New York Insurance Coverage Law Update

Appellate Court Rules Subcontractor’s Insurer Must Defend And Indemnify General Contractor In Suit By Subcontractor’s Employee

A subcontractor’s employee sued the general contractor, alleging that he was injured when he lost his footing on a stairway while working on a construction project. The general contractor sought coverage as an additional insured under the subcontractor’s insurance policy. The appellate court held that the sub-contractor’s insurer had a duty to defend and to indemnify the general contractor because the policy provided additional insured coverage to the general contractor for “liability caused, in whole or in part, by the acts or omissions of [the sub- contractor] … in the performance of [the sub-contractor’s] ongoing operations for the additional insured.” According to the appellate court, the alleged loss in the underlying action resulted, at least in part, from “the acts or omissions” of the subcontractor’s employee while performing his work (i.e.,his loss of footing while on the stairway), regardless of whether the employee had been negligent or otherwise at fault for his mishap.

However, the court went on to say that the subcontractor’s policy, by its “plain terms,” provided excess coverage to the general contractor because the subcontract did not “specifically” require the subcontractor’s policy to provide the general contractor with primary coverage. Because the general contractor’s policy also purported to be excess, the court concluded that the excess provisions “cancel each other out,” and that the insurers, “as co-insurers on a primary basis, are required to share the general contractor’s defense.” [Kel-Mar Designs, Inc. v. Harleysville Ins. Co. of NY., 2015 N.Y. Slip Op. 03607 (App. Div. 1st Dep’t April 30, 2015).]

Insurer Properly Paid Other Health Care Providers’ Claims Before Policy Limits Were Exhausted, Appeals Court Rules

After a no-fault insurer denied a health care provider’s claim on the ground of lack of medical necessity, the provider sued.  The appellate court found that the insurer had demonstrated that, following its timely denial of the provider’s claims, the insurance policy’s limits had been exhausted through payment of no-fault benefits in satisfaction of arbitration awards rendered in favor of other health care providers, and that such payments were made in compliance with New York’s “priority of payment” regulation. The appellate court rejected the provider’s argument that the insurer could not pay other claims after it denied its claim, concluding that with-holding payment would be counter to no-fault’s goal of prompt payment. [Harmonic Physical Therapy, P.C. v. Praetorian Ins. Co., 2015 N.Y. Slip Op. 50525(U) (App. Term, 1st Dep’t April 14, 2015).]

Court Upholds Denial Of Dentist’s Claim Where Office Was Closed Due To Town’s Enforcement Of Building Code

Vandals allegedly broke a window at a home used as a dental office and inserted a garden hose through the broken window, causing the main floor to flood and the basement ceiling to collapse. A building inspector went to the scene and discovered that the property did not have a proper certificate of occupancy. The dentist obtained the certificate and the dental practice reopened. The dentist made a claim for loss of business income, which the insurer denied. The court upheld the insurer’s decision, reasoning that the policy excluded coverage for losses caused by enforcement of the law and that it was the enforcement of the town building code that had prevented the dentist from using the property without a proper certificate of occupancy. [Ira Stier, DDS, P.C. v. Merchants Ins. Group, 2015 N.Y. Slip Op. 03128 (App. Div. 2d Dep’t April 15, 2015).]

Delay In Sending Disclaimer Was “Not Unreasonable,” Appellate Court Declares

After a trial court found that an insurer had no duty to defend or to indemnify its insured in an underlying action based upon an “independent contractor” exclusion in the policy, the insured appealed, arguing that the insurer’s disclaimer had been untimely under §3420(d) of the New York Insurance Law. The appellate court rejected the insured’s argument, explaining that the basis for the disclaimer was not “readily apparent” from the insured’s notice, and an additional “two week delay for management review, editing, and mailing” was “not unreasonable as a matter of law.” The court explained that §3420(d) was “not intended to be a technical trap” to allow more coverage than contracted for under the policy. [Tower Ins. Co. of N.Y. v. United Founders Ltd., 2015 N.Y. Slip Op. 01891 (App. Div. 1st Dep’t March 10, 2015).]