The Problems Arise because an Insurance Company Couldn’t or Wouldn’t Read a Policy
Under basic state law across the country an employer never can be sued for injuries incurred by its employees. However, contracts between builders and owners often shift the obligation to defend and indemnify the owner, and eventually to the insurer for the builder. Even insurance companies forget that an insurance policy is just a contract that must be interpreted in accordance with the plain meaning of the contract as must a construction contract.
In American Empire Surplus Lines Insurance Company v. Colony Insurance Company, 17-3799, United States Court of Appeals for the Second Circuit (December 4, 2018) two insurers disputed coverage for defense costs incurred by the New York City Housing Authority (“NYCHA”) in three personal injury suits brought against it by employees of its contractor, Technico Construction Services.
TRIAL COURT HOLDING
Summary judgment was granted by the District Court in favor of Colony Insurance Company, which insured NYCHA, and against American Empire Surplus Lines Insurance Company, which issued a policy to Technico (as contractor) that covered NYCHA (as owner of the property). The district court held that Colony’s policy excluded coverage for these types of personal injury suits.
In 2014, NYCHA hired a contractor, Technico, to remodel several of its buildings in Manhattan. In connection with this project, NYCHA received insurance coverage from Colony, and Technico received coverage from American Empire. Three Technico employees were injured on the project and sued NYCHA. American Empire assumed the legal costs for these lawsuits under the policy it issued to Technico insuring NYCHA as an additional insured but then sued Colony seeking a finding that Colony is the primary insurer for these lawsuits.
Colony’s policy covers NYCHA for “‘bodily injury'” that is “caused by an ‘occurrence’ and arises out of: (a) Operations performed for you by the ‘contractor.'” The word “contractor”– in quotes – is defined as Technico. An exclusion in the policy provides that there is no coverage for: “‘[b]odily injury'” “sustained by any contractor, subcontractor or independent contractor or any of their ’employees,’ ‘temporary workers,’ or ‘volunteer workers.'” (emphasis added)
Colony argues that these tort lawsuits are excluded from coverage because they were brought by employees of Technico, a contractor, and the exception plainly excludes coverage for bodily injury sustained by an employee of “any contractor”. In response, American Empire argues that the term “any contractor” does not include the term “contractor” (in quotes), which is defined as Technico. American Empire further argues that the purpose of an Owners and Contractors Protective policy (such as was issued by Colony) is to cover bodily injury to employees of the designated contractor – here, Technico.
The interpretation of this exclusion was the only question before the Second Circuit. The initial interpretation of a contract is a matter of law for the court to decide. Under New York law, an insurance contract is interpreted to give effect to the intent of the parties as expressed in the clear language of the contract.
As the district court concluded, the exclusion provides, in straightforward and unambiguous wording, that the policy does not provide coverage for bodily injury sustained by employees of “any contractor.” “Any contractor” must be read to have its plain meaning. The plain meaning of “any contractor” includes Technico, because Technico is defined in the policy as a “contractor” (in quotes).
Technico did not lose its status as a contractor simply because it is also the defined “contractor” (in quotes). The presence of the word “any” before contractor supports the breadth of the exclusion. Because these lawsuits were filed by employees of a contractor, Technico, they are excluded under the plain terms of the policy.
Further, American Empire’s argument – that “any contractor” does not include the defined “‘contractor'” – is refuted by another contract provision. The “Other Insurance” clause provides: “[W]e will not seek contribution from any other insurance available to you [NYCHA] unless the other insurance is provided by a contractor other than the designated ‘contractor’ . . .”
The explicit exclusion of the designated “‘contractor'” (Technico) in this provision reinforces the conclusion that the phrase “any contractor” (in the exclusion) includes the designated “‘contractor'”. If the parties wanted to exclude Technico from the policy exclusion, they would have done so explicitly, as they did elsewhere in the contract.
It is astonishing that an insurer whose business includes writing, issuing, interpreting and fulfilling the promises made by an insurance policy was willing to litigate with another insurer claiming that a “contractor” is not one of the people described by the language: “any contractor.” This suit was a waste of time and legal fees.
© 2018 – Barry Zalma
This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.
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 50 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
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