Opinion
No. CV 03 0180185 S
July 30, 2004
MEMORANDUM OF DECISION
This matter is before the court on cross motions for summary judgment in a declaratory judgment action regarding two insurance companies' duty to defend in a pending lawsuit. The plaintiff, Kenneth Devino, doing business as Industrial Development Group (IDG), in its amended complaint filed on October 14, 2003, alleges that the defendants, Maryland Casualty Company (Maryland) and Northern Insurance Company of New York (Northern), have a duty to defend it in the pending case of Perkins v. Devino, Superior Court, judicial district of Waterbury, Docket No. CV 01 0165269. On November 20, 2003, IDG filed a motion for summary judgment accompanied by a memorandum of law in support. On January 7, 2004, Maryland and Northern filed a consolidated motion for summary judgment that also serves as their memorandum in opposition to IDG's motion. All parties thereafter filed numerous supplemental memoranda.
In the underlying action, the plaintiff, Sarah Perkins, filed a complaint against Industrial Development Group. According to her amended complaint, she was an employee of Luxnet, Inc., a commercial tenant on a property owned by IDG. She alleges that she was standing on a cement platform in a common area of the property under the exclusive control of IDG. She claims that when she stepped off the platform, she fell into a one-foot hole obstructed by leaves and twisted her knee, which ultimately required surgery and left her with a partial permanent disability. Perkins alleges that IDG was negligent in failing to properly inspect and maintain the grounds.
Luxnet then filed an intervening complaint against IDG pursuant to General Statutes § 31-293. As permitted by the statute, Luxnet joined Perkins' action against IDG to recover the money it paid Perkins for workers' compensation. The intervening complaint alleges that Perkins is an employee of Luxnet who was injured while acting in the course of her employment.
"The court may address the merits of a declaratory judgment action upon CT Page 9515-cs a motion for summary judgment." (Internal quotation marks omitted.) England v. Reliance Ins. Co., Superior Court, judicial district of Ansonia-Milford at Milford, Docket No. CV 02 0079606 (February 24, 2004, Carroll, J.) ( 36 Conn.L.Rptr. 581). "Practice Book § 17-49 provides that summary judgment shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Rocco v. Garrison, 268 Conn. 541, 548, 848 A.2d 352 (2004). "Only evidence that would be admissible at trial may be used to support or oppose a motion for summary judgment." (Internal quotation marks omitted.) Great Country Bank v. Pastore, 241 Conn. 423, 436, 696 A.2d 1254 (1997), citing Practice Book § 17-46.
IDG moves for summary judgment against Maryland and Northern on the grounds that the allegations in Perkins' complaint and Luxnet's intervening complaint establish a basis for either or both of the insurance companies to defend it based on the language of the insurance policy. IDG claims that they are entitled to a defense because they are listed as an additional insured and also because of the "insured contract" provision of the policy. IDG submits the following evidence: 1) Perkins' amended complaint; 2) Luxnet's intervening complaint; 3) an authenticated copy of the lease between Luxnet and IDG; 4) a copy of the insurance policy produced by Northern in the underlying action; 5) a certified copy of Perkins' deposition in the underlying action; 6) an unauthenticated certificate of insurance, and 7) two unauthenticated web pages from the California and Maine departments of insurance.
Northern and Maryland move for summary judgment on several grounds. First, they argue that the insurance policy was issued by Northern, not Maryland, and assert that the certificate of insurance that IDG received from Maryland confers no rights. Second, they argue that IDG is not an "insured" under the insurance policy issued by Northern because the injuries alleged in the Perkins complaint do not satisfy the language of the additional insured endorsement. Third, they maintain that IDG cannot claim to be an "insured" under the "insured contract" because the additional insured endorsement controls, and even it did not, the terms of the lease between IDG and Luxnet demonstrates that IDG maintained responsibility for its own negligence. In addition, they challenged the admissibility of IDG's evidentiary submissions. As evidence, they submit Perkins' amended complaint and an authenticated copy of the insurance policy.
