New York Insurance Coverage Law Update

July 27, 2021 | Insurance Coverage

Southern District of New York Holds That COVID-19 Claim Not Covered

Café du Soleil (the Café) operates a small Manhattan restaurant that suffered financial losses during the COVID-19 pandemic and suspended operations following state and municipal shutdown orders.  XL Insurance issued the Café a commercial property policy that provided business interruption coverage in the event of “direct physical loss of or damage to [its] property”, subject to a Virus Exclusion.  The Café sought coverage for the loss of business income, and XL disclaimed.  The Café sued XL, and the United States District Court for the Southern District of New York dismissed the complaint, holding that the Café did not plausibly allege that it suffered a “direct physical loss” of property.  The court rejected the Café’s argument that the phrase “direct physical loss” is ambiguous and should be broadly construed to include the deprivation of property.  The court also found that the Café’s complaint did not allege a covered claim under the policy’s Civil Authority provision because the Café was not prohibited from accessing the premises due to damaged property.  Lastly, the court concluded that the policy’s exclusion for “loss or damage caused by or resulting from any virus” un-ambiguously precluded coverage.  [Broadway 104, LLC v. XL Ins. Am., Inc., 2021 U.S. Dist. LEXIS 117198 (S.D.N.Y. June 23, 2021).]

First Department Finds That Allegations Of Complaint And Other Documents Sufficient To Trigger Additional Insured Coverage For Vicarious Liability

The City of New York contracted with Central Park Conservancy, Inc. (CPC) to maintain Central Park, and CPC entered into a tree-service subcontract with Bartlett Tree Expert Company (Bartlett) which required Bartlett to obtain additional insured coverage for the City.  The Claimant was allegedly injured by a falling tree in Central Park, and she sued the City and CPC, alleging that her injuries were caused by the negligent acts and/or omissions of the City, and CPC, and/or its contractors, subcontractors, and agents in the maintenance and inspection of the tree.  The City sought additional insured coverage under Bartlett’s policy issued by Travelers, which afforded additional insured coverage for injury caused by Bartlett’s acts or omissions, but not “with respect to the independent acts or omissions” of the additional insured. Travelers disclaimed coverage.  The Ap-pellate Division, First Department, held that the Claimant’s allegations in her complaint, the tree-service subcontract, and business records memorializing Bartlett’s work on the park’s trees before the accident triggered Travelers’ duty to defend because they demonstrate a “reasonable possibility that the City will recover under the policy’s additional insured provision, which affords coverage premised on the City’s vicarious liability for the acts or omissions” of Bartlett. [City of New York v. Travelers Prop. Cas. Co. of Am., 2021 N.Y. App. Div. LEXIS 4294 (1st Dep’t July 1, 2021).]

Fourth Department Holds That Assault and Battery Exclusion Did Not Preclude Duty To Defend Because Cause of Action for Unlawful Detention Existed Notwithstanding Assault

The insured operated a nightclub, and its bar manager shoved a patron down a flight of stairs.  The patron sustained fatal injuries, and the manager pleaded guilty to manslaughter in the first degree.   The patron’s estate sued the nightclub and its security guard, and the nightclub’s insurer (Utica First) disclaimed coverage based on an exclusion for assault and battery.  The Appellate Division, Fourth Department, held that the exclusion precluded coverage to the nightclub but that it did not preclude a duty to defend the security guard because “[w]e cannot say that all of the claims in the underlying action against [the security guard] are based on or arise out of the bar manager’s assault.”  The court pointed to the cause of action for unlawful detention alleging that the security guard unlawfully arrested the decedent, which the court opined “would still exist notwithstanding the assault.” The court, however, found a question of fact as to whether the security guard was covered as an insured under the night-club’s policy, i.e., whether he was acting within the scope of his employment at the time of the incident.  [O’Shei v. Utica First Ins. Co., 2021 N.Y. App. Div. LEXIS 3852 (4th Dep’t June 11, 2021).]

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