Opinion
650065/2018
10-29-2019
FIRST MERCURY INSURANCE COMPANY, Plaintiff, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant, and Europa Construction Corporation, El-Ad 250 West LLC, New Line Structures, Inc., and A & V Interiors, Inc., Nominal Defendants.
Saiber LLC, New York (Lisa C. Wood and David M. Farkouh of counsel), for plaintiff. Martin, Fallon & Mullé, New York (Richard C. Mullé of counsel), for defendant State Farm Mutual Automobile Insurance Company. Morris, Duffy, Alonso & Faley, New York (Michael V. Titowsky of counsel), for nominal defendants El-Ad 250 West LLC and New Line Structures, Inc. Bartlett LLP, New York (Peter Morris of counsel), for nominal defendant A & V Interiors, Inc.
Saiber LLC, New York (Lisa C. Wood and David M. Farkouh of counsel), for plaintiff.
Martin, Fallon & Mullé, New York (Richard C. Mullé of counsel), for defendant State Farm Mutual Automobile Insurance Company.
Morris, Duffy, Alonso & Faley, New York (Michael V. Titowsky of counsel), for nominal defendants El-Ad 250 West LLC and New Line Structures, Inc.
Bartlett LLP, New York (Peter Morris of counsel), for nominal defendant A & V Interiors, Inc.
Gerald Lebovits, J.
The following e-filed documents, listed by NYSCEF document number (Motion 001) 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 28 were read on this motion for SUMMARY JUDGMENT
This insurance action arises from an accident on a construction site. Defendant El-Ad 250 West LLC owned the site and hired defendant New Line Structures, Inc., as its general contractor. Defendant Europa Construction Corporation was a subcontractor on the project. Europa was insured, under different policies, by plaintiff First Mercury Insurance Company and by defendant State Farm Mutual Automobile Insurance Company.
Non-party Joaquim DaSilva, an employee of Europa, was injured on the site. He brought a personal-injury action against El-Ad and New Line, who in turn brought third-party complaints against Europa. First Mercury then brought this action for declaratory relief against State Farm under CPLR 3001, seeking a judgment that State Farm owes the primary duty to defend and indemnify Europa, El-Ad, and New Line in the underlying personal-injury action. First Mercury also sought reimbursement of the attorney fees and costs that it expended defending the underlying action. First Mercury now moves for summary judgment under CPLR 3212 on its declaratory-judgment claims (but not its request for reimbursement of defense costs).
BACKGROUND
I. The Underlying Personal-Injury Action
In September 2012, DaSilva was allegedly injured at the construction site while attempting to unload pallets of cement from a flatbed truck owed by Europa. In September 2013, DaSilva sued El-Ad and New Line for damages in Supreme Court, New York County. DaSilva's complaint asserted claims under, among other provisions, Labor Law §§ 200, 240, and 241 (6). (See DaSilva v. El-Ad 250 West LLC , Index No. 158079/2013 [Sup Ct, NY County].)
DaSilva's complaint alleged that El-Ad and New Line negligently failed to make certain that correct methods were used to unload cement pallets from trucks, to provide proper equipment for safe unloading, and to ensure that work areas were free of slipping hazards. (See NYSCEF No. 16, at 5.) DaSilva's verified bill of particulars stated that the accident occurred at the loading dock of the construction site. (See NYSCEF No. 18, at 3.) And he testified at his deposition that while he was standing on the flatbed of a truck attempting to unload pallets of cement, he tripped on a pallet and then slipped on a cement mixed with stones that had accumulated on the floor of the truck. (See NYSCEF No. 19, at Tr. 70-77.)
Europa was insured by both First Mercury and State Farm—First Mercury by a general liability policy, and State Farm by an automobile policy. In May 2014, First Mercury advised State Farm that DaSilva had been injured while unloading cement pallets from a Europa truck and had brought a personal injury action. (See NYSCEF No. 27, at 2.) First Mercury noted that although Europa had not yet been impleaded into the suit, First Mercury anticipated that impleader would occur at some point. (Id. )
In March 2015, New Line filed a third-party complaint against Europa in the underlying action. New Line asserted that it was entitled to common-law and contractual indemnification and to contribution. New Line also brought a claim for breach of contract for failure to procure insurance, alleging that under its contract with Europa, Europa was required to name New Line as an additional insured on applicable insurance policies but had failed to do so. (See NYSCEF No. 20, at 10, 13.) Shortly after New Line filed its third-party complaint, El-Ad also brought a third-party complaint against Europa, asserting similar claims for common-law and contractual indemnification, contribution, and breach of contract. (See NYSCEF No. 21, at 7-8.)
