"Excess Insurance Case Summaries" from the ABA Spring 2020 Newsletter

Hurwitz & Fine Insurance Coverage Attorneys Dan D. Kohane, Steven E. Peiper, Agnieszka E. Wilewicz and Charles J. Englert III were featured in the American Bar Association's Tort Trial and Insurance Practice Section Spring 2020 newsletter for their excess insurance case summaries:

Insured’s Failure to Follow Excess Policy’s Conditions Does Not Always Bar Recovery Under That Policy
Charles J. Englert III

Plaintiff brought a motion for judgment on the pleadings seeking a declaration that it will never be required to provide excess coverage to defendants because the defendants selected primary insurance policies with terms more restrictive than the excess policies.

This action arises out of an underlying personal injury action where a dry wall contractor alleges that various parties, including defendants, negligently contributed to his injuries and violated the New York Labor Law. Harrison Street Residences (HSR) entered into an agreement with Pav-Lak Contracting (PLC), in which PLC agreed to act as construction manager for the work at HSR’s jobsite (the insured premises). The dry wall contractor was employed by a third-party (PG Drywall) and not either defendant. The agreement between HSR and PLC required that PLC, “procure and maintain insurance…at its own expense, until completion and final acceptance of the work, and that HSR be included as additional insureds on all General Liability…and Excess Liability policies.” PLC obtained two primary CGL policies, one policy issued by Colony Insurance Company (Colony) and another issued by State National Insurance Company (State National).

The Colony policy provided that an “insured” refers to:

any person or organization for whom you are performing operations 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 . . . only with respect to liability caused, in whole or in part, by your ongoing operations performed for that insured.

Colony then disclaimed coverage for the underlying suit, (1) of both defendants pursuant to its policy’s limitation that it would provide coverage to additional insureds “only with respect to liability caused by” PG Drywall, because it determined that that PG Drywall was not responsible for causing the injury, and (2) of HSR for an additional reason, i.e., because HSR had not entered into a written agreement with PG Drywall, it did not qualify as an additional insured pursuant to the requirements of the policy. In 2019, two years after its initial denial, Colony agreed to defend the defendants subject to a reservation of its right to (1) withdraw from the defense, (2) seek a declaration that it has no obligation to defendants, and (3) recover amounts paid.

The defendants also obtained three excess liability policies; one from Alterra Insurance Company, one from Admiral Insurance Company, and one from Evanston Insurance Company, the policies provided coverage in the order listed. The three excess policies were issued as follow form policies, each requiring that the conditions of the prior policy be met before coverage under a subsequent policy is afforded. The Alterra policy provided that coverage was only available through it when the underlying limits of the primary CGL policies had been reached, and provided the insureds met all of the terms and conditions of the underlying CGL policies. Additionally, the Alterra policy provided:

You, as a condition of this insurance, will require by written contract that all subcontractors working on your behalf maintain primary insurance naming you as an additional insured, which insurance shall be evidenced by certificates of insurance maintained by you and shall include the following: . . . You are included as an additional insured and such insurance as is required by your contract, and reflected by the certificate shall be primary and not contribute with insurance provided by this policy; and shall contain terms, conditions, and coverages not more restrictive than this insurance in the context of any claims to which this insurance also applies.

In May of 2017, Evanston, successor in interest to Alterra by way of merger, sent a letter to HSR wherein it denied coverage under the Alterra policy because, in part, Colony had denied coverage to HSR or Pav-Lak. Further, Evanston stated that because defendants had “failed to comply with the requirements of the above-cited Insurance Requirement endorsement, [Evanston] must decline coverage for [the Underlying Action] under the Excess Liability Policy.” Evanston reserved its right “to adopt the coverage position taken by State National.” On April 5, 2018, Evanston sent a letter to HSR stating that it would “monitor to the exhaustion of the underlying limits in connection with the defense and/or settlement of [the Underlying Action] under a full Reservation of Rights,” and that it “reserve[d] the right to investigate this matter and disclaim coverage for any damages that are not covered under the policy referenced above.” Evanston added that because its policy “follows form to the Admiral Excess policy” and the Admiral policy “does not provide broader underlying coverage than that provided in the underlying insurance,” any coverage restricted by either the Alterra policy or the Admiral policy would bar coverage under the Evanston policy.

