Stout v. 1 East 66th Street Corp.

Citations: 90 A.D.3d 898; 935 N.Y.2d 49

Court: Appellate Division of the Supreme Court of the State of New York; December 19, 2011; New York; State Appellate Court

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William Stout initiated action No. 1 against Tishman Construction Corporation and Tishman Interiors Corporation for personal injuries linked to violations of the Labor Law while working on scaffolding during a synagogue renovation. Tishman Interiors was the general contractor, and Stout was employed by subcontractor Evergreene Painting Studios, Inc., with scaffolding erected by another subcontractor, Atlantic-Heydt Corporation. Tishman Interiors' contracts required both Evergreene and Atlantic to secure insurance naming Tishman Interiors as an additional insured. Evergreene's coverage was with Interstate Fire and Casualty Company, while Atlantic's was with Zurich American Insurance Company.

Upon Stout's claim, Tishman plaintiffs notified their insurer, American International Group (AIG), which claimed to have tendered coverage to Zurich. However, Zurich denied receipt of the tender, and AIG could not provide proof of mailing. After Stout's summons and complaint were received, the Tishman plaintiffs sent a second tender, which Zurich acknowledged but did not confirm the first tender's existence. When AIG did not respond, Zurich disclaimed coverage. Consequently, the Tishman plaintiffs filed action No. 2 against Interstate, Zurich, and their insureds, seeking a declaration of defense and indemnification in action No. 1.

The actions were consolidated for discovery. The Tishman plaintiffs sought summary judgment against Interstate and Zurich, while both insurers cross-moved for summary judgment to deny their obligations. The Supreme Court ruled that Zurich's disclaimer was untimely and that Zurich had both a defense and indemnification obligation, which was primary, while Interstate’s coverage was secondary or excess. It also determined that Interstate owed obligations solely to Tishman Interiors, with Zurich responsible for both Tishman plaintiffs. The court modified the ruling, clarifying that there is no fixed time limit for an insurer to disclaim coverage, as long as it does so "as soon as is reasonably possible" based on sufficient knowledge of the facts entitling it to disclaim.

The insurer bears the burden to justify any delay in disclaiming coverage; a lack of a reasonable explanation renders the delay unreasonable as a matter of law. Even if the insured fails to provide timely notice of a claim, the insurer's obligation remains. An insurer's explanation for a delay becomes legally inadequate if the reasons for denying coverage were apparent prior to the delay or if the insurer cannot demonstrate that the delay was due to a thorough investigation of the coverage issues. In this case, Zurich's delay of 32 to 44 days in disclaiming coverage was scrutinized, focusing more on its justification than the delay's duration. Zurich claimed the need to investigate prior communications but did not substantiate this claim with evidence of any investigation. Consequently, the court found that Zurich failed to justify its delay, resulting in a determination that its disclaimer was untimely. The insurer's duty to defend is expansive and activated by any complaint allegations suggesting a reasonable possibility of coverage, regardless of the merits of those allegations. This obligation applies equally to additional and named insureds, while the insured must prove coverage and indemnification. Zurich's "Additional Insured" endorsement covers the Tishman plaintiffs for liabilities linked to Zurich's insured’s ongoing operations. The interpretation of "arising out of" in this context is broad, encompassing connections to the insured's activities.

Coverage under an insurance policy requires establishing a causal relationship between the injury and the risk covered. The inquiry centers on the general nature of the operation during which the injury occurred, rather than the specific cause of the accident. In this case, the scaffolding was the site of the injury, but the evidence presented did not definitively establish that the scaffolding caused the injury. Therefore, the Supreme Court incorrectly ruled that the Tishman plaintiffs were entitled to summary judgment for Zurich's obligation to indemnify them.

In disputes between insurers, courts prioritize the language of the relevant policies, interpreting unambiguous provisions according to their plain meaning. The entire policy must be read together with any endorsements, ensuring that the original terms remain effective unless explicitly altered. Courts cannot rewrite agreements by ignoring policy language, nor should interpretations render any provisions meaningless.

The Court of Appeals noted the complexity of establishing a hierarchy among multiple insurers covering the same risk, as each insurer contracts separately with the insured. In cases of conflicting coverage, an excess policy that allows for contribution with other excess policies must contribute proportionately, unless it explicitly states that it negates contribution or is intended to be excess over other excess policies.

Where one insurance policy is primary to another, the issuer of the primary policy must pay its limits before the excess policy applies. In this case, the 'additional insured' endorsement in the Interstate policy specifies that its coverage is excess to any other insurance, whereas Zurich’s endorsement lacks such language. This distinction led the Supreme Court to correctly determine that Zurich provides primary coverage, while Interstate offers excess coverage. Zurich did not present sufficient evidence to contest this finding.

Interstate claimed it had no duty to defend Tishman Construction, arguing that Tishman was not an additional insured under its policy. However, the endorsement states that any entity named in a contract as an insured is covered for liabilities arising from work performed by its insured, Evergreene, for Tishman. The contract between Evergreene and Tishman Interiors indicates that Tishman’s affiliates are included in the indemnity arrangement. 

The court found that Interstate failed to demonstrate that the injury in question did not arise from Evergreene's work for Tishman, leading to an error in granting summary judgment that Tishman was not an additional insured. The matter must be remitted to the Supreme Court for a judgment declaring that Zurich’s insurance is primary to Interstate’s and that Zurich did not timely disclaim coverage. The Tishman plaintiffs' other arguments were not properly before the court due to the lack of a notice of appeal.