First Mercury assumed Europa's defense against the third-party claims brought by El-Ad and New Line. In April 2015, First Mercury notified State Farm of those claims and asked whether State Farm would agree to share in Europa's defense. (See NYSCEF No. 28, at 2.) State Farm did not address this request until December 2015, when State Farm's counsel sent a letter to Europa denying coverage. (See Wood Aff., NYSCEF No. 10, at 7; Denial Letter, NYSCEF No. 29.)
II. The Insurance Policies
A. The First Mercury Policy
First Mercury issued Europa a general liability insurance policy that was in force at the time of the alleged accident. The policy covers "those sums that the insured becomes legally obligated to pay as damages because of bodily injury" caused by an accident. (See Ex. K to Affirmation of Lisa C. Wood, NYSCEF No. 39, at 5, 18.)
The policy excludes coverage for bodily injury "arising out of the ownership, maintenance, use or entrustment to others of any ... auto ... owned or operated by ... any insured." And "[u]sed includes operation and loading and unloading." (See NYSCEF No. 39, at 8 [exclusion g].) First Mercury has not yet taken a definitive position on whether it believes this "auto exclusion" applied to DaSilva's accident but has expressly reserved its right to do so.
The First Mercury policy defines "insured" as the entity named on the declarations page of the policy—here, Europa. (See id. at 2, 13.) The policy provides that it also covers "as an additional insured any person or organization for whom" Europa is "performing operations when [Europa] and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on [Europa's] policy." This provision limits additional-insured coverage to "liability for ‘bodily injury’ ... caused, in whole or in part, by the acts or omissions of those acting on [Europa's] behalf ... in the performance of [Europa's] ongoing operations for the additional insured." (Id. at 22.)
The First Mercury policy also contains provisions about the relationship between that policy and other insurance policies. In relevant part, those provisions provide that if First Mercury's insured has other available insurance for a loss covered by First Mercury and the loss arises out of the maintenance or use of an "auto" and is not subject to the auto exclusion, First Mercury's insurance is excess over the coverage provided by the insured's other policy or policies. (See id. at 15.) When the insurance is excess, First Mercury has no duty to defend the insured if another insurer has a duty to defend. (Id. ) And First Mercury will pay out on the policy only once the limit of the other insurance policy has been reached. (Id. at 16.) An "auto" includes "a land motor vehicle, trailer or semitrailer designed for travel on public roads, including any attached machinery or equipment." (Id. )
B. The State Farm Policy
State Farm issued Europa an automobile insurance policy that was in force at the time of the alleged accident. This policy covers, in relevant part, "damages an insured becomes legally liable to pay because of ... bodily injury to others caused by an accident that involves a vehicle from which that insured is provided liability coverage by this policy." (NYSCEF No. 26, at 10 [emphases omitted].) The policy excludes, however, an insured's "liability assumed under any contract or agreement." (Id. at 13 [emphasis omitted].)
The policy defines "insured" to include the following: (i) Europa for the "ownership, maintenance, or use" of a Europa vehicle; (ii) "any person" for "his or her use" of a Europa vehicle; and (iii) "any other person or organization vicariously liable for the use of a vehicle" by an insured as defined in (i) and (ii), "but only for such vicarious liability," and only if "the vehicle is neither owned by nor hired by that other person or organization." (Id. at 53.) The policy limits the definition of a Europa vehicle to the particular vehicle listed on the policy's declarations page (see id. at 9); that page lists the Europa truck that was involved in the underlying accident (see id. at 3).
The State Farm policy's other-insurance provision provides that "[i]f other valid and collectible vehicle liability coverage applies," State Farm will pay "the proportion of damages payable" that the State Farm policy limit bears to the sum of that limit and "the limits of all other valid and collectible liability coverage that applies to the accident." (Id. at 13.)
II. This Action
In January 2018, First Mercury brought this action against State Farm (and against El-Ad, New Line, and Europa as nominal defendants), seeking declaratory relief under CPLR 3001 to determine First Mercury and State Farm's respective insurance-coverage obligations to the parties to the underlying action; and seeking reimbursement of First Mercury's defense costs in that action.
First Mercury now moves for summary judgment under CPLR 3212. First Mercury seeks an order declaring that State Farm must: (i) defend and indemnify Europa against the third-party claims brought against it by El-Ad and New Line in the underlying action; (ii) defend and indemnify El-Ad and New Line for their vicarious liability (if any) to DaSilva in the underlying action; (iii) provide primary, rather than pro rata or excess insurance coverage to Europa.
DISCUSSION
Under CPLR 3212, a movant must "make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact." ( Alvarez v. Prospect Hosp. , 68 NY2d 320, 324 [1986].) The burden on the movant is heavy, and "facts must be viewed in the light most favorable to the non-moving party." ( William J. Jenack Estate Appraisers & Auctioneers, Inc. v. Rabizadeh , 22 NY3d 470, 475 [2013].) After the movant makes a prima facie showing, the burden shifts to the non-movant to produce sufficient evidentiary proof to raise material issues of fact requiring a trial. (See Alvarez , 68 NY2d at 324.)
