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Insurer Must Defend Additional Insured Before Finding of Liability, N.Y.'s Highest Court Rules
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October 15, 2007
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Howrey LLP
Everyone involved in construction knows that accidents occur during the project. To allocate risk, contracts require the parties to purchase insurance for accidents. Whether the accident causes personal injury, property damage or death, litigation is likely to follow unless the claim is settled. When litigation is filed, the parties sued often include the owner, construction manager, contractors, subcontractors and design professionals.
Unless the construction project is large enough to have an Owner Controlled Insured Program (OCIP), the owner will have required its construction manager, contractor and design professionals to obtain certain insurance coverage, including a Commercial General Liability (CGL) insurance policy with specified insurance amounts that names the owner as an Additional Insured. In turn, the construction manager and contractor will have required their subcontractors to also obtain CGL insurance policies, typically in the same amounts as the policies they obtained for the owner, and to name them as an Additional Insured under the subcontractors' policies.
Whether your insurance company or your construction manager's, contractor's or design professional's insurance company defends you in a lawsuit can be important because you will have to pay the deductible under your policy before your insurance company is responsible to pay for a defense and/or for damages, including any settlement amount. If you can get your construction manger's, contractor's and/or design professional's company to defend you, then you will not have to pay the deductible. More importantly, if your insurance company has to pay out for defense costs and damages, this may adversely impact future pricing for insurance.
Insurance companies prefer to have many other insurers involved in construction accident lawsuits as a way to share defense costs and/or damages.
Recently, the New York Court of Appeals was presented with one insurer's attempt to delay its responsibility to defend an additional insured until after the issue of liability for the accident was determined. BP Air Conditioning Corp. v. One Beacon Insurance Group, 8 N.Y.3d 708, 840 N.Y.S.2d 302 (2007). In that case, Henegan Construction Co., Inc., the general contractor hired to renovate several floors at the World Trade Center in 2000, subcontracted mechanical work to BP Air Conditioning Corp. BP in turn subcontracted steamfitting work to Alfa Piping Corp. The purchase order between BP and Alpha required Alfa to indemnify BP, the owner and Henegan for injury and death to persons and damage to property arising out of or related to Alpha's scope of work. The purchase order further obligated Alfa to obtain CGL insurance naming BP as an Additional Insured.
Another subcontractor's employee, Joseph Cosentino, was injured and sued Henegan. Henegan in turn brought a third-party action against BP and Alfa for indemnification. BP demanded that Alfa's insurer, One Beacon Insurance Group, defend it as an Additional Insured under the CGL insurance policy issued by One Beacon to Alpha. One Beacon refused to defend BP, claiming that it had no duty to defend BP until it was determined that Cosentino's injury arose out of Alfa's activities at the project.
The Court of Appeals held that One Beacon had to defend BP as an Additional Insured even though there was not yet a determination that the injury arose out of Alfa's activities at the project. So long as the complaint contained any factual allegations even potentially bringing the claim within the protection afforded by the insurance policy, One Beacon had a duty to defend BP as an Additional Insured, the court held. This is so even if the complaint asserts additional claims outside the policy's coverage or within exclusory provisions.
The merits of the lawsuit have nothing to do with the insurer's duty to defend even if the claim is groundless or ultimately is held to be without merit. Instead, the court held, "BP's reasonable expectation, when it forwarded the purchase order to Alfa that required Alfa to name BP as an additional insured, was that it wanted protection from lawsuits arising out of Alfa's work - litigation insurance.."
The court held that "the standard for determining whether an additional insured is entitled to a defense is the same standard that is used to determine if a named insured is entitled to a defense."
If you are sued because a company you hired to perform work is claimed to have caused an accident resulting in injury or death to person or damage to property, make sure that you immediately send the complaint not just to your own insurance company but to your hired company's insurance company as well. As an Additional Insured, you have a right to be defended and, if it is ultimately determined that the loss is covered by the insurance policy, to have the loss paid by your hired company's insurance carrier.
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For more information about the issues covered in this report, please contact Paul Berning in our San Francisco office at 415-848-4996 or at paulberning@howrey.com or contact your Howrey attorney. For more information about Howrey's Construction Practice Group, click here.
©2007 Howrey LLP
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