SUMMARY JUDGMENT — MARYLAND CASUALTY
IDG moves for summary judgment against Maryland on the basis that CT Page 9515-ct Maryland is either the insurer or co-insurer along with Northern. Northern and Maryland also move for summary judgment on the basis that the certificate of insurance confers no rights and that the policy itself specifies that it was issued by Northern alone. The insurance policy, as Northern and Maryland correctly assert, does not include any reference to Maryland The only evidence that IDG submits is an unauthenticated certificate of insurance issued by Maryland to IDG. The certificate of insurance, however, is unauthenticated, and only evidence admissible at trial may be used to support a motion for summary judgment. Great Country Bank v. Pastore, supra, 241 Conn. 423, 436. With the certificate of insurance excluded, IDG has no evidence to support its motion against Maryland IDG's motion for summary judgment as to Maryland is therefore denied and Maryland's motion for summary judgment as to IDG is granted.
SUMMARY JUDGMENT — NORTHERN INSURANCE
The grounds for both motions for summary judgment with regard to Northern have overlapping arguments regarding the interpretation of the insurance policy and the duty to defend standard. This court will handle both motions in one integrated discussion.
The Insurance Policy
"The interpretation of an insurance policy is based on the intent of the parties, that is, the coverage that the insured expected to receive coupled with the coverage that the insurer expected to provide, as expressed by the language of the entire policy . . . The words of the policy are given their natural and ordinary meaning, and any ambiguity is resolved in favor of the insured." (Citations omitted.) Wentland v. American Equity Ins. Co., 267 Conn. 592, 600-01, 840 A.2d 1158 (2004). "It is axiomatic that a contract of insurance must be viewed in its entirety, and the intent of the parties for entering it derived from the four corners of the policy." (Internal quotation marks omitted.) Board of Education v. St Paul Fire Marine Ins. Co., 261 Conn. 37, 42, 801 A.2d 752 (2002).
"The court must interpret the insurance contract as a whole with all relevant provisions considered together . . . In construing an endorsement to an insurance policy, the endorsement and policy must be read together, and the policy remains in full force and effect except as altered by the words of the endorsement; conversely the endorsement modifies, to the extent of the endorsement the terms and conditions of the original insurance contract . . . If any irreconcilable conflict exists between provisions of the policy and provisions of an endorsement then the latter must control." (Citations omitted; internal quotation CT Page 9515-cu marks omitted.) Schultz v. Hartford Fire Ins. Co., 213 Conn. 696, 705, 569 A.2d 1131 (1990).
The insurance policy in question here is a commercial general liability policy with Luxnet as the named insured and IDG is listed as an additional insured. Section I of the policy seems to provide coverage for the type of "bodily injury" that Perkins sustained. Section II of the policy defines "who is an insured" under the policy.
The parties dispute which version of the insurance policy the court should consider as evidence. IDG submits a copy of the insurance policy produced by Luxnet in response to a request for production in the underlying case. This produced copy does not include the additional endorsement form, but a supplemental declarations page does list it as comprising part of the policy. Northern and Maryland submit a copy of the policy which does include the additional endorsement. IDG asks the court to exercise its discretion pursuant to Practice Book § 13-14 to hold Northern to the policy it submitted in the underlying action and prohibit Northern from introducing its own version of the policy into evidence. This court declines to do so. Though Northern's failure to produce the additional endorsement was careless, it does not seem deliberate, particularly since IDG's version does list the endorsement. This court will admit the additional endorsement along with the policy.
IDG claims that it is an insured by virtue of being listed specifically as an additional insured and also because of the language in subsection three of Section II. Subsection three states: "With respect to COVERAGE A. BODILY INJURY . . . any person or organization with whom you agree, because of a written `insured contract' . . . is an insured, but only with respect to liability arising out of your operations `your work' or facilities owned or used by you." The insured contract that applies here is the lease agreement between Luxnet and IDG.