I. An Insurer's Obligations to Defend and to Indemnify Its Insured
The four corners of an insurance agreement govern whom the agreement covers. (See Sixty Sutton Corp. v. Illinois Union Ins. Co. , 34 AD3d 386, 388 [1st Dept 2006] ; Sumner Builders Corp. v. Rutgers Cas. Ins. Co. , 101 AD3d 417, 418 [1st Dept 2012].) "An insurer may look to the pleadings in an underlying action to determine whether a claim falls within the parameters of the policy." ( ABC, Inc. v. Countrywide Ins. Co. , 308 AD2d 309, 310 [1st Dept 2003].) Words of the policy are to be given their ordinary meaning, and the policy as a whole should be considered in light of existing law. (See State Farm Mut. Auto. Ins. Co. v. Westlake , 35 NY2d 587, 591 [1974].)
An insurer's duty to defend covered claims is exceedingly broad and assessed based on the allegations of the pleadings. (See Regal Const. Corp. v. National Union Fire Ins. Co. of Pittsburgh, PA , 15 NY3d 34, 37 [2010] ; Servidone Const. Corp. v. Security Ins. Co. of Hartford , 64 NY2d 419, 424 [1985].) An insurer is obligated to defend whenever the allegations of the complaint suggest a reasonable possibility of coverage. (See BP Air Conditioning Corp. v. One Beacon Ins. Group , 8 NY3d 708, 714 [2007].) Additionally, "if any of the claims against the insured arguably arise from covered events, the insurer is required to defend the entire action." ( Frontier Insulation Contrs, Inc. v. Merchants Mut. Ins. Co. , 91 NY2d 169, 175 [1997] ; accord Seaboard Sur. Co. v. Gilette Co. , 64 NY2d 304, 310 [1984] [holding that it is immaterial with respect to the duty to defend that some—but not all—the claims against the insured "fall outside the policy's general coverage or within its exclusory provisions."].)
The duty to indemnify is different from, and more narrow than, the duty to defend. Indemnification is assessed based on "the actual basis for the insured's liability to a third person." ( Servidone Const. Corp. , 64 NY2d at 424.) The duty depends on "whether the loss, as established by the facts, is covered by the policy." ( Atlantic Mut. Ins. Co. v. Terk Technologies Corp. , 309 AD2d 22, 28 [1st Dept 2003].)
II. Whether State Farm Owes a Duty to Defend and IndemnifyEuropa
On the issue whether State Farm has a duty either to defend or indemnify Europa with respect to the claims in the underlying action, the parties contest (i) whether the claims come within the scope of the State Farm auto policy; and (ii) whether the claims, if within the scope of the policy, are nonetheless subject to a policy exclusion.
A. The State Farm Policy's Scope of Coverage
The parties dispute whether the scope of the State Farm policy includes the accident at issue in the underlying action. First Mercury argues that the policy covers the claims against Europa, because DaSilva's accident involved a covered vehicle. (See NYSCEF No. 30, at 6.) State Farm argues that the dispositive question is whether DaSilva was using Europa's vehicle at the time of the accident, and that DaSilva's activities leading to his alleged injury did not constitute "use" of the vehicle within the meaning of the policy. (See NYSCEF No. 34, at 4-10.)
1. An accident that "involves a vehicle"
First Mercury is correct that under the language of the State Farm policy, coverage depends on whether the accident "involved" a covered vehicle, rather than whether the accident arose out of the "use" of a covered vehicle. As relevant here, the policy has two definitions involving the relationship between the policy's coverage and a vehicle owned by the insured. First , in relevant part the policy defines "insured" as being Europa, at least as pertains to the "ownership, maintenance, or use" of Europa's vehicle. (Id. at 26.) The policy further defines Europa's vehicle to mean the vehicle "shown ... on the Declarations Page" of the policy; and the Declarations Page, in turn, lists the Europa vehicle that was involved in the accident. (See id. at 3, 9.) Second , the policy provides that it protects an insured from liability related to bodily injury "caused by an accident that involves a vehicle from which that insured is provided liability coverage by [the] policy." (NYSCEF No. 26, at 10.)
In other words, the State Farm policy employs "use" of a vehicle when defining who is covered, and "involves" a vehicle when defining what is covered. It is undisputed—and appears indisputable—that Europa is covered under the policy. The present inquiry thus implicates only the scope of what liability Europa is covered for.
