Coverage Pointers - Volume XVI, No. 11S
Dear Coverage Pointers Subscribers:
First of all, Happy Thanksgiving. From our homes and offices to yours, we wish you the most joyous holiday.
It is truly a rare occasion when our highest court, the New York State Court of Appeals, hands down three significant decisions in a matter of two days. In the October 24th issue, with my crystal ball polished to a shining brilliance, I advised:
There were three very interesting Court of Appeals cases argued this week and last in Albany with decisions expected in the next 60 days or so:
• No. 187 Nesmith v. Allstate Insurance Company, which deals with number of occurrences in the lead paint context;
• No. 203 Strauss Painting, Inc. v. Mt. Hawley Insurance Company, involving excuses provided for late reporting and may reach some issues relating to the breadth of additional insured clauses;
• No. 216 Sierra v. 4401 Sunset Park, LLC, which focuses on the proper way for an insurance company to disclaim when notice is given by another insurer, rather than an insured.
All three decisions came down right at the 60-day mark and we report them here, for your Thanksgiving weekend reading. One might conclude that each of the three were more favorable to insurers than not (although the Sierra decision might cut both ways) and Judge Robert Smith, who leaves the bench at the end of December, authored Nesmith and Sierra. Strauss was per curium.
Judge Smith, who will be the keynote speaker at the DRI Insurance program in New York next week, has been the most significant insurance scribe on the high court over his career. When he leaves, we may see an uncomfortable shift in the Court’s approach to insurance issues.
My thanks go out to Beth Fitzpatrick ([email protected]) for writing the Nesmith summary below and to Steve Peiper([email protected]) for his authorship of the Sierra review. I am responsible for the Strauss discussion.
Speaking of lead, I would be remiss if I did not remind everyone that we are not just a coverage firm, but have a long lasting environmental and toxic tort defense practice that dates back to the days of Love Canal. With attorney staffing in Buffalo, Albany, the Hudson Valley and Long Island, the well-traveled toxic tort team covers all of New York State, including the lead-paint "hot zones" of Buffalo, Rochester, and Utica, NY. Should you have a "situation" involving lead paint, asbestos, or any other toxic substance, please contact our toxic tort chair V. Christopher Potenza: [email protected].
Dan D. Kohane
Hurwitz & Fine, P.C.
11/25/14 Nesmith v. Allstate Insurance Co
New York State Court of Appeals
Non-Cumulation Clause Limits Recovery
In the last of the three coverage decisions issued by the New York Court of Appeals in as many days, the court considered the effect of a non-cumulation clause included in a series of liability insurance policies issued over successive policy periods. The court, citing its 2005 decision Hiraldo v. Allstate Insurance Co., 2005, held that claims, on behalf of the children of two different tenants, seeking recovery from exposure to lead paint during multiple policy periods, were limited to one policy limit.
The policy issued by Allstate to the landlord of a two-family home maintained a liability limit of $500,000 per occurrence and the following non-cumulation provision:
Regardless of the number of insured persons, injured persons, claims, claimants or policies involved, our total liability under the Family Liability Protection coverage for damages resulting from one accidental loss will not exceed the limit shown on the declarations page. All bodily injury and property damage resulting from one accidental loss or from continuous or repeated exposure to the same general conditions is considered the result of one accidental loss.
The pertinent facts were as follows: two different families lived in the Allstate insured’s apartments, one from November 1992 (Nesmith) until September 1993, and another moved in in September 1993 (Young). Children from both tenants were found to have elevated lead levels and, in 2004, two separate actions against the landlord for injuries allegedly caused by lead exposure were brought. The first tenant’s action was settled for $350,000, which Allstate paid. The second suit settled for the $150,000 that Allstate claimed was the remaining coverage. The parties reserved the issue of the applicable policy limit for future litigation.
In the coverage litigation that ensued, the Supreme Court found that it could not conclude that the children in the two separate cases were injured as a result of exposure to the same general conditions and thus, two separate policy limits were available. The Appellate Division reversed, citing Hiraldo, opining that the renewal of the policy could not make an additional limit available.
