Tred R. Eyerly | Insurance Law Hawaii | September 4, 2019
The plaintiff insurer’s motion for partial summary judgment seeking an order that defendant insurer was obligated to defend a non-party as an additional insured was granted. Am Empire Surplus Lines Ins. Co. v. Burlington Ins. Co., 2019 N. Y. Misc. LEXIS 4145 (N. Y. Sup. Ct. July 25, 2019).
Quality Building Construction, LLC was the contractor hired to work on exterior facade of a building owned by Central Park West Corporation. The underlying complaint alleged that Quality caused plastic spacers and pedestals used for the penthouse terrace to fall down the roof drain riser. A clog and rainwater backup resulted in water damage to apartment 8A. The resulting damage was allegedly due to the clogged roof drain riser.
Quality subcontracted the work to Mega State, Inc. The subcontract required Mega to indemnify and hold Quality harmless against claims in connection with Mega’s work, as well as name Quality as an additional insured on a primary, non-contributory bases under Mega’s CGL policy. Burlington issued a policy to Mega naming Quality as an additional insured. American Empire issued a CGL policy to Quality.
Quality was sued in the underlying action, but Mega was not. American Empire tendered a demand for coverage to Mega and Burlington, relying on the agreement between Quality and Mega. Burlington responded that Mega was not liable for the alleged damages. American Empire sued Burlington. Subsequently, Burlington accepted the tender to defend Quality in the underlying action, and reserved rights as to whether Burlington’s policy was primary and on the question of indemnification. American Empire agreed to withdraw its suit if Burlington would modify its reservation of rights. Burlington refused.
Mega completed its work prior to the date of loss. American Empire contended that Quality was an additional insured and entitled to coverage under the “Completed Operations Endorsement” in the Burlington policy. American Empire argued that additional insured coverage was triggered because there was at least a reasonable possibility that the named insured, Mega, was a proximate cause of the underlying property damage. Further, coverage to Quality as an additional insured under the Burlington policy was primary and non-contributory.
Burlington argued the underlying allegations precluded the possibility of coverage. The underlying complaint stated that the property damage was caused by Quality, and there could be no determination that Mega caused the property damage. There was no proof or allegation that Mega was negligent and Mega was not a party to the underlying action. The only evidence that Mega’s work caused the damage was an affidavit from Quality’s President swearing that Quality did not perform work because it subcontracted the work to Mega. Burlington challenged this affidavit as self-serving and inadmissible on the cross motions for summary judgment.
The court ruled that it was irrelevant that Mega was not mentioned in the underlying complaint. Burlington had the subcontract between Mega and Quality, so it had actual knowledge of facts establishing a reasonable possibility that the complaint was within its indemnification policy terms and that its coverage was primary and non-contributory. Burlington was liable to reimburse American Empire for defense costs, with interest because of the language of the policies and the sub contract between Quality and Mega.