| Regal Constr. Corp. v National Union Fire Ins. Co. of Pittsburgh,Pa. |
| 2009 NY Slip Op 05831 [64 AD3d 461] |
| July 14, 2009 |
| Appellate Division, First Department |
| Regal Construction Corporation et al.,Appellants, v National Union Fire Insurance Company of Pittsburgh, Pa., Respondent,et al., Defendant. |
—[*1] Law Offices of Green & Lavelle, Brooklyn (Erika C. Aljens of counsel), forrespondent.
Order, Supreme Court, New York County (Debra A. James, J.), entered April 4, 2008,which, inter alia, denied plaintiffs' motion for summary judgment, granted defendant NationalUnion Fire Insurance Co.'s cross motion for summary judgment, and declared that plaintiff theInsurance Corporation of New York (INSCORP) is obligated to defend and indemnify defendantURS Corporation (URS) in the underlying personal injury action, affirmed, with costs.
The City of New York engaged URS as the construction manager for the Rikers Islandrenovation project. By written agreement dated March 22, 1999, URS hired plaintiff RegalConstruction Corporation (Regal) to serve as the prime contractor for general construction and toperform construction services, including demolition and renovation, at the project. INSCORPissued to Regal a commercial general liability policy that provided additional insured coverage.This appeal involves the interpretation of the additional insured clause.
Regal's duties as prime contractor included the demolition and rebuilding of a modularbuilding at Rikers Island. The task required Regal to engage subcontractors and oversee theirwork. Ronald LeClair was Regal's project manager for the Rikers Island renovation project. Hisduties included the coordination of the subcontractors' work.
In March 2001, Regal was supervising the demolition of the building's bath and shower areaas well as the replacement of flooring in the main area. On March 6, 2001, LeClair was walkingthrough the facility with his superintendent and an employee of Regal's demolitionsubcontractor. As the area was under demolition, the flooring consisted of temporary sheets ofplywood spread over steel floor joists. LeClair stepped from the plywood onto a joist in order topoint to a wall that was to be demolished. Unbeknownst to LeClair, the joist had been freshlypainted and its slipperiness caused him to fall and sustain injury. At a deposition, LeClairtestified that he had heard that a URS employee painted the joist.[*2]
In January 2003, LeClair brought the underlying actionagainst the City and URS in the Supreme Court, Bronx County. By letter dated February 19,2003, URS demanded a defense and indemnification by Regal and/or INSCORP and enclosed acopy of LeClair's verified complaint. URS based the demand on its claimed status as anadditional insured under the policy issued by INSCORP to Regal. In April 2003, INSCORPresponded to URS by letter indicating that the matter was being reviewed. By the same letter,INSCORP also reserved its right to disclaim coverage at a later date should it be determined thatURS was not entitled to the benefits of the policy. Because its tender had not been accepted,URS brought a third-party action against Regal in February 2004. By another letter dated March11, 2004, INSCORP did accept URS's tender, and URS's third-party action against Regal wasdiscontinued.
Nevertheless, on April 9, 2007, Regal and INSCORP commenced this action against URSand its insurer, National Union, for a declaratory judgment. In denying plaintiffs' motion forsummary judgment and granting defendants' cross motion for the same relief, Supreme Courtdeclared that INSCORP is obligated to defend and indemnify URS in the LeClair action.As this appeal has been withdrawn with respect to plaintiffs' claims against URS, the pivotalissue, as framed by the complaint, is whether URS is an additional insured under Regal's policywith INSCORP.