Northern and Maryland counter that subsection three is modified by additional endorsement form CG 20 10 which states: "Who is an Insured (Section II) is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of your ongoing operations performed for that insured." IDG is the entity listed in the referenced schedule.
It is clear from the language of this endorsement that it is directed only to IDG and intended to limit the scope of the insurer's liability to it. With respect to IDG, allowing this additional endorsement to coexist with subsection three creates an irreconcilable conflict. Schultz v. Hartford Fire Ins. Co., supra, 213 Conn. 705. Allowing IDG to rely on subsection three to become an insured party would render the additional endorsement superfluous since the endorsement has no other purpose but to limit the insured status of IDG. Given that the endorsement language controls in the event of such a conflict, IDG cannot rely on the "insured contract" provision under Section II to argue that it is an insured under the policy. IDG's motion for summary judgment as to that ground is denied.
Duty to Defend
"[A]n insurer's duty to defend, being much broader in scope and application than its duty to indemnify, is determined by reference to the allegations contained in the [underlying] complaint . . . The obligation of the insurer to defend does not depend on whether the injured party will successfully maintain a cause of action against the insured but on CT Page 9515-cv whether he has, in his complaint, stated facts which bring the injury within the coverage. If the latter situation prevails, the policy requires the insurer to defend, irrespective of the insured's ultimate liability . . . It necessarily follows that the insurer's duty to defend is measured by the allegations of the complaint . . . Moreover, [i]f an allegation of the complaint falls even possibly within the coverage, then the insurance company must defend the insured . . . In contrast to the duty to defend, the duty to indemnify is narrower while the duty to defend depends only on the allegations made against the insured, the duty to indemnify depends upon the facts established at trial and the theory under which judgment is actually entered in the case." (Citations omitted; emphasis in original; internal quotation marks omitted.) DaCruz v. State Farm Fire Casualty Co., 268 Conn. 675, 687-88, 846 A.2d 849 (2004).
"Thus, the duty to defend is triggered whenever a complaint alleges facts that potentially could fall within the scope of coverage, whereas the duty to indemnify arises only if the evidence adduced at trial establishes that the conduct actually was covered by the policy. Because the duty to defend is significantly broader than the duty to indemnify, where there is no duty to defend, there is no duty to indemnify . . ." (Internal quotation marks omitted.) Id., 688.
Though the duty to defend is normally decided by comparing the policy language to the allegations of the complaint, IDG cites Keithan v. Massachusetts Bonding Ins. Co., 159 Conn. 128, 267 A.2d 660 (1970), to demonstrate that where the issue is whether the party is an "insured" under the policy, the court may look at evidence beyond the allegations of the complaint. Keithan involved a declaratory judgment action regarding a duty to defend stemming from the underlying case of Werner v. Keithan. Before the Keithan trial court considered the issue of the duty to defend, the Werner court had already rendered a final judgment on the merits and the Supreme Court had decided the appeal. The Keithan trial court ultimately found that a duty to defend did not exist, relying in part on the Supreme Court's finding of fact in the underlying action.
The plaintiff appealed the trial court's ruling on the ground that the trial court should only have considered the allegations of the complaint in adjudicating the duty to defend. The Keithan court noted that the "precise narrow issue" before it involved an omnibus insurance clause. Id., 141. An omnibus insurance clause, the court explained, gives the named insured "a wide capacity to determine who will be accorded the status of an insured and under what circumstances coverage will be extended" and presents "hazards of proof on an issue of the existence of permission." Id., 140-41. After considering a split in authorities on that CT Page 9515-cw precise issue, the court sided with those agreeing that "[i]f the defendant is neither the named insured nor an omnibus insured there is clearly no obligation to defend regardless of the allegations of the petition and irrespective of the soundness or groundlessness of the claim asserted." (Internal quotation marks omitted.) Id., 141.