Answering that question requires first determining whether the State Farm policy's reference to an "accident that involves a vehicle," rather than to an "accident arising from the use of a vehicle," materially affects the scope of the policy. That the policy uses different verbs when defining the scope of who qualifies as an insured and what coverage the insured receives would ordinarily imply that the definitions have different scope. (See NFL Enters. LLC v. Comcast Cable Communications, LLC , 51 AD3d 52, 60-61 [1st Dept 2008].) And as a matter of ordinary usage, one might well argue that "involves a vehicle" would apply to "injur[ies] occurring in or near a motor vehicle," even if those injuries are not "connected with the use of an automobile qua automobile," as the phrase "use or operation of a vehicle" ordinarily requires. (See Empire Ins. Co. v. Schliessman , 306 AD2d 512, 513 [2d Dept 2003] [quotation marks omitted].)
That said, the parties have not provided this court either with precedent or detailed analysis on the proper scope of "involves a vehicle" compared to "use or operation of a vehicle." Absent such guidance, it would be imprudent for this court to reach the issue unless it is truly necessary to do so. And it is not necessary. Rather, this court concludes that even if "involves" and "use" in the State Farm policy have the same meaning, First Mercury is correct that the policy covered the underlying accident—with respect to both State Farm's duty to defend and its duty to indemnify.
First Mercury cites a recent, unpublished decision of Supreme Court, Putnam County (Grossman, J.), which interpreted the same State Farm policy at issue here. (See NYSCEF No. 30, at 6 [citing Nationwide Mut. Fire. Ins. Co. v. Oster , Index No. 304/2016, 2018 NY Slip Op 51018(U) [Sup Ct, Putnam County June 29, 2018] ].) But the language from Oster cited by First Mercury dealt with the relative scope of "involves" and "arising out of," not "involves" and "use." (Oster , 2018 NY Slip Op 51018(U), at *3-*4.) The court in Oster also noted that the parties there had not provided the court with "any authority defining the term ‘involves’ as it is used in the State Farm policy." (Id. at *4 n 6.) Nor have the parties done so here.
2. An accident arising from the "use" of a vehicle
Insurance coverage for injuries suffered as a result of "the use of a motor vehicle" encompasses "bodily injury suffered during the loading or unloading of the vehicle." ( ABC, Inc. v. Countrywide Ins. Co. , 308 AD2d 309, 310 [1st Dept 2003].) It is not sufficient, however, merely for the injury to have occurred within the time period in which unloading occurred. There must be a "causal relationship between the accident and the movement of the goods to or from the vehicle." ( Cosmopolitan Mut. Ins. Co. v. Baltimore & Ohio R. R. Co. , 18 AD2d 460, 463 [1st Dept 1963].)
Here, DaSilva's complaint and verified bill of particulars in the underlying action allege (a) that the accident at issue occurred at the construction site's loading dock; (b) that the defendants negligently failed to provide for the use of proper methods of unloading cement pallets from trucks; and (c) that the defendants negligently failed both to ensure that work areas were free from slipping and tripping hazards and to correct those hazards once they had arisen. (See NYSCEF No. 16, at 5; NYSCEF No. 18, at 3.) These allegations plainly describe acts and omissions related to the unloading process and identify a causal relationship between the accident and the movement of goods from Europa's truck to the construction site.
State Farm argues, though, that DaSilva's testimony at a deposition in the underlying action (and in a related workers-compensation proceeding) rule out a causal connection between the injury and negligence on Europa's part; and therefore that liability for any injury DaSilva suffered is outside the scope of coverage of State Farm's auto policy. (See NYSCEF No. 34, at 6-9.) State Farm is correct that, at a minimum, DaSilva's testimony regarding the circumstances of the accident less clearly points toward defendants' negligent acts or omissions than does his complaint and bill of particulars. But State Farm's conclusion does not follow.
The State Farm auto policy covers damages that Europa "becomes legally liable to pay because of ... bodily injury to others ... caused by an accident" involving a covered vehicle. (NYSCEF No. 26, at 10.) That liability would arise only if DaSilva were to recover against El-Ad and New Line in the underlying action, and if El-Ad and New Line were in turn to recover on their third-party claims for indemnity and contribution against Europa. And to recover in indemnity and contribution, El-Ad and New Line would have to prove that Europa was at fault in the underlying accident. (See New Line Third-Party Compl., NYSCEF No. 85, at ? ? 32, 36, 40; El-Ad Third-Party Compl., NYSCEF No. 96, at ? ? 15, 17, 19, 21, 26.) Under the allegations in DaSilva's bill of particulars, fault could conceivably flow from Europa's requiring DaSilva physically to unload pallets from the Europa truck himself, rather than providing a safer hoisting mechanism for unloading the truck; or it could flow from Europa's failing to ensure that the bed of the truck was free, and kept free, of potential tripping or slipping hazards in the unloading process. (NYSCEF No. 18, at 3-5.) In either case, Europa's damages would necessarily stem from negligent acts or omissions related to the process of unloading Europa's truck—i.e. , from the use of the truck. Those damages are therefore necessarily within the scope of the policy.
