New York’s Highest Court Paves Way For Clarity On Additional Insured Policy Language
In what constitutes a ground breaking decision—at least for the insurance litigation industry—New York State’s highest court, the New York Court of Appeals, for the first time delineated the requirements of additional insured language within insurance agreements, which would provide for “proximate,” instead of “but for” cause.
Specifically, the Court of Appeals interpreted policy language stemming from an amendment of the ISO form in 2004 which replaced the “arising out of” language with “caused, in whole or in part.” Following the intent of the drafters of the amendment and the insurance policy at issue, the Court noted that the policy language change was “intended to provide coverage for an additional insured’s vicarious or contributory negligence, and to prevent coverage for the additional insured’s sole negligence.” The Court further reasoned that “the heart of the amendment, therefore, was ‘the preclusion of coverage for an additional insured’s sole negligence.’” Now, for the first time there is clarity on how insurers should draft additional insured provisions that would coincide with the type and amount of risk an insurer is willing to undertake.
The facts of the underlying case, Burlington Ins. Co. v. NYC Transit Authority, 2017 NY Slip Op 04384 (June 6, 2017), arose out of a project in which New York City Transit Authority (“NYCTA”) contracted with Breaking Solutions, Inc. (“BSI”) to provide equipment and personnel and for BSI to perform tunnel excavation work on a New York City subway. Unfortunately, during this project after a BSI machine touched a live electrical cable that was buried in concrete at the excavation site an MTA employee fell off an elevated platform as he tried to avoid the explosion. The MTA employee, along with his wife, filed suit against the City and BSI asserting claims under New York’s Labor Law, as well as for general negligence and loss of consortium, in Federal Court.
Discovery in the employee’s Federal lawsuit revealed that NYCTA failed to identify, mark, or protect the electric cable, and that it also failed to turn off the cable power. These documents further established that the BSI machine operator could not have known about the location of the cable or the fact that it was electrified. One internal memoranda, revealed that the NYCTA acknowledged its sole responsibility for the accident, and the NYCTA superintendent explained that the excavation equipment operators “were operating the equipment properly and had no way of knowing that the cables were submerged in the invert.” The other memorandum concluded “this accident was primarily due to an inadequate/ineffective inspection process for identifying job-site hazards involving buried energized cables.” Based on these revelations, Burlington disclaimed coverage of NYCTA and MTA, asserting that BSI was not at fault for the injuries and therefore NYCTA and MTA were not additional insureds under the policy. After settling for $950,000 BSI commenced a subrogation and coverage action against NYCTA and MTA.
The main issue decided by the Court revolved around the policy of CGL insurance purchased by BSI from Burlington, which included an endorsement affording additional insured coverage to NYCTA, MTA and the City. This additional insured policy provision stated in relevant part: “. . . only with respect to liability for ‘bodily injury’ . . . ‘caused, in whole or in part, by’ 1. Your acts or omissions; or 2. The acts or omissions of those acting on your behalf.” It was Burlington’s position that coverage would not be afforded when the sole negligence was that of the additional insured, and was in no way due to the negligence of the main insured party, BSI.
Burlington made its way to the Court of Appeals, after the Appellate Division, First Department originally held that additional insurance policy language which states “caused, in whole or in part” by the “acts or omissions” does apply to any injury that is merely “causally linked” to the named insured. However, the majority in the Court of Appeals swiftly found that the Appellate Division “erroneously interpreted” the aforementioned policy language as extending coverage to injury only causally linked to the named insured and “wrongly concluded that an additional insured may collect for an injury caused solely by its own negligence, even where the named insured bears no legal fault for the underlying harm.”
Honorable Judge Jenny Rivera, writing for the majority in a 4-2 decision, perfectly articulated why additional insured coverage that states “caused, in whole or in part” applies to bodily injury “proximately caused by the named insureds,” “acts or omissions.” Unlike the thoughts of the dissenting Justice’s, the majority providently refused to force an insurer to provide coverage to an additional insured when the named insured is without fault, based upon the specific policy language quoted above.
The Court of Appeals reasoned that “caused, in whole or in part” equates to “proximate,” not “but for” causation. The Court also rejected the First Department’s conclusion that the phrases “arising out of” and “caused by” do not “materially differ.” Further, the Court explained that not all “but for” causes result in liability and “[m]ost causes can be ignored in tort litigation.” However, “’proximate cause’ refers to ‘legal cause’ to which the Court has assigned liability,” which allowed for the Court to overturn the Appellate Division and rule in favor of Burlington.
Burlington truly represent a seminal decision by the New York State Court of Appeal, as it will have a long lasting impact on the litigation of future law suits, and drafting of insurance agreements between parties who both want to limit the extent of their liability. It now behooves all parties to additional insured agreements to be aware that where the additional insured is the sole cause of harm to another, insurance coverage will not be afforded. Of course, when drafting insurance agreements, all parties must be cognizant of the fact that the specific language interpreted by the Court will be the only effect of the Burlington decision. Thus, drafters must issue coverage accordingly based upon how the Court has defined the scope, terms, and extent of indemnity owed by non-negligent parties.