By: Robert D. Chesler and Allen R. Wolff, Anderson Kill P.C.
A New York appeals court has narrowed the conditions under which a party named as an additional insured can access the policyholder's policy for liability coverage. Businesses that make use of additional insured coverage -- as parties to construction projects generally do -- should take note.
In Burlington Insurance Co. v. New York City Transit Authority, 2017 NY Slip Op 04384 (N.Y. June 6, 2017), the Transit Authority employed a contractor to perform tunnel excavation. The contract between the Transit Authority and the contractor required additional insured coverage. The contractor’s insurance policy used a common ISO additional insured endorsement providing additional insured coverage:
“…only with respect to liability for ‘bodily injury,’ ‘property damage,’ or ‘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.”
A Transit Authority employee was injured when he “fell off an elevated platform as he tried to avoid an explosion after [the contractor’s] machine touched a live electrical cable buried in concrete at the excavation site.” In a 4-2 decision, New York’s highest court, the Court of Appeals found that no coverage was available because the contractor was not at fault; rather it was the Transit Authority that had buried the live cable and had failed to advise the contractor of it. The court recognized that the contractor’s actions were causally linked to the accident because "but for" the contractor’s use of the machine, the accident would not have occurred. However, the court held that the language of the additional insured endorsement required that the actions of the insured be the "proximate cause" of the accident and therefore ruled that there was no coverage for the Transit Authority under the additional insured endorsement.
The Burlington Insurance decision is a significant development. Consistent with prior decisions, the lower court had interpreted the "caused, in whole or in part, by" language to require only a causal connection and not proximate cause. The Court of Appeals ruled that proximate cause, a legal concept that is narrower than "but for" causation, was necessary to trigger coverage.
The additional insured endorsement does not use the term "proximate cause," nor does it require fault by the insured. Prior forms of the additional insured endorsement had used broader language such as “arising out of,” and coverage was often available even in the absence of proximate cause or fault on the part of the primary insured. The majority’s decision drew a scathing dissent from Judge Fahey. He emphasized the basic rules of insurance policy construction – terms in an insurance policy are to be given their ordinary meaning, and courts are to construe ambiguities in favor of coverage. Applying those principles, he concluded that the contractor’s role was causal and sufficient to require coverage. He noted that if the drafter had wanted to require proximate causation or fault, it could easily have put those words into the policy.
The court’s narrowing of additional insured coverage will force companies to depend more on contractual indemnity provisions, although these are of limited value if the other party has limited assets. Companies should examine their additional insured endorsements and, when possible, require that broader language be used, like that seen in older standard form endorsements (“arising out of” is broader than “caused in whole or in part”). Instead of benefiting from coverage as an additional insured when there is property damage or bodily injury, a would-be additional insured may have to sue the primary insured, who will in turn rely on that same insurance policy for defense and indemnity to gain access to that party’s insurance policy.
Robert D. Chesler is a shareholder based in Anderson Kill l P.C.'s Newark, NJ office and a member of the firm's Insurance Recovery Group. Allen R. Wolff, a shareholder based in the firm's New York City headquarters, concentrates his practice in construction litigation and insurance recovery.