Thus, although the underlying action remains unresolved, First Mercury has established that Europa's potential damages for indemnification and contribution are within the scope of coverage provided by State Farm's auto policy—whether measured by the allegations of DaSilva's pleadings or by the facts that DaSilva may be able to establish at trial. As a result, unless Europa's damages are subject to a policy exclusion, State Farm owes a duty as a matter of law both to defend and indemnify First Mercury on these claims.
The claims against Europa for breach of contract to procure insurance do not, on their face, involve a vehicle or arise out of the ownership, maintenance, or use of a vehicle. These claims would appear, therefore, to be outside the State Farm policy's scope of coverage. But State Farm did not deny coverage on this basis. Instead, State Farm denied coverage on the ground that these breach-of-contract claims are subject to a policy exclusion. (See NYSCEF No. 29, at 3.) That basis for denial is discussed below. (See infra at Discussion Point II.B.)
B. The State Farm Policy's Exclusions
As described above (see supra at Background Point I), El-Ad and New Line brought claims against Europa for common-law and contractual indemnification, contribution, and breach of contract. State Farm contends that the claims for contractual indemnification and breach of contract are subject to a provision in the auto policy that excludes coverage "for liability assumed under any contract or agreement." (See NYSCEF No. 34, at 1-2 [quoting NYSCEF No. 26, at 13 (? 10) ].) The record reflects that State Farm, by letter dated December 21, 2015, denied coverage for the contractual-indemnification and breach-of-contract claims on this basis. (See NYSCEF No. 29.)
The policy does not, however, contain exclusions for common-law indemnification or for contribution. State Farm's December 21, 2015, denial letter declined to provide coverage for those claims on the ground only that they were not within the scope of coverage of the auto policy. (See NYSCEF No. 29, at 4.) As discussed above, however (see supra at Discussion Point II.A), this court concludes here that the common-law indemnification and contribution claims are within the scope of coverage for the policy as a matter of law. State Farm is thus obligated to defend and indemnify Europa on those claims, regardless whether State Farm could properly deny coverage for the contractual -indemnification and breach-of-contract claims under a policy exclusion.
As relevant here, however, if an accident causing "death or bodily injury" would be covered under an insurance policy's coverage provisions but for an asserted policy exclusion, the Insurance Law requires the insurer to provide written notice "as soon as is reasonably possible" that the insurer is disclaiming coverage. ( Insurance Law § 3420 [d] [2].) Failure to provide timely written notice precludes what would otherwise be an effective disclaimer. (See Matter of Firemen's Fund Ins. Co. of Newark v. Hopkins , 88 NY2d 836, 837 [1996].) An "unexplained delay of two months in disclaiming liability for late notice has been held unreasonable as a matter of law." (Id. )
State Farm did not provide timely written notice of its decision to deny coverage for the claims against Europa in the underlying action. Rather, the record establishes that State Farm did not provide written notice to Europa of the denial of coverage until more than eight months after State Farm received notice of the claims against Europa. (See NYSCEF No. 28, at 2; NYSCEF No. 29.) This unexplained delay in disclaiming coverage is unreasonable as a matter of law
Thus, if § 3420 (d) (2) required a timely disclaimer for the contractual-indemnification and breach-of-contract claims against Europa, State Farm is foreclosed from denying coverage for those claims. State Farm argues, though, that § 3420 (d) (2) does not require timely disclaimer of coverage for either type of claim. This court agrees with State Farm about the breach-of-contract claim but disagrees as to the contractual-indemnification claim.
State Farm relies principally on the Court of Appeals' decision in Preserver Insurance Co. v. Ryba (10 NY3d 635 [2008] ). (See NYSCEF No. 34, at 1-3.) Ryba , as here, arose out of an alleged bodily injury suffered by a worker at a construction site; and the Court held there that the insurance company in the case was not required to have promptly disclaimed coverage under Insurance Law § 3420 (d) (2). ( See 10 NY3d at 638, 642.) But Ryba 's reach is more limited than State Farm would have it.
Ryba held only that Insurance Law § 3420 (d) (2) did not apply to begin with, because the insurance policy at issue did not cover any New York insureds. ( 10 NY3d at 642.) At most, the Court stated in dicta that even if § 3420 were applicable, it would not require a timely disclaimer as to the insured's breach-of-contract cause of action, because the statute "requires timely disclaimer only for denials of coverage ‘for death or bodily injury.’ " (Id. ) The Court did not suggest—much less hold—that § 3420(d) (2) permits an insurer to provide a delayed disclaimer of coverage for a contractual-indemnification cause of action.
