New York Insurance Coverage Law Update

October 30, 2016 | Insurance Coverage

Insured Could Not Recover Its Attorneys Fees From Insurer, Fourth Department Decides

A construction company sued its insurer, alleging that it had breached its coverage obligations under a commercial auto insurance policy. The trial court awarded the construction company the attorneys fees it had incurred in prosecuting the action, and the insurer appealed. The Appellate Division, Fourth Department, reversed, citing the “well established” rule that an insured may not recover expenses it incurred in bringing an affirmative action against an insurer to determine its rights under a policy. The court rejected the insured’s argument that the attorneys fees were consequential damages resulting from the breach of the insurance policy. [Zelasko Constr., Inc. v. Merchants Mut. Ins. Co., 2016 N.Y. Slip Op. 06328 (4th Dep’t Sept. 30, 2016).]

Only Those With Written Contracts Directly With Named Insureds Were Additional Insureds, First Department Rules

The Dormitory Authority of the State of New York (“DASNY”) retained a joint venture (“JV”) to provide construction management services for a project in Manhattan.  DASNY also entered into a contract with a prime contractor requiring the prime contractor to obtain additional insured coverage for JV.  After JV was sued, it sought coverage as an additional insured under a commercial general liability insurance policy issued to the prime contractor that provided additional insured coverage to any “organization with whom you [the prime contractor] have agreed to add as an additional insured by written contract.”  The Appellate Division, First Department, held that JV did not qualify as an additional insured because the policy required the named insured to have executed a contract with the party seeking coverage as an additional insured.  The court concluded that the prime contractor’s agreement with DASNY was “insufficient” to afford the JV coverage as an additional insured under the policy. [Gilbane Bldg. Co./TDX Constr. Corp. v. St. Paul Fire & Marine Ins. Co., 2016 N.Y. Slip Op. 06052 (1st Dep’t Sept. 15, 2016).]

Absence Of Written Contract With Construction Manager Doomed Claim For Additional Insured Status Under Its Insurance Policy

Companies were sued by workers who claimed that they had been injured by toxic material and contaminated air during clean-up and demolition activities at buildings following the 9/11 terrorist attacks in Manhattan. The companies sought coverage as additional insureds from the insurer for the general construction manager overseeing the work. The insurer disclaimed coverage because there was no written contract “executed prior to the occurrence” requiring such additional insured coverage. The court agreed with the insurer, finding that the companies did not have a fully executed agreement with the construction manager. [Taunus Corp. v. Zurich American Ins. Co., 2016 N.Y. Slip Op. 31747(U) (Sup.Ct. N.Y. Co. Sept. 19, 2016).]

Insurers Not Liable For Insured’s Defense Costs Where Policies Did Not Cover Claims Against Insured, Second Circuit Holds

A pipeline control valve failed at an oil transport and storage facility owned and operated by Petroterminal de Panama, S.A.. Petroterminal was sued and sought coverage for its defense costs under a policy that provided coverage for sums “which the insured shall become liable as damages,” including defense costs “paid as a consequence of any occurrence covered hereunder.”  The Second Circuit ruled that the policies did not impose a “duty to defend” on the insurers.   Instead, the court held that such language only imposes a duty to pay defense costs where the insurer has a duty to indemnify, not where there are claims “only potentially falling within the policy’s coverage.”  Because the claims were not covered, the insurers were not obligated to pay for Petroterminal’s defense, the Second Circuit concluded. [Petroterminal de Panama, S.A. v. Houston Cas. Co., 2016 U.S. App. Lexis 16629 (2d Cir. Sept. 8, 2016).]

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