Plaintiff moved for judgment on the pleadings alleging that Evanston not be required to cover defendants because the excess policies were issued following the Alterra policy, which provided that the terms of the underlying policy not be more restrictive than those of the excess policies. Evanston argues that because the underlying policy requires that “the putative additional insurance be in privity of contract with the Named Insured” and “the liability be caused in whole or in part by the Named Insured,” defendants have breached the terms of the Alterra policy, and therefore also breached the terms of any policy issued on a follow from basis of the Alterra policy.

The court disagreed with Evanston, stating that Evanston’s reliance on the doctrine that a breach of a condition precedent allows an insured to disclaim coverage is misplaced, in this context. The court explained that, while the insured may have breached a condition precedent in the excess policy by purchasing a primary policy with more restrictive conditions than the excess policy, the issuer of the primary policy may still choose provide coverage nonetheless. In the court’s view, the purpose of an excess insurance policy is to provide coverage in excess of what the underlying policies would provide. And that, “Plaintiff chose to enter into excess coverage agreements with Defendants, presumably understanding the purpose of these policies, and it is not clear how Plaintiff would suffer if it is ultimately required to provide excess coverage for an incident if the underlying insurers do, in fact, provide coverage. Plaintiff, therefore, is not entitled to a declaratory judgment that “it will never be required to provide coverage to Defendants.”
Summary of Evanston Ins. Co. v. Harrison St. Residences, LLC, No. 18 CIV. 4918 (GBD), 2020 WL 1529310 (S.D.N.Y. Mar. 30, 2020).


Nothing New under the Sun – Without a Requirement in Trade Contract that Additional Insured Coverage be Provided, Additional Insured Coverage is Not Provided
Dan D. Kohane

In a recent case involving questions of additional insured status, the New York Appellate Division (First Department) held that a plaintiff (Kiska Development) was not an additional insured under the defendant Mt. Hawley Insurance Company’s policy because Kiska’s contract with the named insured (Bayport) lacked the requisite “express and specific language requiring that [Kiska] be named as an additional insured”.

While the Kiska’s contract required Bayport to procure insurance naming a different company (“14 West”) as an additional insured, it only required Kiska to be a Certificate Holder, and the Certificate stated that it “does not amend, extend or alter the coverage afforded by the [policy]”.

Kiska cited various provisions of its contract with Bayport that required Bayport to indemnify it. The court, however, found that the indemnification obligation was different than an additional insured requirement. Also, a general provision incorporating the Kiska-14 West contract by reference did not require Bayport to procure additional insured coverage for Kiska.

On a different issue, Mt. Hawley conceded that 14 West is an additional insured under the policy that it issued to Bayport, but it contended that 14 West’s claim was academic because it was already receiving defense and indemnity from third-party plaintiff New York Marine and General Insurance Company (Kiska’s insurer).

The court found Mt. Hawley’s argument unavailing, ruling that the New York Marine policy (under which 14 West was an additional insured) is excess to Mt. Hawley’s policy (under which 14 West is also an additional insured). Therefore, the court held that Mt. Hawley — not New York Marine — should be defending 14 West in the main action.

Finally, the court ruled that, it was too early to determine indemnification obligations because there has to be a determination that Bayport was the proximate cause of the collapse of the wall.
Summary of Lexington Ins. Co. v. Kiska Dev. Grp. LLC, No. 112533/11, 2020 WL 1740167 (N.Y. App. Div. Apr. 9, 2020)


Classic Wind vs. Rain Battle – Tie Goes To The Jury
Steven E. Peiper

Plaintiff’s home was significantly damaged when Superstorm Sandy pushed ashore on October 29–30, 2012. At that time, plaintiff’s home was insured by the National Flood Insurance Program, an excess flood policy, and a Deluxe Homeowners’ policy issued by Allstate.

Allstate disclaimed coverage for any damage caused by flood/tidal waters, but acknowledged that some damage may have been attributable to wind damage and offered to resolve the claim for $10,742.02. Plaintiff rejected the offer, and commenced the instant lawsuit in December of 2013. Allstate eventually moved for summary judgment on the basis that the damage was flood or flood related. Allstate also cited the “weather” exclusion, and an exclusion which limited coverage to the predominant cause.

In support of its argument, Allstate submitted the affidavits of two retained expert engineers. Allstate also submitted the report of plaintiff’s retained expert engineer.

With regard to the experts, the Court noted that one of the engineers noted he could not determine the extent of damage that might have been wind driven. He did opine, however, that a large portion of the observed damage was directly attributable to wave damage and tidal forces.