Hiraldo involved a claim by one child who lived in the building for three years, while three successive Allstate policies, each with a limit of $300,000, were in force. The claimant sought recovery of a separate limit under each of the policies, contending that there was $900,000 of coverage available. The court rejected the argument, relying on the non-cumulation clause which was similar to the one present here.
The argument made here in attempting to differentiate the claim from Hiraldo was that the alleged injuries to Young’s children and to Nesmith’s grandchildren were separate losses because they did not result from continuous or repeated exposure to the same general conditions. The court rejected the argument, finding that both sets of children were exposed to the same hazard, lead paint, in the same apartment. While they may not have been exposed to exactly the same conditions, the court noted the use of the words “general conditions” in the non-cumulation clause. The court found no basis for inferring that a new lead paint hazard had been introduced into the apartment, but instead concluded that the landlord’s remedial efforts were not wholly successful and thus, the same general conditions, to wit, the presence of lead paint, continued to exist. The court thus concluded that only one policy limit was available.
Justice Pigott dissented, rejecting that the majority’s conclusion that because the Young and Nesmith children were exposed to the same hazard, lead paint in the apartment, only one policy limit was triggered. Justice Pigott opined that this interpretation was inconsistent with the reasonable expectations of the insured. “This conclusion would mean that when the insured renewed his policy and paid premium, he procured less protection. If the insured knew that his later policies would not cover lead paint injuries occurring after his remediation efforts, he surely would not have considered purchasing the insurance at essentially the same premium from the same insurer.”
Beth’s Editors Note: The majority decision is consistent with New York court’s enforcement of non-cumulation clauses in liability policies. It is an expansion of the court’s holding in Hiraldo and one questions what acts the landlord would have had to engage in for the court to find the same general harmful conditions were not present and if insureds will be guided by Justice Pigott’s comment regarding the advisability of renewing a policy with the same insurer and in the process obtaining less coverage for essentially the same premium.
11/24/14 Strauss Painting, Inc. v. Mt. Hawley Insurance Company
New York State Court of Appeals
Under an ISO CG 20 33 Endorsement, Additional Insured Status Under CGL Policy Does Not Exist Unless the Trade Contract Specifically Requires It
Let’s go through the facts:
- By agreement, dated September 3, 2008, Strauss Painting/Creative Finishes (Strauss) contracted with the Metropolitan Opera Association (“Met”) to do painting work at the Met premises (“Agreement”);
- The Agreement called for trade indemnity and required Strauss to purchase and maintain “contractors liability insurance” to protect the Met for claims that may “arise out of or result from” Strauss’ operations;
- Strauss was obligated under the Agreement to obtain three kinds of insurance:
- Workers’ Compensation Insurance;
- An Owners and Contractors Protective Liability Policy (“OCP”) naming Met an as additional insured;
- A Commercial General Liability Policy (“CGL”).
Drewes was the Strauss VP and Drewes signed the contract on Strauss/Creative’s behalf. An OCP policy was never acquired.
Strauss acquired a CGL policy with Mt. Hawley which was endorsed with a CG 20 33 07 04 ("Additional Insured — Owners, Lessees or Contractors – Automatic Status When Required in Construction Agreement with You"), which specifies as follows:
"WHO IS AN INSURED is amended to include as an additional insured any person or organization for whom [Strauss is] performing operations when [Strauss] 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 [Strauss's] policy" (emphasis added).
Under the policy, "such person or organization" would be an additional insured with respect to liability for bodily injury so long as the injury was caused, at least in part, by Strauss's acts or omissions or "[t]he acts or omissions of those acting on [Strauss's] behalf." The policy contained the usual notice requirements.
The Accident, the Personal Injury Lawsuit and Notice to the Insurers
On September 16, 2008, Mayo (Mayo), a Creative employee, was injured while working. Drewes learned of the accident that same day and knew that Mayo was hospitalized. The next day Drewes called his "primary contact" at I. Dachs & Sons (Dachs), the insurance broker for both Creative and Strauss, and brought up Mayo's accident. He claimed that he was "[led] to believe by [the broker] that there was no need to notify the carrier, the general liability carrier, because it was a workers' compensation claim."
Two months later, Mayo sued the Met alleging negligence and Labor Law violations. The Met received the summons and complaint in the Mayo lawsuit from the Secretary of State on December 5, 2008.
