United States: Duty To Defend Additional Insured Under New York Law

Background

In BP Air Conditioning , BP Air Conditioning Corp. ("BP") subcontracted some of its work to Alfa Piping Corp. ("Alfa"). The purchase order memorializing the subcontract required Alfa to i) indemnify and hold BP harmless; and ii) obtain a "Comprehensive General Liability Insurance ... naming [BP] ... additional insured." OneBeacon Insurance Group ("OneBeacon") issued a general liability insurance policy to Alfa with an additional insured endorsement providing that "... Such person or organization is an additional insured only with respect to liability arising out of your ongoing operations performed for that insured ..." Slip op. at 3.

Thereafter, Alfa and BP were sued in a personal injury action commenced by an employee of another BP subcontractor who slipped and fell at the work site. OneBeacon defended Alfa in the underlying action, but declined to defend BP. In response, BP filed a coverage action and moved for partial summary judgment contending that OneBeacon had a duty to defend it in the underlying action and to reimburse its past defense costs. OneBeacon countered that it had no duty to defend BP until it was determined that the alleged personal injury arose out of Alfa's activities, and that OneBeacon's responsibility, if any, for the costs of BP's defense could not be determined without first considering the liability of other applicable insurers.

The trial court granted BP summary judgment on the duty-to-defend issue, but declined to find OneBeacon primarily responsible for BP's defense costs. The Appellate Division of the First Department affirmed that OneBeacon had a duty to defend BP, but modified that BP's coverage under OneBeacon's policy was primary. The Court of Appeals modified the order of the First Department by reinstating decision of the trial court.

Decision

In deciding the duty-to-defend question, the Court of Appeals first examined the standard for determining whether a named insured is entitled to a defense. The court stated that it is well-settled that "an insurer's duty to defend [its insured] is 'exceedingly broad'" and "[i]f a complaint contains any facts or allegations which bring the claim even potentially within the protection purchased, the insurer is obligated to defend." Id. at 6 (emphasis supplied).

Next, the court noted that it is undisputed that Alfa agreed in the purchase order to name BP as an additional insured in its OneBeacon policy and that Alfa also agreed to indemnify and pay BP's attorneys' fees for any personal injury tort claim arising from Alfa's work. From there, citing Pecker Iron Works of N.Y. v. Travelers Ins. Co., 99 N.Y.2d 391, 393 (2003), the court concluded that "[t]he standard for determining whether an additional named insured is entitled to a defense is the same standard that is used to determine if a named insured is entitled to a defense." Id . at 8.

The court rejected OneBeacon's argument that a threshold finding of actual liability is required before BP is entitled to a defense. Id. The court opined [since] there is a possibility that [the underlying claimant's] injuries "ar[ose] out of [Alfa's] ongoing operations performed for [BP]," OneBeacon's duty to defend BP is triggered. Id. at 9 (emphasis supplied) . The court further noted that this outcome is consistent with BP's "reasonable expectations" in that, based on the language of the purchase order and the policy, it was "reasonable" for BP to expect that it was entitled to broad protection against any liability that might be attributable to Alfa's activities.

On the "priority of insurance" issue, the Court of Appeals reversed the Appellate Division's ruling and held that, because none of the other relevant insurance was part of the record, "the priority of coverage cannot be determined." Id . at 10.

Comment

BP Air Conditioning teaches this practical lesson of New York law: At least in the context of general liability coverage, where a named insured extends coverage to an additional insured and agrees in writing to defend and indemnify the additional insured from liability arising from the named insured's work, the additional insured is entitled to a duty to defend an underlying claim, alleging liability arising from the named insured's operations - even in the absence of an up-front determination that the named insured is actually liable. This result is consistent with the additional insured's "reasonable expectations" of coverage and well-settled principles of New York law concerning the breadth of an insurer's duty to defend.

Whether the additional insured coverage will be given "priority" over any other applicable insurance available to the additional insured is a case-by-case inquiry that will turn on the relevant policy wording.

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