In a potentially significant development in New York insurance law, a recent appellate level decision held that an excess liability policy was not obligated to provide coverage where the underlying employer’s liability policy provided unlimited coverage pursuant to New York regulations.
The Arthur Vincent & Sons Construction, Inc. v. Century Surety Insurance Co.1 case arose out of a wrongful death claim. Fordham University hired Arthur Vincent and Sons Construction, Inc. (“AVSC”) to install a new roof on its Lewis Calder Center. As is typical of most construction contracts, AVSC agreed to indemnify the University against any claims arising out of its negligence, and to name the University as an additional insured on its commercial general liability policy. AVSC was insured by three policies: (1) a worker’s compensation and employer’s liability policy issued by Commerce and Industry Insurance Company (“CIIC”); (2) a primary CGL policy issued by Century Surety Insurance Company (“Century”); and (3) an excess liability policy issued by Admiral Insurance Company (“Admiral”).
An AVSC employee suffered a fatal accident while working on the project, and his estate commenced a wrongful death action against the University. The University, in turn, commenced a third-party action against AVSC seeking both common law and contractual indemnification. CIIC acknowledged coverage, presumably under the employers’ liability portion of its policy (Coverage Part B), and defended AVSC in the action. Century and Admiral, however, both denied coverage, forcing AVSC to file a declaratory judgment action.
In the declaratory judgment action, AVSC contended that Admiral had a duty to defend and indemnify. Admiral argued there was no coverage under the excess policy because the CIIC Part B coverage was unlimited and, therefore, the “underlying insurance limit” could never exhaust.
In adopting Admiral’s position, the court noted that the Admiral policy’s definition of “underlying insurance limit” included not only the scheduled underlying policies, like the Century CGL policy, also any policies qualifying as “other insurance Like the CIIC employers liability policy. As such, the court held that the CIIC policy had to exhaust before the Admiral policy would respond. Since the CIIC policy contained a New York Limit of Liability Endorsement providing unlimited Part B coverage, the court held the language of the Admiral policy precluded coverage where the underlying insurance limit could never technically exhaust.
The decision does not address a number of issues probably going on behind the scenes. Interestingly, AVSC did not pursue Century—its primary CGL insurer—for coverage, perhaps because of a labor law exclusion or a restriction on contractual indemnity coverage. Instead, AVSC attempted to argue that its excess carrier, Admiral, drop down to cover it for contractual indemnity claims, but was met with an unusual circumstance: the excess policy, through broad “other insurance” language, treated the employers’ liability insurance as underlying insurance. It is possible that as a result of this decision, AVSC was left with uncovered losses, as well as a breach of contract claim by the University for failure to procure it additional insured coverage as promised.
The case is a cautionary tale for upstream parties and subcontractors alike when it comes to reviewing and understanding the interplay amongst liability policies. Careful structuring of policy terms, including limits provisions and other insurance clauses, may have avoided this unexpected result. ______________________________________________________________________________________________________
1 156 A.D.3d 853 (2nd Dep’t. 2017).