N.Y. Court: Priority of Coverage in Construction Dispute Determined Solely by Policies, Not Underlying Contracts
Insurance Law Update
The New York Appellate Division, First Department, set forth the proper method for determining priority of coverage between the primary and excess insurers of parties to a construction project. The court held that the rights and obligations of the insurers are governed by their respective insurance policies, not by the underlying trade contracts among the insureds.
The case in Bovis Lend Lease v. Great American, ___ N.Y.S.2d ___-, 2008 WL 1063608, 2008 N.Y. Slip Op. 03150 (N.Y.App.Div., 1st Dep’t April 10, 2008), arose out of a fatal accident at a construction site. The decedent’s estate filed an underlying wrongful death suit against the construction manager, Bovis Lend Lease LMB, Inc., the owners of the construction site, the Dormitory Authority of the State of New York (DASNY) and the City of New York, and the general contractor, Stonewall Contracting Corp. Bovis, DASNY, New York City, and Bovis’ insurer, Illinois National Insurance Company, brought a coverage action seeking a judicial determination that they were entitled to a defense and indemnification from Stonewall’s insurers, and the insurers of two subcontractors, J&A Concrete Corp. and A.J. McNulty & Co., Inc., as respects to the underlying action
Following commencement of the underlying action, J&A’s primary insurer agreed to defend and indemnify the plaintiffs as additional insureds. The parties to the instant action filed motions for summary judgment concerning the priority of coverage after exhausting J&A’s primary policy. The trial court determined that the priority of coverage among the subject policies was dictated by the terms of the underlying trade contracts, which required Stonewall and J&A to obtain “additional insured” coverage for the plaintiffs that would be “primary to any other insurance maintained by the [Bovis plaintiffs].” Accordingly, the trial court held that J&A’s umbrella policy would be triggered immediately upon exhaustion of its underlying primary policy, before either Stonewall’s or Bovis’ own policies were triggered.
The First Department reversed the trial court, holding that J&A’s umbrella policy is excess to both Bovis’ own primary insurance and the additional insured coverage provided to Bovis by Stonewall’s primary insurance.
The court reasoned that an insurer's obligation is determined solely by the terms of its policy, and not the contracts between the insureds. The court stated that J&A’s subcontract would be determinative of the priority of coverage afforded to additional insureds “only if the insurance policy itself expressly provided that the terms of the subcontract would determine whether the additional insured coverage afforded was primary or excess.” Because J&A’s umbrella insurance policy did not define the priority of the coverage afforded to additional insureds by reference to the requirements of the underlying trade contract, the court noted that the determination of the issue “turns on consideration of the purpose each policy was intended to serve as evidenced by both its stated coverage and the premium paid for it, as well as upon the wording of its provision concerning excess insurance.”
After examining the relevant policy terms and applicable “other insurance” language contained in the policies, the court held that J&A’s umbrella policy is a “true excess policy” that is triggered only after Bovis’ and Stonewall’s primary policies are exhausted, regardless of insured or additional insured status. The court rejected the plaintiffs’ argument that an endorsement in Stonewall’s primary policy – providing that “[c]ommercial [g]eneral [l]iability coverage maintained by subcontractors [of Stonewall] shall be primary and this policy shall be excess” – required that J&A’s umbrella policy respond before Stonewall’s and Bovis’s respective policies. The court reasoned that the term “commercial general liability coverage” referred to in the endorsement is limited to a primary CGL policy and not a “commercial umbrella liability policy.”
The court also rejected the plaintiffs’ argument that, after the conclusion of the underlying action, Bovis’ and Stonewall’s insurers may pursue a subrogation claim for contractual indemnification from J&A, and that J&A will be entitled to indemnification for its liability on that claim under its umbrella policy. The court noted that whether the insureds or insurers ultimately may have valid subrogation or indemnity claims against another party or its insurer is not to be taken into account in determining an insurer's coverage obligation.