Corp. of N.Y. v American Mfrs. Mut. Ins. Co., 303 AD2d 323 [2003]). We have considered the other claims raised by defendants and find them to be without merit.

All concur except Mazzarelli and Sullivan, JJ. who dissent in a memorandum by Sullivan, J. as follows:

I would affirm the order denying plaintiffs' motion for summary judgment seeking a declaration of coverage against defendant Gerling and declare in said defendant's favor that it has neither an obligation to defend nor to indemnify plaintiffs in the underlying personal injury lawsuit against them by Langella.

Gerling's Commercial General Liability policy issued to Laquila contained an additional insured endorsement which, insofar as relevant, provided:

WHO IS AN INSURED (Section II) is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of "your work" performed for [*3]that insured by you or on your behalf.

[W]e will consider the insurance provided by this endorsement to be primary insurance and any other insurance provided to the additional insured shall be in excess and not contribute with the insurance provided by this policy, only if your contract with the additional insured required this insurance to be primary.

The Certificate of Insurance named Turner, Chelsea and Albanese, plaintiffs herein, as "additional insureds."

While there can be no dispute that plaintiffs were named as additional insureds under the Gerling policy, plaintiffs cannot place themselves within the ambit of the additional insured clause. The clause has limited application; it applies "only with respect to liability arising out of [Laquila's] work performed for [plaintiffs] by [Laquila] or on [Laquila's] behalf." Absent a showing of liability on plaintiffs' part arising out of Laquila's work, the additional insured clause is never triggered. There has been no such showing here, since the case was settled by Turner for $305,000.

The only facts available as to the occurrence are that Langella, a Laquila employee, was injured when, exiting the job site, "his foot caught the edge of a sheet of plywood used as a temporary ramp, causing him to fall." According to Langella, "the plywood was turned up eight inches." Apparently, the plywood was part of a temporary walkway that led from the sidewalk to the building, which Langella had repeatedly used to enter and exit the construction site.

The majority's interpretation of Gerling's additional insured clause — that it is activated if the occurrence giving rise to the injuries arose "out of the work" — stems from this Court's decision in Consolidated Edison Co. of N.Y. v Hartford Ins. Co. (203 AD2d 83 [1994]), which, interpreting a clause similar to the one at issue here, held that the clause focuses not on the cause of the accident but upon "the general nature of the operation in the course of which the injury was sustained" (id.). The court held that the additional insured endorsement covered Consolidated Edison because the injury occurred in the course of the subcontractor-named insured's work. Of course, such an interpretation reads out of the clause the key words pertinent to its application here: "but only with respect to liability arising out of '[Laquila's] work'" (emphasis added). The clause does not extend additional insured coverage for "your [i.e., Laquila's] work" performed for the named insured, as the majority holds, but rather only for the additional insured's liability arising out of Laquila's work. The majority's interpretation is a distortion of the clause's clear language.

In disagreeing with the majority, I acknowledge that this court has followed Consolidated Edison Co. of N.Y. v Hartford Ins. Co. in Structure Tone v Component Assembly Sys. (275 AD2d 603 [2000]), Consolidated Edison Co. of N.Y. v United States Fid. & Guar. Co. of N.Y. (266 AD2d 9 [1999]), Consolidated Edison Co. of N.Y. v United States Fid. & Guar. Co. (263 AD2d 380 [1999]) and Tishman Constr. Corp. of N.Y. v CNA Ins. Co. (236 AD2d 211 [1997]), but not without dissent (see Tishman, id. at 211-213). Nonetheless, the fact remains that the interpretation placed on the clause by Consolidated Edison Co. of N.Y. v Hartford Ins. Co. distorts its plain meaning and has been rejected by this Court in interpreting a similar clause in [*4]the context of a non-construction case (see e.g. Greater N.Y. Mut. Ins. Co. v Mutual Mar. Off., 3 AD3d 44, 48-50 [2003]), where we felt free of its constraint. There is no justification for adhering to an interpretation that is so manifestly skewed and serves no useful purpose. Gerling is entitled to the benefit of the contractual bargain, which it entered in the clearest terms.

THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.