NY Ruling Limits Additional Insured Coverage Under General Liability Policies
(Burlington Ins. Co. v. NYC Transit Auth., No. 57, 2017 WL 2427300 (N.Y. June 6, 2017))
On June 6, 2017, New York’s highest court ruled that a general liability policy Additional Insured (“AI”) endorsement, which contains language restricting liability for any bodily injury “caused, in whole or in part,” by the “acts or omissions” of the named insured, will only extends coverage to the AI when the damages are proximately caused by the named insured’s negligence.
In a split decision, the Court reversed the state appellate panel’s ruling which had held that the New York City Transit Authority (“NYCTA”) and MTA New York City Transit (“MTA”) were entitled to additional insured coverage under an AI endorsement of a subcontractor’s CGL insurance policy, issued by Burlington Insurance Company (“Burlington”).
Burlington was the insurer for Breaking Solutions, Inc. (“BSI”). BSI contracted with NYCTA to provide equipment and personnel, and for BSI to perform tunnel excavation work on a New York City (the “City”) construction project. As part of its contract with NYCTA, BSI had NYCTA, MTA, and the City listed as additional insureds under its policy with Burlington.
During the project, an NYCTA employee fell off of an elevated platform while trying to avoid an explosion after a BSI machine touched a live electrical cable buried in concrete at the excavation site. The employee filed suit against the City and BSI. The City impleaded NYCTA and MTA in the employee’s action.
NYCTA and MTA tendered the defense of the claims against them to Burlington as an additional insured under the BSI policy. Burlington provided a defense to NYCTA under a reservation of rights to deny coverage based upon whether NYCTA qualified as an additional insured under the policy’s AI endorsement.
The Policy’s AI endorsement provided, in relevant part, that NYCTA MTA, and the City are additional insureds:
“. . .only with respect to liability for ‘bodily injury,’ ‘property damage,’ ‘personal and advertising injury,’ caused, in whole or in part by:
- Your acts or omissions; or
- The acts or omissions of those acting on your behalf.”
Discovery in the employee’s lawsuit revealed that NYCTA failed to identify, mark, or protect the electric cable, and that it failed to turn off the cable power. It was further established that the BSI machine operator could not have known about the location of the cable or that it was electrified. Thus, the court dismissed the claims against BSI, with prejudice.
Based upon this information, Burlington filed an action for declaratory judgment, asserting that it did not owe coverage for NYCTA and MTA, as additional insured under BSI’s policy because BSI was not at fault for the injuries.
After settling the employee’s action against the City, Burlington moved to amend its complaint to add a claim for contractual indemnification against NYCTA as the City’s subrogee under the lease with NYCTA (which required NYCTA to indemnify the City).
The trial court granted Burlington’s motion for summary judgment, concluding that NYCTA and MTA were not additional insureds because the policy limited liability to instances where BSI was negligent. The court also granted Burlington’s motion for leave to add a claim for contractual indemnification, and subsequently granted Burlington’s motion for partial summary judgment on its contractual indemnification claim against NYCTA.
The Appellate Division reversed, finding that while BSI was not negligent, it was BSI’s actions of triggering the explosion that was a “cause of the employee’s injury,” within the meaning of the policy. Burlington sought review of this decision by the New York Court of Appeals.
On review, the New York Court of Appeals held that, “applying the relevant legal principles to the policy language, we conclude that there is no coverage because, by its terms, the policy endorsement is limited to those injuries proximately caused by BSI.”
The Court noted that the additional insured endorsement used in the Burlington Policy was an ISO form that was amended from a previous version, replacing the language, “arising out of” with “caused, in whole or in part.” The ISO has explained that it introduced this revised version as a response to court’s interpretations of its prior version as providing coverage for the additional insured’s sole negligence, which was contrary to the original intent of the endorsement.
Here, BSI was not at fault, and the employee’s injury was due to NYCTA’s sole negligence. “Although but for BSI’s machine coming into contact with the live cable, the explosion would not have occurred and the employee would not have fallen or been injured, that triggering act was not the proximate cause of the employees injuries since BSI was not at fault in operating the machine in the manner that led it to touch the live cable.”
Therefore, the Court held that there is no coverage for NYCTA and MTA, as they do not qualify as additional insureds under the Burlington Policy. Based upon this decision, insurers whose policies contain this revised version of the ISO AI endorsement will face substantially less liability than those whose have issued policies with the previous version of the endorsement which contains the “arising out of,” language.