New York Insurance Coverage Law Update

Second Circuit Holds That Insurer Precluded From Relying On Exclusions Because Unreasonably Delayed Disclaiming While Basis Was, Or Should Have Been, Apparent

In December 2015, Luis Alberto was working on a construction project at a building owned by the insured when a wall collapsed, causing him to fall to his death.  In December 2017, Alberto’s estate sued the insured whose insurer, Golden Insurance Company, defended the insured under a reservation of rights to disclaim coverage.  The insurer’s January 2018 letter advised the insured that an exclusion for the insured’s work on the exterior of a three-story building “likely barred coverage” but that it was “unknown at th[at] time” whether the insured’s work was on the exterior of the building.  The letter also noted that another exclusion potentially applied.  Over two years later, in February 2020, the insurer filed a declaratory judgment action seeking a declaration of no coverage.  The United States Court of Appeals for the Second Circuit upheld summary judgment to the insured on the basis that the insurer did not timely disclaim coverage as required by New York Insurance Law §3420(d), which requires a timely disclaimer for claims involving death and bodily injury claims arising out of New York accidents and brought under New York liability policies.  In finding coverage for the insured, the court reasoned that the insurer unreasonably delayed in disclaiming after learning of the underlying lawsuit, even though the basis for the disclaimer was, or should have been, readily apparent.  The Second Circuit rejected the insurer’s argument that it was uncertain as to whether the accident arose from work on the exterior of the building because the insurer failed to explain “why anything beyond a cursory investigation was necessary to determine” this “crucial – but straightforward – fact.”  As to the insurer’s argument that it was obligated to defend the insured even if an outside investigation supported a disclaimer, the Second Circuit responded that the insurer “fails to sufficiently explain why it could not have brought this declaratory judgment action to disclaim coverage and terminate any duty to defend years earlier.”  [Golden Ins. Co. v. Ingrid House LLC, 2022 U.S. App. LEXIS 16343 (2d Cir. June 14, 2022).]

District Court Holds That Subcontractor’s Insurer Not Obligated To Provide Additional Insured Coverage To General Contractor For Accident Involving Subcontractor’s Employee

Hanjo Construction, a general contractor (GC), subcontracted with Manhattan Steel Design (Sub), which added the GC as an additional insured under its policy with United Specialty for liability for bodily injury “caused, in whole or in part, by” the acts or omissions of the Sub or those acting on the Sub’s behalf.  The Sub’s employee was injured while working on a construction project, and he sued the GC.  His complaint alleged that he was injured while employed by the Sub when he was struck by an object that fell from an elevated work site and that the GC was negligent and violated New York’s Labor Law.  United Specialty denied the GC’s claim for additional insured coverage under the Sub’s policy, and the GC and its insurer filed a declaratory judgment action against United Specialty in the United States District Court for the Southern District of New York.  The GC argued that because the complaint and bill of particulars in the underlying action specify that the claimant was injured “while performing his job duties” for the Sub, the complaint creates a reasonable possibility that the accident was proximately caused by the Sub’s acts or omissions, triggering United Specialty’s duty to defend.  The court rejected this argument and held that the GC was not entitled to additional insured coverage, agreeing with United Specialty that “the fact of employing” the injured claimant is not sufficient to establish the possibility that the employer proximately caused the injury, further explaining that there was no allegation that the Sub created the conditions that led to the injury or that the Sub was negligent or otherwise responsible for the injury.  [Southwest Marine & Gen. Ins. Co. v. United Specialty Ins. Co., 2022 U.S. Dist. LEXIS 110910 (S.D.N.Y. June 22, 2022).]