On June 6, 2017, the Court of Appeals in New York held that when an insurance policy states that additional insured coverage applies to bodily injury “caused, in whole or in part” by the “acts or omissions” of the named insured, the coverage applies to injury “proximately caused by the named insured.” , (N.Y. June 6, 2017)
The Court’s majority (one dissent) rejected the argument that an additional insured obligation is owed under this language when the named insured is without fault. In so holding, the Court concluded that the Appellate Division “erroneously interpreted” the applicable policy language to extend coverage for injury only causally linked to the named insured [“but for” causation] yet “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.” In rejecting the concept that “caused, in whole or in part” equals “but for” causation, the Court of Appeals further reversed the First Department’s conclusion that the phrases “arising out of” and “caused by” do not “materially differ.” In so doing, the Court of Appeals continues to place the words of the insurance practice.
The Burlington decision dealt with coverage issues concerning 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 excavation work on a New York City subway tunnel. BSI placed CGL insurance with Burlington with an additional insured endorsement covering NYCTA, MTA, and the City as additional insureds “. . . only with respect to liability for ‘bodily injury’, ‘property damage’. . . caused, in whole or in part, by 1. Your acts or omissions; or 2. The acts or omissions of those acting on your behalf.”
An MTA employee fell off an elevated platform when trying to avoid an explosion after a BSI machine touched a live electrical cable that was buried in concrete at the excavation site. That occurrence led to a bodily injury suit filed against New York City and BSI based upon New York’s Labor Law and based upon a claim of general negligence. Burlington defended BSI and accepted the City’s tender under a reservation or rights. Thereafter, the City impleaded NYCTA and MTA seeking contractual indemnity based on Article 6, Section 6.8 of a lease of transit facilities wherein NYCTA had agreed to indemnify the City for liability “arising out of or in connection with the operation, management, and control by the NYCTA of the lease property.” Though Burlington initially accepted NYCTA’s defense, subject to a reservation of rights, in discovery, it was revealed that NYCTA failed to mark or map out the area where electrical cables were buried and, thus, the BSI machine operator could not have known about the location of the cable or whether it was electrified. As a result, the trial court in the Federal District Court dismissed plaintiff’s claims against BSI with prejudice.
Burlington settled the underlying case, disclaimed coverage to NYCTA and MTA and commenced a subrogation and coverage action against NYCTA and MTA. The trial court granted Burlington’s motion for summary judgment, concluding that NYCTA and MTA were not additional insureds. The Appellate Division reversed, concluding that “the act of triggering the explosion . . . was a cause of [the employee’s] injury” within the meaning of the policy.”
NYCTA and MTA argued in the Court of Appeals that “caused, in whole or in part” means “but for causation.” The Court disagreed and sided with Burlington, concluding that there was no coverage obligation because, “by its terms, the policy endorsement is limited to those injuries proximately caused by BSI [the named insured].” The Court majority states not all “but for” causes result in liability and “[m]ost causes can be ignored in tort litigation”; in contrast, “‘proximate cause’ refers to ‘legal cause’ to which the Court has assigned liability.” This decision notes that “but for BSI’s machine coming into contact with the live cable, the explosion would not have occurred and the employee would not have fallen or been injured,” but “that triggering act was not the proximate cause of the employee’s injuries.” Thus, if concluded coverage did not exist because BSI was not at fault and the plaintiff’s injury was “due to NYCTA’s sole negligence in failing to identify, mark, or de‑energize the cable.” In reaching this conclusion, the Court discussed (at length) the amendment of the CG2010 ISO form in 2004 where“arising out of” language was replaced with “caused, in whole or in part,” noting that the 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 majority also addressed the dissent’s concern over the impact to the insurance industry where it stated, for instance:
The dissent’s concern that our “approach could threaten the stability and certainty of our bedrock rules of insurance policy interpretation” (dissenting op at 17) is unwarranted. Our opinion adheres to contract principles that the plain and ordinary meaning applies and that the parties may freely negotiate the terms of the policy. There is also no basis for the dissent’s speculation that our decision may have a “destructive” impact on liability insurance coverage (dissenting op at 18). Our analysis should come as no surprise to the industry because the drafters of the language used here intended it to mean proximate causation.
Yet, in deciding this case, the Court did adhere to contract principles which will inevitably lead to greater stability in deciding insurance coverage issues and will establish “bedrock” rules for handling such insurance questions. There may be a short-term adjustment, but in the end, the Court of Appeals has taken a direction that the industry may find will lead to greater certainty in deciding Additional Insured coverage issues.
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