May 2025 New York Insurance Coverage Law Update

Southern District Finds No Additional Insured Coverage, Insurer Did Not Waive Non-Existence Of Coverage Defense, And Insurer Not Estopped From Disclaiming Coverage Where No Prejudice

Utica National Assurance Company issued a liability policy to Bond Painting Company. Bond’s employee was injured working at a construction project at premises leased by Amazon.com Services Inc. and filed a bodily injury action against Amazon and others. Amazon requested additional insured coverage under the Utica policy, which provided additional insured coverage where required by written contract in effect prior to the accident. Amazon provided Utica with the Bond Purchase Order for the project at issue, along with a prior Amazon-Bond Purchase Order containing separate Terms and Conditions requiring additional insured coverage and indemnification. Based upon the Terms and Conditions, Utica agreed to defend and indemnify Amazon in the action without reservation and assigned defense counsel. Given the potential excess exposure, Amazon selected its own defense counsel to be paid by Utica. Amazon controlled its defense and defense counsel provided regular updates to Utica. During discovery, witnesses for Amazon and Bond testified that they did not know whether the Terms and Conditions were part of the Purchase Order, and the court subsequently dismissed Amazon’s third-party claims against Bond because Bond established that the Terms and Conditions were not in effect at the time of the accident. More than a year after the depositions, Utica denied coverage to Amazon on the basis that there was no written contract in place prior to the accident requiring Bond to procure additional insured coverage for Amazon and filed a declaratory judgment action. The United States District Court for the Southern District of New York granted Utica judgment on the pleadings, finding that Amazon was collaterally estopped from litigating whether the Terms and Conditions were in effect at the time of the accident because of the underlying court’s ruling and, as such, Amazon is not an additional insured under the Utica policy. The court rejected Amazon’s argument that Utica waived its coverage defenses by defending Amazon without reservation because waiver is inapplicable where the issue is the existence or non-existence of coverage. The court also rejected Amazon’s argument that Utica was estopped from disclaiming coverage because Utica unreasonably delayed in doing so. The court acknowledged that Utica could have disclaimed coverage earlier but found that there was no prejudice because Amazon failed to show that Utica controlled Amazon’s defense or that Amazon suffered any other form of prejudice from the delay or from the handling of the defense. [Utica Nat’l Assur. Co. v. Amazon.Com Servs., Inc., 23-cv-11267 (VEC), 2025 U.S. Dist. LEXIS 42133 (S.D.N.Y. Mar. 10, 2025).]

Eastern District Holds Employee Exclusion Precludes Coverage And Insurer Timely Disclaimed

A property owner hired a general contractor for a renovation project at its property. The general contractor, in turn, subcontracted with Kalnitech Construction Corp. to complete the renovation work. Kalnitech was required under its subcontract to procure additional insured coverage for the property owner and the general contractor.  Another contractor, JIM Associates, later submitted a proposal to Kalnitech to perform work at the renovation project, which was forwarded to the general contractor. JIM later entered into a written subcontract with the general contractor to perform renovation work at the project. JIM’s employee was injured while working at the project and filed a bodily injury action against the owner and Kalnitech and a separate bodily injury action against the general contractor. Kalnitech requested coverage from its liability insurer, Falls Lake National Insurance Company, and Falls Lake disclaimed coverage based upon an exclusion that precludes coverage for “’bodily injury’ to any contractor or any ‘employee’ of any contractor arising out of or in the course of the contractor or its employee performing services of any kind or nature whatsoever.” Falls Lake subsequently filed a declaratory judgment action against the owner, general contractor, Kalnitech, and the injured worker seeking a declaration of no coverage. The United States District Court for the Eastern District of New York granted Falls Lake’s motion for summary judgment, finding that the exclusion in the Falls Lake policy “could not be clearer” and “unambiguously operates to exclude claims arising out of the injury that [the injured worker] sustained as an employee of a contractor while working on the [project]….” The court explained that “the apparent dispute” as to whether the general contractor or Kalnitech hired JIM “is immaterial” to the application of the exclusion because Kalnitech is the named insured and the general contractor is an additional insured under the policy. The court rejected the insureds’ argument that Falls Lake improperly relied upon extrinsic evidence to deny coverage and pointed to allegations in the actions establishing that the general contractor hired Kalnitech; JIM was retained by the general contractor or Kalnitech; and the injured worker was working for JIM at the project when he was injured. The court also rejected the injured worker’s argument that Falls Lake failed to timely disclaim coverage under Insurance Law §3420(d), explaining that the nonmovants have not proffered any reason for the court to doubt the date of first notice to Falls Lake or the date of its disclaimer letter 25 days later, which the court found to be “timely as a matter of law.” [Falls Lake Nat’l Ins. Co. v. Kalnitech Constr. Corp., 22-cv-1473 (KAM), 2025 U.S. Dist. LEXIS 56564 (E.D.N.Y. Mar. 26, 2025).]