The present case, however, involves neither the same insurance clause nor the same type of evidence. The Keithan court explicitly limited its holding to the "precise narrow issue" raised by omnibus insurance clauses. Id., 141. The additional insured endorsement at issue here is not an omnibus clause nor does it act as a functional equivalent. The language of the endorsement does not expose the insurance company to a potentially unlimited and unbounded class of additional insureds like an omnibus clause. In fact, nearly the opposite is true: the endorsement here is Northern's attempt to further limit the insured status of a single, explicitly identified party, IDG, to a specific range of liability.
Moreover, the additional evidence considered in Keithan was a court's finding of fact in the underlying case. No such decisions have been issued yet in Perkins v. Devino. The evidence that the plaintiff asks the court to consider here, such as the deposition transcript, is merely additional unproven allegations. Given these distinguishing factors and Keithan's expressly narrow holding, this court declines to look beyond Perkins' and Luxnet's underlying complaints.
The Additional Insured Endorsement
Maryland and Northern argue that they do not have a duty to defend because the underlying complaints do not allege facts that would establish IDG as an "insured" under the additional insured endorsement language. They assert that the additional endorsement language is not ambiguous and clearly refers to Luxnet's obligations to IDG as specified in the lease. Toward this end, they seek to introduce the terms of the lease as evidence to show that IDG had exclusive control over the portion of the property on which Perkins was injured. Since Luxnet did not perform any ongoing operations for IDG with respect to this part of the property, they argue, the allegations of the complaint do not fall within the policy language. This court will analyze "arising out of" and "your ongoing operations performed for that insured" separately.
The phrase "arising out of" is common in insurance policies and our Supreme Court has defined it in that context. "[I]t is generally understood that for liability for an accident or an injury to be said to `arise out of' [an occurrence or offence], it is sufficient to show only CT Page 9515-cx that the accident or injury `was connected with,' `had its origins in,' `grew out of,' `flowed from,' or `was incident to' [that occurrence or offence], in order to meet the requirement that there be a causal relationship between the accident or injury and [that occurrence or offence]." Board of Education v. St. Paul Fire Marine Ins. Co., 261 Conn. 37, 48, 801 A.2d 752 (2002) (commercial automobile insurance); QSP, Inc. v. Aetna Casualty Surety Co., 256 Conn. 343, 374, 773 A.2d 906 (2001) (commercial general liability insurance and excess insurance); Hogle v. Hogle, 167 Conn. 572, 577, 356 A.2d 172 (1975) (homeowners' insurance). "Under this standard of causation, it need not be shown that the incident in question was proximately caused . . . The plaintiff must allege only that the injury originated in, grew out of or flowed from [that occurrence or offence)." (Citations omitted.) Board of Education v. St. Paul Fire Marine Ins. Co., supra, 261 Conn. 48.
The phrase "your ongoing operations performed for that insured," however, has not been previously interpreted in Connecticut. With the names of the parties inserted, it reads "Luxnet's ongoing operations performed for IDG." The only relationship between IDG and Luxnet is that of lessor and lessee. The few courts that have construed this language in the context of a lessor and lessee have drawn different conclusions.
In Balch Enterprises v. Ins. Co. of Pennsylvania, United States District Court, Docket No. C 03-01783 (N.D.Cal., March 12, 2004), Balch Enterprises (BEI), built a warehouse which it financed through a loan from Fremont Bank. Under the terms of that loan, BEI had an obligation to keep the property free from liens. BEI subsequently leased the warehouse to 360networksUSA, Inc., which in turn hired Howard S. Wright Construction Company (Wright) to renovate the warehouse. 360networksUSA later defaulted on its payment for the renovations, which prompted Wright to record a mechanic's lien on the building and to file suit against BEI to foreclose the lien. BEI asserted an affirmative defense that it had posted notices of nonresponsibility for the improvements made by 360networksUSA. BEI then filed an action against 360networksUSA's insurance company arguing that it was an additional insured under 360networksUSA's policy. The court held, among other reasons, that BEI did not qualify as an additional insured because the issue of the notices did not arise out 360networksUSA's "ongoing operations performed for" BEI. Instead, the court construed this phrase to refer to the lease between BEI and 360networksUSA.
