On May 16, 2017, the New York Appellate Division, First Department issued HDI-Gerling Am. Ins. Co., et al., v. Zurich Am. Ins. Co., and Skanska USA Civil Northeast, No. 3095- 3095A, 2017 WL 1013645 (N.Y. App. Div. Mar. 16, 2017). This case involved a priority of coverage dispute between two contractors, Skanska USA Civil Northeast (“Skanska”) and Siemens Corp. (“Siemens”), and their respective insurance carriers. The City of New York (the “City”), an owner of a water treatment facility construction project in the Bronx, New York, separately hired Skanska and Siemens to perform work on project. Both Skanska and Siemens separately contracted with the City and independently agreed to provide additional insured coverage. In fact, the contracts had identical insurance provisions, requiring that each party agree to procure commercial general liability (CGL) insurance and add the City as an additional insured under its insurance policy on a primary and noncontributory basis to the City's own insurance.
Skanska purchased a policy from Zurich American Insurance Company (“Zurich”) and Siemens purchased its policy from HDI-Gerling America Insurance (“HDI-Gerling”) and both policies offered additional insured coverage to the City. However, Skanska's policy included a unique manuscript endorsement designed, with assistance from SDV, to more precisely address the priority of coverage afforded to additional insureds (the "Skanska Endorsement"). The Skanska Endorsement provides:
Section IV. Commercial General Liability Condition, 4. Other Insurance is amended per the following:
1. The following paragraph is added under a. Primary Insurance:
This insurance is primary insurance as respects our coverage to an additional insured person or organization, where the written contract or written agreement requires that this insurance be primary and non-contributory. In that event, we will not seek contribution from any other insurance policy available to the additional insured on which the additional insured person or organization is a Named Insured.
2. The following paragraph is added under b. Excess Insurance:
This insurance is excess over: Any of the other insurance whether primary, excess, contingent or on any other basis, available to an additional insured, in which the additional insured on our policy is also covered as an additional insured by attachment of an endorsement to another policy providing coverage for the same "occurrence," claim or "suit." This provision does not apply to any policy in which the additional insured is a Named Insured on such other policy and where our policy is required by written contract or written agreement to provide coverage to the additional insured on a primary and non-contributory basis.
In short, the Skanska Endorsement set forth that where an additional insured on the Zurich policy, such as the City, was also an additional insured on another policy, the Zurich policy would be excess to that other available additional insured coverage. At the same time, the Skanska Endorsement made clear that the Zurich policy would be primary to the City's own insurance in order to satisfy Skanska's own contractual obligation to have its (Skanska's) insurance pay before the City's own program. The HDI-Gerling policy contained no comparable language.
In light of several underlying bodily injury claims occurring on the project, the City tendered to Skanska, Siemens, and their respective insurers, seeking additional insured coverage. Zurich informed the City that its additional insured coverage was excess over the coverage available under the HDI-Gerling policy. HDI-Gerling accepted coverage for the City and then filed suit against Skanska and Zurich, arguing that the language of the Skanska Endorsement was ineffective, rendering Skanska’s policy primary, or, at the very least, co-primary with the HDI-Gerling policy. Meanwhile, Skanska and Zurich argued that, per the Skanska Endorsement, the Zurich policy was excess over any other additional insured coverage available to the City. The trial court agreed with Skanska and Zurich. HDI-Gerling then appealed to New York’s Appellate Division, First Department.
Jeremiah Welch successfully argued before the Appellate Division that the precise language of the Skanska Endorsement effectively addressed priority of coverage as between multiple policies providing additional insured coverage to the City. The Appellate Division unanimously affirmed the trial court decision finding that Skanska’s policy was excess over the HDI-Gerling policy and that the HDI-Gerling policy, by its own terms, required that it provide primary coverage without sharing with other insurance. The court also agreed that the Skanska Endorsement created an exception to co-primary insurance coverage for instances where other additional insured coverage is available to an upstream party.
Ultimately, the Skanska Endorsement was precisely worded to restore the fundamental risk transfer principle that those parties that are closest to the work, and, therefore, in the best position to mitigate and control potential problems, bear the risk. While case law in certain jurisdictions adopting horizontal exhaustion has disrupted this principle, SDV sought to address the unintended consequences often resulting from the case law in these jurisdictions by creatively modifying the language in the policy.
Overall, this decision reinforces the importance of understanding how precise policy modifications may have a dramatic impact on how a policy responds to a loss, particularly in the event where multiple carriers are involved.