New York Insurance Coverage Law Update

August 30, 2023 | Alan C. Eagle | Insurance Coverage

Western District Holds That Employee Exclusion Does Not Preclude Coverage To Additional Insureds For Claim By Named Insured’s Employee

Employees of a subcontractor were injured on a construction project, and they sued the owner and the general contractor.  The subcontractor’s excess insurer, Mt. Hawley Insurance Co., disclaimed additional insured coverage to the owner and general contractor based upon an exclusion in its policy for bodily injury to an employee of “any insured arising out of and in the course of … employment by the insured ….” The United States District Court for the Western District of New York held that the exclusion did not preclude such coverage because the injured claimants were not injured in the course of “[e]mployment by the insured” seeking additional insured coverage, i.e., the owner and general contractor.  The court distinguished cases holding that an exclusion for bodily injury to an employee of “any insured” arising out of employment by “any insured” precludes coverage so long as the injured claimant is an employee of any insured under the policy.   Because the exclusion at issue included language requiring that the injury arise out of employment by “the insured”, the court followed cases holding that “the insured” means the insured seeking coverage.  [Reidy Constr. Grp., LLC v. Mt. Hawley Ins. Co., 2023 U.S. Dist. LEXIS 125599 (W.D.N.Y. July 20, 2023).]

Eastern District Finds That Coverage Counsel’s Legal Opinion Is Privileged But Counsel’s Work As A Claims Investigator Is Not

In this declaratory judgment action seeking coverage under a Financial Institution Bond issued by Great American Insurance Company, the insured moved to compel documents withheld from discovery by Great American based on attorney-client privilege and the work product doctrine.  The United States District Court for the Eastern District of New York held that a letter providing coverage counsel’s legal opinion was privileged.  However, the court found that the insurer did not meet its burden of proving privilege as to certain documents concerning counsel’s involvement in the insurer’s investigation.   The court reasoned that documents between a claims adjuster and outside counsel are privileged where counsel is providing legal advice, but documents reflecting that counsel is “acting as an investigator of a claim (the job of a claims adjuster)” are not.  After an in camera review of the insurer’s documents, the Magistrate Judge ordered the production of documents reflecting work performed by counsel “as a claims investigator rather than legal counsel.”  [Cadaret Grant & Co. v. Great Am. Ins. Co., 2023 U.S. Dist. LEXIS 128370 (E.D.N.Y. July 25, 2023).]

Second Department Upholds Construction Exclusion

Michael Gargiso was allegedly injured when he stepped in a trench in a parking lot, which was dug as part of a construction project that had been left unfinished.  He sued the owner and property manager, who were insured by RLI Insurance Company.  RLI disclaimed coverage based on an exclusion in its policy for bodily injury arising out of “Construction and Development Activities.”  The insureds sued RLI for coverage and moved for summary judgment, which was granted by the trial court.  On appeal, the Appellate Division, Second Department, reversed, holding that RLI had no duty to defend or to indemnify the insureds, noting that the “plain meaning” of a policy’s language cannot be disregarded “to find an ambiguity where none exists.”  [Grenadier Realty Corp. v. RLI Ins. Co., 2023 N.Y. App. Div. LEXIS 3930 (2d Dep’t July 26, 2023).]

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