In Fleniken v. Entergy Corp., 790 So.2d 64 (La.App. 2001), Safeway Transportation, Inc. (Safeway), a trucking company, leased an office building and half of a truck-washing facility from TMI Enterprises, Inc. (TMI), the owner. Wilburn Fleniken, an employee of Safeway, parked his CT Page 9515-cy rig on a concrete block near the truck-washing facility. While inspecting the top of his rig to see if it had been washed properly, he walked into an electrical wire and was knocked unconscious. Fleniken filed an action against TMI, Safeway and others for damages. TMI filed a declaratory judgment action and appealed the trial court's decision that it was not covered under Safeway's commercial general liability policy as an additional insured. The appellate court reversed the trial court and interpreted the endorsement language as follows.
The facts of the accident meet the endorsement's requirement that TMI's potential liability arose out of Safeway's "ongoing operations." We note the portion of Safeway's ongoing operation being performed by Mr. Fleniken at the time of the accident was directly related to Safeway's use of the wash-rack building it was leasing from TMI. Mr. Fleniken was inspecting the Safeway trailer through the hatch on the roof of the trailer to determine whether it had been cleaned in the wash-rack building sufficiently for the trailer to be used for the assigned haul. Mr. Fleniken's inspection inured to the benefit of TMI by making Safeway's lease of the wash-rack building from TMI a viable portion of its trucking operations. Because of the direct relationship between Mr. Fleniken's performance of his duties as the assigned operator of the tractor-trailer unit and Safeway's use of TMI's premises as TMI's lessee, it can be said that TMI's potential liability arose out of ongoing operations performed for TMI . . .
To read the endorsement language, "performed for," so as to exclude Mr. Fleniken's work in the instant case is to restrict unduly the coverage intended by the parties to the insurance contract. If the provision is read as [the insurance company] suggests, TMI would never be covered under the insurance policy; Safeway never hauled commodities for TMI because TMI was not a manufacturer. Thus, Safeway would have paid a premium for the addition of TMI as an insured, but the insurer would have provided no coverage for which it charged the premium . . . The fact that the haul was being "performed for" another company did not bar the operation from being "performed for" TMI as well.
Id., 69-70. CT Page 9515-dz
As the two conflicting decisions in Balch Enterprises and Fleniken indicate, this additional endorsement language is not as clear as Northern and Maryland suggest, and is at best awkward when applied to a strictly lessor-lessee relationship. This endorsement is most commonly and naturally applied in cases where the named insured is a contractor or subcontractor who is actually performing some labor or service, such as construction, for the additional insured. See, e.g., Pro Con Construction Co. v. Acadia Ins. Co., 147 N.H. 470, 794 A.2d 108 (2002); G.E. Tignall Co. v. Reliance National Ins. Co., 102 F.Sup.2d 300 (D.Md. 2000). Luxnet, like Safeway in Fleniken, does not perform a labor or service for IDG in this traditional sense: it is a manufacturer of light bulbs. As a result, whichever interpretation this court chooses will necessarily be strained.
One solution, as advocated by Northern and Maryland and mentioned in Balch, would be to construe the underlying lease to determine what duties Luxnet performs for IDG. Doing so, however, would require this court to violate the well-settled principle that the intent of the parties must be "derived from the four corners of the policy." (Internal quotation marks omitted.) Board of Education v. St. Paul Fire Marine Ins. Co., supra, 261 Conn. 42. It is true that in Sacharko v. Center Equities Ltd. Partnership, 2 Conn.App. 439, 442, 479 A.2d 1219 (1984), our Appellate Court turned to the lease to interpret an additional insured endorsement. The endorsement in that case, however explicitly limited liability to the leased property: "liability arising out of ownership, maintenance or use of that part of the premises designated below leased to the Named Insured . . ." Id., 442. The language in the endorsement at issue here makes no such explicit reference, and therefore this court is not directed by the policy language to consider the lease.