INSCORP's policy provided for additional insured coverage "only with respect to liabilityarising out of [Regal's] ongoing operations performed for that [additional] insured." As explainedby the Court of Appeals in WorthConstr. Co., Inc. v Admiral Ins. Co. (10 NY3d 411 [2008]), which involved a similarlyworded additional insured provision, the phrase "arising out of" means "originating from,incident to, or having connection with" (id. at 415 [internal quotation marks omitted]).The policy in Worth was issued to Pacific Steel, Inc., a subcontractor that had beenengaged for the fabrication and installation of a staircase consisting of steel pan stairs and handrailings. After Pacific installed the stairs but before it installed the hand railings, the job wastemporarily turned over to a concrete subcontractor for the purpose of filling the pans. Theplaintiff was injured when he slipped on fireproofing that had been applied to the stairs by asubcontractor other than Pacific. After noting that the focus of the clause "is not on the precisecause of the accident but the general nature of the operation in the course of which the injury wassustained" (id. at 416 [internal quotations marks omitted]), and that Pacific was not onthe job site at the time of the accident and had nothing to do with the application of thefireproofing, the Court characterized the staircase installed by Pacific as "merely the situs of theaccident," and ruled that there was no connection between the accident itself and Pacific's work,the risk for which coverage was intended (id.).
The facts of the instant case are not analogous because Regal, the prime contractor at theRikers Island project, had responsibilities that encompassed all of the demolition andconstruction work to be done. As such, Regal's tasks cannot be viewed in isolation as were thoseof Pacific, the staircase subcontractor in Worth. LeClair even testified that it would havebeen Regal's responsibility to paint the floor joists if instructed to do so by URS. Hence, therewas a causal connection between LeClair's injury and Regal's work as a prime contractor, therisk for which coverage was provided. The dissent places unwarranted emphasis on the fact thatthe LeClair complaint does not set forth allegations of negligence on the part of Regal."Generally, the absence of negligence, by itself, is insufficient to establish that an accident didnot 'arise out of' an insured's operations" (id.). "The focus of a clause such as theadditional insured clause here is not on the precise cause of the accident but the general nature ofthe operation in the course of [*3]which the injury was sustained"(id. [internal quotation marks omitted]).
Accordingly, Supreme Court correctly found that INSCORP is obligated to defend andindemnify URS in the LeClair action. We reject, however, National Union's argumentthat INSCORP should be estopped from denying coverage because it accepted URS's defensewithout a reservation of rights and controlled that defense until its denial of coverage in 2007.On the contrary, as noted above, 11 months before accepting URS's defense INSCORP reservedits right to disclaim coverage at a later date. Concur—Tom, J.P., Acosta and DeGrasse, JJ.
Nardelli and McGuire, JJ., dissent in a memorandum by McGuire, J., as follows: RonaldLeClair, the plaintiff in the underlying action, was injured during the course of his employmentwith plaintiff-appellant Regal Construction Corp., the primary general contractor for aconstruction project at Rikers Island. Specifically, he was injured when he slipped and fell on asteel floor joist during a "walk-through" of the job site during which he was pointing outrequired demolition work to Regal's demolition subcontractor. The joist had just been painted bydefendant URS Corp., the construction manager, after it removed plywood covering. URS is anadditional insured under the policy Regal obtained from plaintiff-appellant the InsuranceCorporation of New York (INSCORP) "only with respect to liability arising out of [Regal's]ongoing operations performed for [URS]." LeClair's complaint in the underlying action allegesonly that he was injured as a result of the negligence of URS and its codefendant, the City ofNew York, which engaged URS as the construction manager. The complaint is bereft ofallegations that Regal was liable in any way for LeClair's fall or injuries. Of course, however,any such allegations would be pointless as LeClair did not and could not sue his employer torecover for the injuries he sustained as a result of the accident (see Workers'Compensation Law § 11).
URS tendered the defense and indemnification of the underlying action to INSCORP shortlyafter LeClair commenced the action. INSCORP, through its claims representative, respondedthat it was investigating URS' coverage request and stated that it "reserves its rights to disclaimcoverage at a later date" if it determined that URS was not entitled as an additional insured to thebenefits of the policy it had issued to Regal. Just over a year after the underlying action wascommenced, counsel for URS advised INSCORP's claims representative that it had served Regaland INSCORP with a third-party complaint. One month later, by a letter dated March 11, 2004,INSCORP "agreed to accept [URS'] tender demand . . . for coverage as anadditional insured" under the Regal policy.[FN1]URS thereafter was represented in the underlying action by counsel selected by INSCORP.