Met tendered the Summons and Complaint to its own CGL carrier, Travelers, and to Strauss but not to Mt. Hawley. The attorney advised Strauss that the Met expected to be indemnified and held harmless to the fullest extent permitted by law, as agreed to by Strauss in the contract.
On December 29, 2008, a representative of Travelers wrote to Strauss, Creative, Nova and Dachs. She stated that Travelers was the general liability insurer for the Met and Lincoln Center, and that Travelers had received a complaint alleging that Mayo had been injured while working for Creative at the opera house; she then recited Strauss's obligation under the contract to indemnify and hold the Met harmless from claims such as the Mayo lawsuit. On January 12, 2009, Mt. Hawley's broker received notice of the Met's claim (including a copy of Travelers' December 29th letter) from Dachs. Mt. Hawley's broker then faxed the Met's claim to Mt. Hawley, which acknowledged receipt on January 14, 2009.
Mt. Hawley's Response to Strauss's and the Met's Tenders and the Met's Third-Party Action
On February 3, 2009, Mt. Hawley wrote to Strauss to deny coverage on the basis of late notice because Strauss was aware of this occurrence on the date it occurred and that it was reviewing the information as to whether the Met qualified as an additional insured.
In a letter to Travelers, also dated February 3, 2009, Mt. Hawley first observed that the contract between the Met and Strauss/Creative nowhere stated that Lincoln Center was to be indemnified or made an additional insured under any policy issued to Strauss.
Questions before the Court of Appeals:
- Whether Strauss timely notified Mt. Hawley of Mayo's accident;
- Was the Met an additional insured on Strauss's CGL policy with Mt. Hawley;
- Did Mt. Hawley promptly notify the Met that it was disclaiming coverage on account of untimely notice?
Notice to the broker was not notice to Mt. Hawley
Strauss argued that it gave notice to Dachs, as was its usual and customary practice, and relying on Mighty Midgets v Centennial Ins. Co. (47 NY2d 12 ), it took the position that it gave notice as soon a practicable or it was otherwise excused by giving the broker notice. The court rejected the argument. In the Mighty Midgets case, an unsophisticated insured (a little league football team) gave notice to a broker that represented the insurer as well in producing the policy. Here, there was a sophisticated insured and its own broker (without that close connection to Mt. Hawley).
Met was not an additional insured under the Mt. Hawley policy
Under the additional insured endorsement of Strauss's CGL policy, whether the Met was an additional insured hinges on whether Strauss and the Met "have agreed in writing in a contract or agreement that [the Met] be added as an additional insured on [Strauss's] policy." The Met argues that insurance requirements of the trade contract required that coverage. It provided in part:
- Owners and contractors protective liability insurance with a combined single limit of $5,000,000.00. Liability should add the Metropolitan Opera Association as an additional insured and should include contractual liability and completed operations coverage" (emphasis added).
- "Comprehensive General Liability. Combined coverage for property and bodily injury with a minimum single limit of $5,000,000.00.
Since the paragraph referencing the CGL coverage did not require the Met to be listed as an additional insured on THAT policy, Mt. Hawley’s CGL AI endorsement did not trigger AI coverage for the Met under the Mt. Hawley policy.
The Court did not have to reach the question of the timeliness of Mt. Hawley’s disclaimer to the Met
Since the Met did not qualify as an AI, there was no obligation on Mt. Hawley’s part to disclaim promptly.
Dan’s Editors Note: Originally, there was a hope that this case would clarify the breadth of additional insured coverage under an AI endorsement but that question never reached the Court of Appeals because the Court found that the CGL policy did not provide additional insured coverage.
The opinion is important because it underscores that the Court of Appeals and the courts of this state will and should pay careful attention to trade contract requirements for additional insured coverage. Since the contract between the Met and Strauss did not require that the CGL policy provide AI status, and the AI endorsement required that such a provision be in the contract for AI status to trigger, the Met did not enjoy additional insured status.