Moreover, interpreting this language to hinge on the provisions of a lease would run the risk that a lessee would not be an additional insured under any situation. Depending on the terms of the lease, the lessee may not be required to perform any "ongoing operations" for the named insured, or the lessee's duties may be so innocuous there could be no liability arising from them. The potential for such an interpretation to render the additional insured provision meaningless is an additional reason to refuse to consider the lease.
Finally, in viewing the policy in its entirety, this court notes that it is a commercial liability policy, not a premises liability policy. The general purpose of such a policy is to insure against liabilities stemming from the insured's business activities. Interpreting this provision as Northern and Maryland request would essentially convert a CT Page 9515-da commercial liability policy to a premises liability policy with respect to IDG without any explicit policy language to manifest that intent. The existence of other additional insured endorsement forms that do explicitly restrict liability to the leased premises demonstrates that insurance companies know how to express such intent when they wish to do so. Given the ambiguous language in the endorsement at hand, turning to the lease runs against the very purpose of the policy.
For example, additional endorsement form CG 20 24, which is a basic endorsement for commercial leases) grants insured status only "with respect to liability arising out of the ownership, maintenance or use of that part of the land leased to you." See Joseph P. Postel, Additional Insured Coverage Under Commercial General Liability Insurance Policies (November 17, 2003) (unpublished manuscript presented at the International Risk Management Institute Construction Risk Conference), at http://www.irmi.com/Conferences/Crc/Handouts/Crc23/Crt/ AddlInsuredCovUnderCglPolicies.pdf.
Given these issues, this court chooses to follow the interpretation and standard announced in Fleniken for lessees and lessors under this endorsement: where there is a direct relationship between an employee's duties and the lessee's use of the lessor's premises as a lessee, the liability arises out of the lessee's ongoing operations performed for the lessor. This standard is consistent with the principle that any ambiguity in the policy language must be construed in favor of the insured. Wentland v. American Equity Ins. Co., supra, 267 Conn. 600-01. Also, the requirement of a direct relationship insulates the insurance companies from having to cover the additional insured for all activities involving the named insured.
Before applying this standard to the allegations of the complaints, it is important to note that the issue in Fleniken was whether the additional insured was covered under the policy, not whether the insurance company had a duty to defend. Under the duty to defend standard, if the allegations in the complaints "fall even possibly within the coverage, then the insurance company must defend the insured." (Emphasis in original; internal quotation marks omitted.) DaCruz v. State Farm Fire Casualty Co., supra, 268 Conn. 675, 687-88.
The Perkins complaint alleges that Sarah Perkins was an employee of Luxnet and that she injured herself after stepping into a hole on a part of the property in the exclusive control of IDG. The complaint does not allege specifically that Perkins as an employee, was performing duties directly related to Luxnet's use of the premises as a lessee. Nevertheless, the allegations that she was an employee of Luxnet and injured on the property does raise a sufficient possibility that the complaint falls within the coverage afforded by the policy.
Luxnet's intervening complaint is more specific. It not only alleges that Perkins was an employee of Luxnet, but also alleges that her injury occurred while acting in the course of her employment. Such allegations also raise the possibility that the complaint falls within the policy coverage. Therefore, Northern has a duty to defend IDG on both the Perkins and Luxnet complaints. CT Page 9515-db
For the foregoing reasons, Maryland and Northern's motion for summary judgment is granted as to Maryland and denied as to Northern. IDG's motion for summary judgment is granted as to Northern and denied as to Maryland
Matasavage, J.