Further, in KeySpan Gas East Corp. v. Munich Reinsurance America, Inc. , the Court of Appeals found that § 3420 (d) (2) applies where the "insurance case[ ] "involve[s] death and bodily injury claims arising out of a New York accident" ( 23 NY3d 583, 590 [2014] ), and disapproved of Appellate Division cases holding that § 3420 (d) (2) "applies to claims not based on death and bodily injury" ( id. at 590 n 2 ). And the First Department has since continued to hold that § 3420 (d) (2) applies to contractual-indemnification causes of action where the underlying circumstances of the case involve bodily injury. (See e.g. Endurance Am. Specialty Ins. Co. v. Utica First Ins. Co. , 132 AD3d 434, 436 [1st Dept 2015].)
The dispositive question in this context is thus whether the underlying liability for which indemnification is sought has arisen from death or bodily injury—not whether that liability sounds in tort or contract. In Endurance American , as here, contractual indemnification was sought by a third-party plaintiff for personal-injury claims being asserted against it in the underlying action by the injured plaintiff. (See 132 AD3d at 434-435.) "Without the personal injury claims there would be no basis for indemnification." (Old Republic Ins. Co v. United Nat'l Ins. Co. , Index No. 155995/2018, 2018 NY Slip Op 30643(U), at *5 [Sup Ct, NY County Apr. 9, 2018] [Kornreich, J.].) The ultimate source of liability on the contractual-indemnification claim, therefore, would be the bodily injuries suffered by the underlying plaintiff.
By contrast, a breach-of-contract claim would arise "from the third-party defendant's failure to procure insurance benefiting the third-party plaintiff." (Id. ) That failure would "constitute[ ] a breach even absent the underlying personal injury action." (Id. ) As a result, liability for the breach of contract cannot be traced back to the underlying plaintiff's bodily injuries, as required to implicate § 3420 (d) (2).
Given this court's conclusion that the breach-of-contract claim is apparently outside the scope of coverage of the policy, Insurance Law § 3420 likely did not require State Farm to have timely disclaimed coverage as to that claim regardless. (See Worcester Ins. Co. v. Bettenhauser , 95 NY2d 185, 188 [2000] ["Disclaimer pursuant to section 3420(d) is unnecessary when a claim falls outside the scope of the policy's coverage portion."].)
This court concludes in this case, therefore, that Insurance Law § 3420 (d) (2) required State Farm timely to disclaim coverage to Europa on the contractual-indemnification claims, but it did not require a timely disclaimer of coverage on the breach-of-contract claims. And since State Farm did not timely disclaim coverage for the contractual-indemnification claim, State Farm is obliged to cover that claim. First Mercury is entitled to a declaration that State Farm has a duty both to defend and to indemnify Europa on that claim.
State Farm's disclaimer for the breach-of-contract claim, on the other hand, was effective notwithstanding State Farm's eight-month delay in sending the disclaimer letter. Thus, the record demonstrates as a matter of law that State Farm does not owe a duty to indemnify Europa on this claim, and State Farm is entitled to summary judgment in its favor on this issue without need to file a cross-motion. (See CPLR 3212 [b].) However, because this claim is part of an action in which other claims did arise from covered events, State Farm owes Europa a duty to defend this claim notwithstanding the disclaimer of coverage. (See supra at Discussion Point I.)
In summary: As to the claims for common-law indemnification and contribution, State Farm must defend Europa and indemnify it for any liability incurred in the underlying action, because those claims are within the scope of coverage of State Farm's policy as a matter of law and are not subject to any policy exclusion. As to the claim for contractual-indemnification, State Farm must defend and indemnify Europa, because, as a matter of law, the claim is within the policy's scope of coverage and State Farm's disclaimer of coverage on the basis of a policy exclusion was ineffective. As to the claim for breach of contract for failure to procure insurance, State Farm is required to defend Europa, but not required to indemnify, because State Farm properly disclaimed coverage on the basis of a policy exclusion.
III. Whether State Farm Also Owes a Duty to Defend and Indemnify El-Ad and New Line as Additional Insureds
First Mercury also moves for summary judgment on its claim for a judgment declaring that El-Ad and New Line qualify as additional insureds under the State Farm policy and that State Farm therefore has a duty both to defend and to indemnify El-Ad and New Line in the underlying action. (See NYSCEF No. 30, at 10-12.) This court concludes that El-Ad and New Line are additional insureds and that as a matter of law State Farm has a duty to defend El-Ad and New Line; but this court finds that factual questions remain about whether State Farm also owes a duty to indemnify.
The State Farm auto policy provides liability coverage for "damages an insured becomes legally liable to pay because of bodily injury to others" caused by an accident involving a covered vehicle. (NYSCEF No. 26, at 10.) In relevant part, the State Farm policy defines "insured" to include "any other person or organization vicariously liable for the use of a vehicle" by Europa, "but only for such vicarious liability," and only if the "vehicle is neither owned by, nor hired by, that other person or organization." (Id at 53.)
