New York Insurance Coverage Law Update

April 29, 2020 | Insurance Coverage

District Court Rejects Insurer’s Attempt To Rely On Extrinsic Evidence To Deny Defense To Additional Insureds

The City University of New York (“CUNY”) hired Genesys Engineering, PC to perform construction work at the Herbert H. Lehman College in the Bronx.  In turn, Genesys hired A.K.S. International Inc. to perform certain work at the project, including the installation of construction fencing.  A CUNY employee was struck by an automobile in front of the college and sued CUNY, Genesys and AKS in two actions alleging that they contributed to the accident because construction fencing at the college obstructed the driver’s visibility.  AKS’s insurer, Harleysville, denied additional insured coverage to CUNY and Genesys based upon extrinsic evidence, including a police report, indicating that the driver’s visibility was not obstructed by construction fencing and, therefore, AKS did not cause the accident in whole or in part.  A declaratory judgment action ensued, and the United States District Court for the Southern District of New York held that Harleysville had a duty to defend its additional insureds, reasoning that the allegations triggered a possibility of coverage and Harleysville’s extrinsic evidence could not be considered because it went “directly to the merits” of the underlying actions.  The court concluded that to hold otherwise, “would wholly undermine the well-established function of the duty to defend.”  [Travelers Indem. Co. v. Harleysville Ins. Co., 2020 U.S. Dist. LEXIS 47817 (SDNY Mar. 19, 2020)].

Second Circuit Finds Intellectual Property Exclusion Bars Coverage

Nanette Lepore sold her business assets, including her trademarks, copyrights and other intellectual property (“IP”) rights in 2014.  The purchaser sued Lepore in 2016 in a suit asserting seventeen causes of action, including breach of contract and tortious interference with an advantageous business relationship.  The purchaser alleged that Lepore violated their licensing agreement by, among other things, “flouting all contractual requirements governing use of the purchased IP, failing to adhere to non-compete and non-disparagement obli-gations and public-statement prohibitions, and wrongfully co-mingling licensed marks with the products and marks of third-party collaboration partners.”  Lepore sought coverage from Hartford under primary and umbrella liability policies providing coverage for damages because of “personal and advertising injury”, but the policies contained an IP exclusion for “personal and advertising injury” “arising out of any actual or alleged infringement or violation of any intellectual property right, such as copyright, patent, trademark, trade name, trade secret, service mark or other designation of origin or authenticity”.  The United States Court of Appeals for the Second Circuit held that the IP exclusion applied to preclude coverage, rejecting Lepore’s argument that an express violation of IP rights had to be asserted for the exclusion to apply.  The Second Circuit reasoned that although “no direct claims for IP relief” were alleged, the complaint alleges that Lepore violated the purchas-er/licensor’s IP rights, particularly in the unfair competition claim which was premised upon trademark infringement and alleged that Leopore  “used, displayed and otherwise exploited the Purchased IP … without authorization … to further [Lepore’s] own competing interests”.   The Court stressed that “the complaint’s factual allegations rather than its legal assertions” are determinative of whether the exclusion applies.  [Lepore v. Hartford Fire Ins. Co., 19-778-cv (2d Cir. Feb. 7, 2020)].

District Court Rules that Auto Exclusion Precludes Coverage Because “You” Means Named Insured

Niagara County contracted with T.G.R. Enterprises, Inc. (“TGR”) to replace windows and doors at Niagara County Community College, and TGR added Niagara as an additional insured under its excess policy.  A TGR employee loaded the windows into a truck owned by TGR. While transporting the windows, they fell on him, and he was injured.   TGR’s employee sued Niagara, and Niagara sought additional insured coverage from TGR’s excess insurer.  The insurer denied coverage because the policy excluded coverage for injury arising out of “owned autos”, defined as “’autos’ you own ….” The policy defined “you” as the named insured, TGR.  The United States District Court for the Western District of New York agreed that the exclusion clearly and unambiguously precluded coverage because the alleged injury arose from an accident involving a vehicle owned by “you”, TGR, the named insured. The court rejected the County’s argument that “you” in the phrase “’autos’ you own” is ambiguous and could refer to vehicles owned by an additional insured (like the County).  [County of Niagara v. Liberty Mut. Ins. Co., 2020 U.S. Dist. LEXIS 21809 (WDNY Feb. 6, 2020)].

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