11/24/14 Sierra v 4401 Sunset Park, LLC
New York State Court of Appeals
‘Tis Always Better to Give, than Receive: Court of Appeals Holds that Coverage Denial Only Sent to The Additional Insured’s Own Carrier is Violative of Insurance Law 3420(d)(2)
Plaintiff, Sierra, was injured in a workplace accident on August 18, 2008. The owner, Sunset, through its managing agent, was aware of the incident involving Mr. Sierra almost immediately. Rather than providing notice at that time, however, it was not provided until the end of November. At that time, Sunset only provided notice to their own carrier, GNY. For some reason, Sunset did not provide notice of the incident to Scottsdale who, as the insurer for plaintiff’s employer, also provided additional insured status to Sunset for this loss.
Indeed, notice was not provided to Scottsdale until January 6, 2009. At such time, notice was only provided by GNY, as Sunset’s carrier. GNY requested that Scottsdale agree to provide a defense and indemnity to Sunset for the loss involving Mr. Sierra. Twenty-seven days later, Scottsdale disclaimed coverage on the basis that Sunset failed to provide timely notice of the occurrence (NOTE: this was a pre-prejudice policy). However, the denial was only issued to GNY. It appears a copy of the denial was not sent to Sunset or Sunset’s attorney.
Sunset later challenged the Scottsdale disclaimer, and the trial court agreed that the denial was invalid. Accordingly, Scottsdale was ordered to provide defense and indemnity. On appeal, the Appellate Division further held that the denial, which, again, was only issued to GNY (not Sunset directly), was not compliant with Insurance Law 3420(d)(2). In turn, the denial failed under the Insurance Law, and Scottsdale was thereby precluded from relying upon a breach of a condition precedent (here, notice) to deny coverage.
Steve’s Editor’s Note: In our December 21, 2012, issue of Coverage Pointers, our Editor queried whether this case was different from others which had previously held that notice of a denial to the putative additional insured’s own carrier was substantial compliance with Insurance Law 3420(d)(2). Specifically, Dan asked if this case was different than those that came before it … why?
Our write up from Coverage Pointers noted:
12/19/12 Sierra v 4401 Sunset Park, LLC
Appellate Division, Second Department
A Head Scratcher’s Paradise: When a Tender Is Made by an Insurer on Behalf of Its Insured to an AI Carrier, the Insured Is Entitled to Receive Notice of Disclaimer, or Is It?
Scottsdale issued a certificate of insurance to the 4401 Sunset Park, LLC (“4401”), and Sierra Realty, in accordance with a construction agreement. On August 18, 2008, Juan Sierra, allegedly was injured while working in the subject building.
On January 6, 2009, 4401 and Sierra Realty’s own insurer, Greater New York Insurance Company (“GNY”), tendered to Scottsdale. On February 2, 2009, Scottsdale disclaimed coverage and rejecting the tender, on the grounds that the GNY letter constituted late notice of the accident and did not comply with terms of the Scottsdale policy. Scottsdale did not send this letter to 4401 or Sierra Realty.
Sierra Realty and 4401 moved for summary judgment declaring that Scottsdale was obligated to defend and indemnify them because they did not get notice of the disclaimer.
Where a primary insurer, like GNY, tenders a claim for defense and indemnification to an insurer, in this case Scottsdale which issued a certificate of insurance indicating that they are additional insureds, that insurer must comply with the disclaimer requirements of Insurance Law § 3420(d)(2) by providing written notice of disclaimer of coverage to the additional insureds. The fact that the tendering insurer provided untimely notice of the accident "does not excuse the insurer's unreasonable delay in disclaiming coverage". The failure of Scottsdale to provide written notice of disclaimer to 4401 and Sierra Realty rendered the disclaimer of coverage ineffective against them.
GNY was not the real party in interest, such that the notice of disclaimer to GNY would be rendered effective as against 4401 and Sierra Realty.
Editor’s Note: Without explanation, the Court suggested that this case was different than Cincinnati Insurance Companies v Sirius America Insurance Company which we reported on in our May 16, 2008, edition, a decision out of the Fourth Department:
Notice of Disclaimer to Liability Carrier for Additional Insured Constitutes Notice to Additional Insured
The rule of reason has prevailed in the Fourth Department on an interesting issue of statutory compliance with the disclaimer requirements.
