Southwest Marine and General Insurance Co. v. United Specialty Insurance Co.: A Lesson in Common Limitations of Additional Insured Provisions | Carlton Fields

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In Southwest Marine and General Insurance Co. v. United Specialty Insurance Co., the U.S. District Court for the Southern District of New York recently highlighted limitations in a common policy endorsement extending commercial general liability insurance to additional insureds.

Hanjo Contractors Inc. subcontracted with Manhattan Steel Design to perform work on a New York building. In February 2016, Manhattan Steel employee Oscar Perez was struck and injured by a falling object at the project site. Perez later filed suit against Hanjo and other defendants.

United Specialty Insurance Co. had issued a commercial general liability policy to Manhattan Steel, which was not named as a defendant in the lawsuit. The policy listed Hanjo as an additional insured but only with respect to liability for bodily injury “caused, in whole or in part, by” Manhattan Steel’s acts or omissions, or the acts or omissions of those acting on Manhattan Steel’s behalf in the performance of ongoing operations for the putative additional insured. The policy also contained an “action over exclusion,” which barred coverage for “bodily injury” to a Manhattan Steel employee arising out of and in the course of his or her employment, and an “independent contractor exclusion,” which excluded coverage for bodily injury to independent contractors.

Hanjo tendered the lawsuit to United Specialty on October 4, 2016, and again on October 20, 2016, seeking coverage as an additional insured under Manhattan Steel’s CGL policy. United Specialty denied coverage on November 10, 2016, relying on limitations in the additional insured endorsement, as well as the action over and/or independent contractor exclusions. Following the disclaimer, Hanjo and Southwest Marine and General Insurance Co., which provided a defense to Hanjo in the lawsuit, filed a declaratory judgment action against United Specialty. Southwest and Hanjo sought, in part, a declaration that United Specialty owed a duty to defend and indemnify Hanjo in the lawsuit as an additional insured under the Manhattan Steel CGL policy. The plaintiffs also argued that United Specialty waived its right to rely on the action over and independent contractor exclusions by waiting too long to disclaim coverage under New York Insurance Law section 3420.

On motions for summary judgment, the plaintiffs argued that allegations in the lawsuit created a reasonable probability that Perez’s injuries were proximately caused by Manhattan Steel’s acts and omissions, citing allegations that Perez was injured “while performing his job duties” for Manhattan Steel. The court rejected this argument. The court acknowledged that in a 2019 decision, All State Interior Demolition Inc. v. Scottsdale Insurance Co., the state appellate court held that coverage under a similar additional insured endorsement was triggered — even though there were no negligence claims asserted against the named insured — because: (1) the named insured’s actions were implicated through allegations in the complaint; and (2) a third-party complaint was filed against the named insured expressly alleging that it was negligent. The plaintiffs argued that All State triggered coverage for Hanjo under the United Specialty policy issued to Manhattan Steel, but the court disagreed. The court found there were no allegations in the underlying complaint that Manhattan Steel created or controlled the conditions leading to Perez’s injury. Instead, the court noted that it was Hanjo and the other named defendants that allegedly controlled the work site and that the complaint did not even mention Manhattan Steel other than to state that it was Perez’s employer. The court held that a named insured’s actions are not sufficiently implicated for purposes of triggering the relevant additional insured language simply because the accident occurred on the job site.

As a result of its conclusion regarding the additional insured endorsement, the court found it need not reach the issue whether United Specialty’s disclaimer was timely under section 3420(d)(2). The court reasoned that section 3420(d)(2) does not require a timely disclaimer where the liability was not incurred by an insured or additional insured.

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