In April 2007, however, Regal and INSCORP commenced this action against NationalUnion and URS seeking, among other things, both a declaration that URS is not entitled tocoverage under the Regal policy as an additional insured and to recover the defense costs [*4]INSCORP incurred in defending URS. In relevant part, Regal andINSCORP allege that discovery in the underlying action "has shown that the liabilities allegedtherein do not arise out of Regal's operations performed for URS at the jobsite." Later thatmonth, INSCORP's claim handler notified URS and its claim handler that it was withdrawingfrom the defense of the underlying action. After URS moved to dismiss the complaint pursuantto CPLR 3211 (a) (1) and (7), Regal and INSCORP cross-moved for summary judgment seekinga declaration that (1) URS was not an additional insured and thus was not entitled to a defense orindemnity in the underlying action, (2) National Union afforded primary liability insurancecoverage to URS, and (3) INSCORP was entitled to reimbursement of defense costs fromNational Union and URS or, alternatively, National Union was a coinsurer with INSCORP ofURS for the claims against URS in the underlying action. National Union also cross-moved forsummary judgment seeking, among other things, a declaration that INSCORP was obligated todefend and indemnify URS in the underlying action on a primary basis, and a declaration thatINSCORP was estopped from disclaiming coverage on the eve of trial of the underlying action.
Supreme Court denied Regal and INSCORP's cross motion for summary judgment and, inrelevant part, granted National Union's cross motion for summary judgment and directed theentry of a judgment declaring that INSCORP is obligated to defend and indemnify URS in theunderlying action.[FN2]Regal and INSCORP now appeal; pursuant to a stipulation, the appeal is taken against NationalUnion only.
In BP A.C. Corp. v One Beacon Ins.Group (8 NY3d 708 [2007]), the Court of Appeals construed an additional insuredendorsement identical to the one at issue in this appeal and rejected the contention that theliability of the named insured had to be determined before the additional insured was entitled to adefense. But it does not follow that the potential liability of the named insured is irrelevant. Thecomplaint in BP's underlying action alleged that the named insured had breached its duty to keepthe work site safe and that this breach caused the plaintiff's injuries. As the Court of Appealsstated, "[t]hese allegations form a factual [and] legal basis on which [the insurer] mighteventually be held to be obligated to indemnify [the additional insured]" (8 NY3d at 715[internal quotation marks omitted]). Here, by contrast, there are no remotely comparableallegations against Regal in the underlying action. If LeClair's complaint alleged only that hetripped and fell as a result of banana peels carelessly left on the joist by an employee of URS, itis hard to see how INSCORP could be required to provide URS with a defense and therebyconfer a windfall on URS' own insurance carrier, defendant-respondent National Union FireInsurance Co. LeClair's actual complaint, however, cannot be distinguished from thathypothetical complaint because it alleges only the negligence of URS and the City and does notallege any conduct by Regal on the basis of which Regal's liability to LeClair might be found.
In Worth Constr. Co., Inc. v Admiral Ins. Co. (10 NY3d 411 [2008]), theplaintiff in the underlying action slipped and fell on a staircase installed by Pacific Steel, Inc., asubcontractor and the named insured. The fall occurred, however, when the plaintiff, who wasemployed by another subcontractor, slipped and fell on fireproofing applied to the stairs by yetanother subcontractor; Pacific played no role in contracting for or applying the fireproofing (10NY3d at 414). When Worth, the general contractor and the putative additional insured, was suedby the [*5]plaintiff, it brought both a third-party action againstPacific seeking contribution and indemnification, and a declaratory judgment action againstPacific's insurer seeking defense and indemnification in the underlying action. Thereafter,however, Worth admitted that its claims of negligence against Pacific were without merit, thusnegating "any significant connection between Pacific's work and the accident" (10 NY3d at 416).As the Court of Appeals stated, "[by] admitt[ing] that its claims of negligence against Pacificwere without factual merit, [Worth] conceded that the staircase was merely the situs of theaccident" (id.).