Allstate’s other retained engineer opined that the predominant cause of the loss was water damage caused by the flood waters pushed by the storm. This particular engineer then opined that he did not believe windspeeds at the home would have reached a speed which would have caused the damage asserted by plaintiff. Any damage that would have been attributable to wind would have been minimal.

However, plaintiff’s retained expert conclusively opined that wind speeds were capable of causing structural damage to the insured dwelling. Accordingly, plaintiff’s expert posited that it was impossible to know what losses were caused by flood and what losses were attributable to wind.

On that basis, the Court found that Allstate failed to meet its burden on its motion for summary judgment. The first expert, who equivocated in his response, was precluded as speculative. Where the expert could not provide testimony on the extent, if any, of wind damage, it was impossible for him to therefore conclude the loss was predominantly caused by flood. Allstate’s second expert’s opinion was directly countered by plaintiff’s own expert engineer. In such a circumstance, where two experts present compelling and supported views, a question of fact necessarily must result. On that basis alone, the reliance upon the flood exclusion was insufficient to support summary judgment.

The Court also found a question of fact on the applicability of the “weather conditions” and the predominant cause of loss exclusions, respectively. The first provision precluded coverage for losses where a “weather condition” contributed with an otherwise excluded cause of loss. The court noted that only the “dominant, efficient and proximate cause of loss” controlled whether the damage was covered. As such, where a question of fact existed as to the dominant, efficient and proximate cause of the loss it followed that a question of fact as to the application of this exclusion had to be found. Along this same logic, Allstate’s reliance upon the predominant cause exclusion was also foiled on a question of fact.

In so holding, the Court rejected the theory that the entire storm was a “weather condition” that contributed to an excluded cause of loss (flooding). Such a conclusion would apply the weather exclusion to losses which may have otherwise been covered (wind), and thus make hurricane coverage illusory.
Summary of Ain v. Allstate Ins. Co., 181 A.D.3d 875 (N.Y. App. Div. 2020)


Eleventh Circuit Holds that Large Inflatable Beach Ball that Allegedly Injured Orlando Rum Fest Participant was Unambiguously an “Amusement Device” Sufficient to Trigger Amusement Device Exclusion
Agnieszka A. Wilewicz

Robert Hunt was attending Orlando’s “Rum Fest 2017” when he was allegedly hurt. The festival, which featured rum and reggae, was put on by a complex of bars, restaurants, and nightclubs in Downtown Orlando, and it included a variety of amusements. One of those objects was an “extra-large, heavy, inflatable beach ball to be thrown into the air and pushed around by attendees”. Hunt claimed that he sustained severe ligament and tendon injuries when he “used his outstretched arms and hands to push the extra-large beach ball away from him to prevent it from hitting him in the head.” Thus, in his suit against the complex, he alleged five various instances of negligence, stemming from purported duties owed to participants.

In the related coverage action, the complex’s carrier had issued a commercial general liability policy with standard defense and indemnification language. At issue, however, was the policy’s “Amusement Devices” Exclusion. The exclusion barred coverage for any loss allegedly arising out of the use of an “amusement device,” which was defined non-exhaustively to include, among other things:

1. Any mechanical or non-mechanical ride; 2. Any device that requires the user to strike, punch, or kick; 3. Rock climbing walls, Velcro walls and similar scaling devices; 4. “Moon Bounces,” “Moon Walks,” “Space Walks,” and similar inflatable games and devices; 5. Laser tag, bungee jumping, Sumo wrestling, human spheres, slides, water slides and similar games and devices; 6. Gymnastic equipment; 7. Mechanical bull, horse, surfboard, skateboard and similar devices; 8. Dunking booth or tank; and 9. Trampoline.

The district court found this language unambiguous (“although it suffered from a deplorable lack of serial comma”) and found no defense or indemnity obligation. The Circuit Court found the same. Considering the facts alleged in the complaint alone, it was clear that the beach ball injury involved an “amusement device”. The list in the exclusion was not exhaustive, so the fact that it was not expressly listed was not dispositive. Rather, since the ball was “struck” or “pushed” by Rum Fest attendees at one another, it was a “device that requires the user to strike, punch, or kick” it around. As the allegations fell entirely within the exclusion, neither a defense nor indemnification were owed.
Summary of Princeton Excess & Surplus Lines Ins. Co. v. Hub City Enterprises, Inc., No. 19-14193, 2020 WL 1510209 (11th Cir. Mar. 30, 2020).

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