Section 3420(d) requires a liability carrier in a matter involving bodily injury or wrongful death to send out notices of disclaimer to the injured party and any other claimant to be effective. The term “any other claimant” is generally recognized as including co-defendants in lawsuits. In this case, the carrier did not send out the notice of disclaimer to the injured party and instead of sending it out to the co-defendants, sent it out to the liability carrier for the co-defendants. In this case, the co-defendants were also insureds under the policy, entitling them to notice.
The Fourth Department held that (a) the co-defendants had no standing to complain about a failure on the party of the carrier. Sirius, to send the letter out to the injured party (underlying plaintiff) and (b) that by sending the notice to the co-defendants liability carrier, Sirius complied with the statute. The court cited to a 1999 First Department case, Excelsior Ins. Co. v Antretter Contr. Corp., 262 AD2d 124, 127-128), which held: .
While defendant is correct that an insurer is not always equivalent to an attorney as an agent for receipt of notice, because the latter is an agent for all purposes while the former may have conflicts of interest with the insured, this is not such a case. Failure to serve a formal notice on the nominal party in interest does not render ineffective the denial of coverage where, under the circumstances, the party who received the notice was expected to forward it to the nominal party and had undertaken to protect the nominal party's rights
Was it different? If so, how?
In this case, Scottsdale, the subcontractor carrier that provided additional insured coverage, receives a tender from the general contractor and owner’s carrier. Scottsdale denies coverage by sending notification to the carrier that tendered, rather than to its putative AI insureds, and the court found the notice insufficient.
In the Cincinnati case, Cincinnati was the insurer for Falter Construction and the City of Buffalo, who claimed AI status under a policy issued by Sirius. Sirius sent its disclaimer notice to Cincinnati but not to Falter or the City. The Court held that Falter and the City had no standing to assert the statutory violation by Sirius.
“With respect to Falter and the City, although they are entitled to notice of disclaimer pursuant to Insurance Law § 3420 (d) based upon their status as insureds, the notice of disclaimer was not rendered invalid under Insurance Law § 3420 (d) based on the failure of Sirius to send it to them inasmuch as Sirius complied with the statute by sending the notice of disclaimer to plaintiff Cincinnati Insurance Companies, the insurance carrier for Falter and the City.”
Perhaps in response to Dan’s query from nearly two years ago, or perhaps not, in an unanimous decision penned by Judge Smith, the Court of Appeals answered exactly this question. The answer, as detailed below, is not that the case is different. Rather, the Court simply stated that rather than being different the rule enunciated in Sierra was better than the ruling in the Cincinnati case referenced above.
In affirming the Appellate Division, Second Department, the Court of Appeals noted that it was appropriate for GNY to have provided notice on behalf of its named insured, Sunset. However, because GNY’s interests in this litigation may have been different than Sunset’s, the Court held that Sunset was entitled to have its policy rights addressed directly by Scottsdale. A disclaimer letter addressed only to GNY, as Sunset’s carrier, was insufficient under the Insurance Law. This is the case despite the Court acknowledging that the only tender received by Scottsdale was from GNY. Sunset, in fact, never contacted Scottsdale about coverage for the loss involving Mr. Sierra.
The Court recognized that its decision could not be squared with the previous holding of the Cincinnati case discussed above. In directly addressing that case, the Court stated “if Excelsior and Cincinnati are read to stand for the general proposition that notice to an additional insured’s liability carrier serves as notice to the additional insured under 3420(d)(2), those cases should not be followed.”
In reaching its decision in this case, the Court noted that where the tendering carrier is the “only real party in interest,” a denial issued by only the carrier may have been acceptable. Moreover, the Court also appears to allude to the fact that notice of a denial to the insured’s lawyer may likewise comply with the disclaimer requirements of Insurance Law 3420(d)(2). We’d humbly suggest, however, that the Court was far from explicit on that issue.
Peiper’s Point – So what, if anything, does this mean? If you’ve followed Coverage Pointers, you know that we are big fans of the United States Postal Service. To steal a line from Dan, “For want of a Stamp, a Disclaimer was Lost.”
The best practices before this case, and certainly now after it, would call for denial letters being issued to the putative additional insured, with copies of the letter to its carrier, its agent, and its attorney. In light of the equivocation found in the Court’s decision, we would directly address it to the insured (even where, as here, the insured may be represented by counsel).