In this case, the complaint in the underlying action makes no claim of negligence againstRegal,[FN3]or any other theory of its liability, that could be negated. INSCORP does not contend, however,that URS is not entitled to coverage as an additional insured because of the absence of anyallegations of negligence or other liability on the part of Regal. In my view, the distinct groundupon which it relies—that LeClair's injuries, and any resulting liability, arose out of URS'operations, not Regal's operations—requires the conclusion that URS is not entitled tocoverage in the underlying action as an additional insured. As INSCORP argues, the Court ofAppeals made clear in Worth that "[t]he focus of a clause such as the additional insuredclause here is not on the precise cause of the accident but the general nature of theoperation in the course of which the injury was sustained" (id. [internal quotationmarks omitted and emphasis added]). The only relevant evidence submitted on the summaryjudgment motions established that LeClair fell on a freshly painted floor joist, and URS wasresponsible for removing the plywood covering and painting the joist. Accordingly, URS'liability arose out of its, not Regal's, operations. Just as the staircase in Worth was the"mere situs" of the accident, the "walk-through" of the job site by LeClair was the mere occasionof the accident. As in Worth, there is no "connection between [LeClair's] accident andthe risk [i.e., Regal's work] for which coverage was intended" (id.).[FN4]
Given its conclusion that INSCORP was obligated to defend and indemnify URS withoutcontribution from National Union, Supreme Court had no reason to resolve that branch ofNational Union's motion contending that INSCORP should be estopped from disclaimingcoverage on the eve of the trial. I would deny that motion. The mere fact that INSCORP did notreserve a right to disclaim coverage in the March 11, 2004 letter is not dispositive (seeFederated [*6]Dept. Stores, Inc., 28 AD3d at 36-37). Morecritically, National Union failed "to establish a key element of common-law estoppel: prejudicecaused by [INSCORP's] allegedly belated disclaimer" (id. at 37). Indeed, in theaffirmation National Union submitted in support of this branch of its motion, it offered only aconclusory assertion that URS had detrimentally relied on INSCORP's control over its defense,and claimed only that INSCORP's control over the defense "may estop INSCORP fromabandoning URS Corporation on the eve of trial" (emphasis added).
For these reasons, I would modify the order of Supreme Court so as to declare that URS isnot entitled to coverage in the underlying action as an additional insured under the INSCORPpolicy. As my position does not carry a majority, it would be pointless for me to addressINSCORP's contentions that the order also should be modified to declare both that NationalUnion is obligated to defend and indemnify URS in the underlying action and that INSCORP isentitled to reimbursement in the amount of the defense costs and indemnity payment it incurredon behalf of URS. [See 19 Misc 3d 1122(A), 2008 NY Slip Op 50816(U).]
Footnote 1: The letter, sent by INSCORP'sclaims administrator, went on to state that "the Third Party Action against Regal. . . will be discontinued."
Footnote 2: After oral argument, counsel forthe parties advised the court that the underlying action had settled.
Footnote 3: The record does not include thethird-party complaint brought against Regal by URS, but it appears that INSCORP agreed toprovide a defense because of the allegations in that complaint. As Justice Sullivan has stated,"[t]he undocumented assertions contained in correspondence from a purported insured aresufficient to trigger the duty to defend" (Federated Dept. Stores, Inc. v Twin City Fire Ins. Co., 28 AD3d32, 37 [2006]).
Footnote 4: The majority asserts that I place"unwarranted emphasis on the fact that the LeClair complaint does not set forthallegations of negligence on the part of Regal." This assertion is puzzling, as I expresslyacknowledge that INSCORP does not rely on the absence of any allegations of negligence orother liability on the part of Regal and I expressly state my position that INSCORP shouldprevail on "the distinct ground" upon which it relies.