In the underlying action, DaSilva brought claims against El-Ad and New Line under, among other provisions, Labor Law §§ 240 and 241 (6). (See NYSCEF No. 16, at ? 9.) These provisions can each impose vicarious liability on an owner and general contractor for injuries resulting solely from the conduct of their subcontractors. (See Morris v. Pavarini Constr. , 9 NY3d 47, 50 [2007] ; Rocovich v. Consolidated Edison Co. , 78 NY2d 509, 513 [1991] ; Paul M. Maintenance, Inc. v. Transcontinental Ins. Co. , 300 AD2d 209, 211 [1st Dept 2002].) DaSilva's complaint and bill of particulars allege that (i) due to the negligence of others, DaSilva was injured at the loading dock of the construction site; (ii) that the alleged negligence included a failure properly to provide for the unloading of pallets from trucks; (iii) DaSilva was a Europa employee; (iv) Europa is a subcontractor of the general contractor, New Line; and (v) New Line was hired by the owner, El-Ad. These allegations, taken together, raise a reasonable possibility that DaSilva was injured while using a covered vehicle and that he is seeking to hold El-Ad and New Line vicariously liable for the negligence of the named insured, Europa—and thus that El-Ad and New Line are covered as additional insureds under the State Farm policy.
To be sure, the additional-insured provision of the policy does exclude coverage for vicarious liability for injuries from the use of a vehicle where the vehicle is owned or hired by the putative additional insured. (NYSCEF No. 26, at 53.) State Farm contends that a question of fact exists about whether El-Ad or New Line hired the Europa truck involved in the accident. (See NYSCEF No. 34, at 11.) But the only support that State Farm provides for this contention is a vague reference to "evidence from the pleadings in the third and fourth party actions." (Id. ) State Farm does not identify the nature of that evidence or where in the pleadings that evidence appears; and this court has itself been unable to locate any such evidence.
This court therefore holds that as a matter of law, State Farm owes a duty to defend El-Ad and New Line in the underlying action as additional insureds under the State Farm policy. Any duty of State Farm to indemnify, on the other hand, will apply only if El-Ad and New Line are ultimately found liable to DaSilva in the underlying action, and only to the extent that such liability is vicarious. But these issues have not yet been resolved in the underlying action. Granting summary judgment on the duty to indemnify would be premature at this time.
Although the issue is not squarely presented and need not be decided here, this court notes that if DaSilva were to prevail on vicarious-liability claims against El-Ad and New Line, it is possible that any third-party claims by El-Ad and New Line against Europa for indemnification and contribution of that vicarious liability would be subject to dismissal under the anti-subrogation doctrine. (See Pennsylvania Gen. Ins. Co. v. Austin Powder Co. , 68 NY2d 465, 470 [1986] [holding that "an insurer may not be subrogated to a claim against its own insured ... when the claim arises from an incident for which the insurer's policy covers that insured"].)
One additional point on this topic bears discussion. Because State Farm owes both a duty both to defend El-Ad and New Line against the claims of DaSilva, on the one hand, and to defend Europa against the claims of El-Ad and New Line , on the other hand, State Farm and Europa's interests may conflict. In these circumstances, Europa is entitled to be defended by counsel of its choosing, with State Farm responsible for Europa's reasonable counsel fees. (See Public Serv. Mut. Ins. Co. v. Goldfarb , 53 NY2d 392, 401 [1981] ; 69th St. & 2nd Ave. Garage Assoc. v. Ticor Title Guar. Co. , 207 AD2d 225, 228-229 [1st Dept 1995]. See also National Union Fire Ins. Co. of Pittsburgh, Pa. v. State Ins. Fund , 213 AD2d 164, 166 [1st Dept 1995] [noting the conflict of interest that may arise where the same insurer is called on to "provide[ ] legal representation for both third-party plaintiffs and the third-party defendant"].)
IV. Whether State Farm and First Mercury are Co-Primary Insurers or Primary and Excess Insurers
Finally, the parties dispute how State Farm and First Mercury's respective insurance policies interact with each other. First Mercury argues that State Farm must provide primary insurance, with First Mercury covering only excess liability for which it is responsible after the limit of the State Farm auto policy has been reached (if any). State Farm argues that the two policies are co-primary, such that they should each be responsible for paying out pro rata on any claims from Europa. This court agrees with First Mercury.
First Mercury cautions that the defense it has provided Europa thus far in the underlying action is subject to a full reservation of First Mercury's right to disclaim coverage if it concludes that Europa's claims under the First Mercury policy are subject to an exclusion that "bars coverage for an insured's use of an owned auto." (NYSCEF No. 30, at 13; see also NYSCEF No. 39, at 8 [text of exclusion].) Thus, First Mercury's position on the relationship between the two insurance policies is merely that "[t]o the extent any coverage is or may be afforded to Europa under the First Mercury policy," such coverage is only excess to State Farm's coverage. (NYSCEF No. 30, at 13 [emphasis added].)
