Additional Insured Endorsements Effectively Transferred the Risk of Bodily Injury to The Sub-Contractor’s Insurer
Starr Indemnity & Liability Company (“Starr”) sued seeking a declaratory judgment that Defendant Excelsior Insurance Company (“Excelsior”) is obligated to indemnify parties to an underlying personal injury lawsuit (the “Underlying Action”). Starr argues that the parties are “additional insureds” under policies issued by Excelsior to a non-party, and now seeks reimbursement for 50% of the indemnity payments it incurred in the Underlying Action. In Starr Indemnity & Liability Company v. Excelsior Insurance Company, 19 Civ. 3747 (KPF), United States District Court Southern District Of New York (February 1, 2021) the USDC resolved the dispute applying the contracts as written
In April 2015, Kenneth Jacobsen initiated the Underlying Action by suing JPMorgan Chase & Co. (“JPMorgan”) the owner of premises at 4 Metrotech Center in Brooklyn, New York (the “Jobsite”). JPMorgan retained Americon Construction, Inc. (“Americon”) to serve as general contractor on a construction project on the Jobsite. Americon proceeded to hire National Acoustics, Inc. (“National Acoustics”) as the project’s drywall and ceiling subcontractor and Tri-State Computer Flooring Co., Inc. (“Tri-State”) as the project’s flooring subcontractor.
Jacobsen, an employee of National Acoustics was injured while performing work on the Jobsite when his scaffolding tipped. He sustained severe and permanent injuries through no fault of his own. Jacobsen’s complaint named JPMorgan, Americon, and the New York City Industrial Development Agency as defendants (collectively, the “Underlying Defendants”). During the trial, the parties reached a settlement pursuant to which Jacobsen would receive $3,750,000.
Pursuant to their subcontracts with Americon, Tri-State and National Acoustics were required to obtain primary and excess insurance under which the Underlying Defendants would be included as additional insureds.
The Contract Between Tri-State and Americon
Resolution of the cross-motions turned on the text and interplay of provisions in the contracts between Tri-State and Americon, and the contracts between Tri-State and Excelsior. To begin, the Tri-State Agreement provided that Tri-State would purchase and maintain insurance that afforded Americon and JPMorgan certain protections, specifically protections for “[c]laims for damages because of bodily injury” and “[c]laims for damages because of personal injury” which may arise out of or result from operations whether such operations or attempted operations are to be performed by [Tri-State] or by any of its Subcontractors or agents or by anyone directly or indirectly employed by any of them or by anyone else for whose acts any of them may be liable.
Additionally, the Agreement provided that Americon’s agreement with JPMorgan was “incorporated by reference” and that any entities that Americon was required to name as additional insureds were to be named and included as additional insureds on Tri-State’s insurance policies.
The Excelsior Policies include a number of provisions defining “Additional Insureds.”
In October 2015, while the Underlying Action was pending, the Underlying Defendants commenced a third-party action against Tri-State and Unity, seeking indemnification and contribution (the “Third-Party Action”). The Underlying Defendants’ contribution claim was tried before a jury, which determined that both Tri-State and the Underlying Defendants were negligent. When asked to apportion liability, the jury found that Tri-State was 35% at fault for the accident, and that the Underlying Defendants were 65% at fault.
In accordance with the jury’s determination, Starr agreed to pay 65% of the settlement owed to Jacobsen pursuant to the agreement reached in the Underlying Action. Excelsior agreed to pay the remaining 35% of the settlement fees, in accordance with the jury’s determination as to Tri-State’s negligence. Starr sought return of half of what it paid in accord with the additional insured clauses in the policies.
Interpretation of Insurance Contracts Under New York Law
Insurance policies are, in essence, creatures of contract, and, accordingly, subject to principles of contract interpretation. The Court must interpret unambiguous contractual provisions in light of their plain and ordinary meaning. The Court must interpret such terms in light of common speech and the reasonable expectations of a businessperson.
The Court considers the extent of Excelsior’s obligations to the Underlying Defendants under the Tri-State Agreement and the Excelsior Policies, and whether such obligations are circumscribed by the jury decision in the Third-Party Action.
Starr sought reimbursement for 50% of the payment it made to Jacobsen on behalf of the Underlying Defendants. Excelsior argued in contrast that its liability is confined to the percentage of fault assigned to it by the jury in the Third-Party Action.
The Underlying Defendants Are Additional Insureds Requiring Indemnification Under the Tri-State Agreement and Policies
Pursuant to the various additional insured provisions in the Agreement, Tri-State was obligated to maintain a policy that provided Americon and the Underlying Defendants with coverage in the event of an accident such as Jacobsen’s. And Tri-State proceeded to secure such coverage in its Policies with Excelsior.
Tri-State and Americon’s Agreement provided the Underlying Defendants with several forms of protection from liability for on-site injuries. The Agreement specified the order in which Tri-State’s coverage would apply with respect to Americon, stating that it was “on a primary and non-contributory basis[.]”
Under the terms of the Agreement, Tri-State and Americon expressly contracted to transfer the risk of liability arising from accidents on the Jobsite to Tri-State’s insurer. As such, Excelsior’s claim that Starr is now endeavoring to “pass the risk” onto it is a mischaracterization for Excelsior has held this risk since it issued policies that provided the broad coverage required by the Tri-State Agreement.
The Agreement and the Policies’ provisions were unambiguous; there was no genuine dispute of material fact that the Underlying Defendants are additional insureds. While Excelsior has previously represented that Tri-State’s Policies were “excess to any other insurance” for which the Underlying Defendants were additional insureds under the express terms of the Agreement and Policies, Excelsior was required to serve as the primary insurer of Tri-State’s additional insureds.
Excelsior Is Obligated to Indemnify the Underlying Defendants
On these summary judgment motions, the indemnification question turns on whether Jacobsen’s claims fall within the additional insured provisions in the Policies. In other words, the issue is whether the Underlying Defendants’ liability arises from injuries either “arising out of … [Tri-State’s] ongoing operations” or that were caused “in whole or in part by [Tri-State].”
Where Tri-State and Excelsior incorporated “in whole or in part” language into the Policies, and Tri-State has been deemed 35% negligent by a jury in the Third-Party Action, it can fairly be said that the Underlying Defendants’ liability was caused in part by Tri-State’s operations.
Because Excelsior’s liability was not confined to the jury’s determination that it was 35% at fault for Jacobsen’s accident, it has not satisfied its obligations to the Underlying Defendants with its prior payment of 35% of the Jacobsen settlement. As such, Excelsior remains responsible for indemnifying the Underlying Defendants pursuant to the additional insured provisions of the Policies.
Starr’s motion for summary judgment was granted and Starr was entitled to recover 50% of the settlement payment made on behalf of the Underlying Defendants.
Construction contracts usually contain risk transfer devices like requiring all subcontractors to make the general contractor and the owner additional insureds on a CGL policy as well as requiring indemnification by the construction contract. When the risk is transferred the entire risk is moved to the sub-contractor or its insurer and cannot effectively argue that its indemnification requirement is limited to the percentage of fault attributed to the named insured. In this case the two insurers protected the insured and settled the underlying action and applying their joint arguments and then filed a declaratory relief action to determine who owed what to whom.
© 2021 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
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