In assessing the relationship between two applicable insurance policies, the court "must review and consider all of the relevant policies at issue to determine the priority of coverage among them." (See Sport Rock Intl., Inc. v. American Cas. Co. of Reading, Pa. , 65 AD3d 12, 13 [1st Dept 2009] ; accord Bovis Lend Lease LMB, Inc. v. Great Am. Ins. Co. , 53 AD3d 140, 147-148 [1st Dept 2008].) Where several policies cover the same risk and each provides the same level of coverage, it is necessary to compare their "other insurance" clauses to determine priority of coverage. (See Sport Rock Intl., Inc. , 65 AD3d at 18.)
An other-insurance clause is considered an "excess" clause if it provides that the insurance is excess to that provided by other policies, and it is considered a "pro rata" clause if it provides that all insurers are responsible for a stated portion of the loss when other insurance is available. (See Sport Rock Intl., Inc. , 65 AD3d at 18.) If one applicable policy contains an excess clause and the other a pro rata clause, the excess clause is given effect. (See id. ) This means that "the coverage under the policy containing the excess clause does not come into play, and the carriers' duty to defend is not triggered until the coverage under the policy containing the pro rata clause has been exhausted." ( Id. at 19.) But when both applicable policies contain excess clauses, the insurers must cover the cost of defending and indemnifying on a pro rata basis as co-primary insurers. (See Great N. Ins. Co. v. Mount Vernon Fire Ins. Co. , 92 NY2d 682, 683 [1999].)
Here, First Mercury's other-insurance clause provides that the policy's coverage is excess to any other insurance where a covered loss has occurred that arises out of the use or maintenance of an auto. (See NYSCEF Doc. No. 39, at 15.) Therefore, if it were determined that Europa's claims were covered by First Mercury's policy such that First Mercury would owe a duty to defend, the coverage provided by the policy would be excess to any other valid and collectible insurance. The policy's other-insurance clause further provides that when coverage is excess, First Mercury will have no duty to defend if any other insurer has such a duty. (See id. ) This provision is thus an "excess" clause.
More precisely, the other-insurance clause of the First Mercury policy provides that the policy's coverage is excess to other insurance only if the loss at issue arose out of the use or maintenance of an auto and is not subject to the policy's auto exclusion. (See NYSCEF No. 39, at 15.) As noted above, whether First Mercury's policy provides coverage here in light of the auto exclusion is not before the court on this motion.
State Farm's other-insurance provision states that State Farm will "pay the proportion of damages payable that [their] applicable limit bears to the sum of [their] applicable limit and the limits of all other valid and collectible liability coverage that applied to the accident." (NYSCEF Doc. No. 26, at 13.) But coverage applies as excess over any other valid coverage that is provided for a non-owned car or a temporary substitute car. (see id. ) Nothing in the record indicates that the truck at issue was either non-owned or a temporary substitute. Thus, as relevant here, this provision is a "pro rata" clause."
Because the First Mercury other-insurance provision is an excess clause and State Farm's other-insurance provision is a pro rata clause, State Farm's insurance coverage is primary. First Mercury's obligation does not arise until the State Farm policy's coverage is exhausted. (See Sport Rock Intl., Inc. , 65 AD3d at 18.)
Accordingly, it is
ORDERED that the branch of First Mercury's motion for summary judgment declaring that State Farm owes a duty to defend Europa in the underlying action is granted; and it is further
ORDERED that State Farm permit Europa to select defense counsel in the underlying action, with reasonable attorney fees to be paid by State Farm; and it is further
ORDERED that the branch of First Mercury's motion for summary judgment declaring that State Farm owes a duty to indemnify Europa in the underlying action is granted only to the extent that it is declared that State Farm owes a duty to indemnify Europa as to claims against Europa for common-law and contractual indemnification and for contribution; and it is further
ORDERED that the branch of First Mercury's motion for summary judgment declaring that State Farm owes a duty to indemnify Europa as to claims for breach of contract is denied, and summary judgment is instead granted to State Farm declaring that State Farm has no duty to indemnify Europa for breach-of-contract claims in the underlying action; and it is further
ORDERED that the branch of First Mercury's motion for summary judgment declaring that the coverage provided by State Farm's insurance policy is primary and the coverage provided by First Mercury's policy is excess is granted; and it is further
ORDERED that the branch of First Mercury's motion for summary judgment declaring that State Farm owes a duty to defend El-Ad and New Line as additional insureds on the State Farm insurance policy is granted; and it is further
ORDERED that the branch of First Mercury's motion for summary judgment declaring that State Farm owes a duty to indemnify El-Ad and New Line as additional insureds on the State Farm policy is denied.