Appellate Court Rules In Favor Of Tenant's Insurer
July, 2008
In Insurance Corporation of New York v. Cohoes Realty Associates, L.P. et. al., 50 A.D.3d 1228 (3d Dep’t 2008), Insurance Corporation of New York (“Insurance Corp.”), the liability insurer for a commercial property owner, Cohoes Realty Associates, L.P. (“Cohoes Realty”), brought an action against Cohoes Realty, the commercial tenant and tenant’s insurer, seeking, inter alia, a declaration that Cohoes Realty was an additional insured under the tenant’s CGL and business owners’ property insurance policy.
On May 17, 1999, a fire occurred at a commercial premises owned by Cohoes Realty, located in the City of Cohoes, Albany County. The exact cause of the fire was not determined. However, an investigation indicated that the damage was exacerbated due to the failure of the sprinkler system. The fire resulted in damage to various tenants, including Arcy Plastic Laminates, Inc. (“Arcy”). At the time of the fire, Arcy was insured by Travelers Indemnity of Illinois (“Travelers”) with a policy providing two types of coverage: commercial general liability insurance (“CGL”) and business owners’ property insurance. Cohoes Realty was expressly named on an endorsement to Arcy’s CGL coverage as an “additional insured,” but not named as an “additional insured” under Arcy’s business coverage.
Following Traveler’s payment of some of Arcy’s claims for property damage and business interruption pursuant to the business owners’ property insurance coverage, Arcy, along with other tenants whose property was damaged in the fire, commenced a negligence action against Cohoes Realty, seeking to recover damages that were not reimbursed by insurance. The tenants claimed that the defective sprinkler led to the spread of the fire. Travelers then brought a separate subrogation action against Cohoes Realty seeking reimbursement of the damages paid to Arcy under its policy. These actions were consolidated and later settled, subject to a stipulation that, among other things, Insurance Corp. reserved its right to litigate certain issues related to Traveler’s policy. In connection with that stipulation, Insurance Corp. commenced this action, seeking a judgment declaring that, due to Cohoes Realty’s status as an additional insured under Arcy’s CGL coverage, Travelers was not permitted to sue Cohoes Realty in subrogation. Further, Insurance Corp. sought a ruling that Travelers was obligated to reimburse Insurance Corp. and/or share in the costs of defending and indemnifying Cohoes Realty in the action brought against it by Arcy and the other tenants.
Travelers moved for summary judgment seeking a declaration that Cohoes Realty was not its insured. The motion court granted summary judgment. Insurance Corp. appealed that Decision.
The Appellate Court ruled that the motion court properly held that since Cohoes Realty was only an additional insured under Arcy’s CGL coverage and not named under its business owners’ property coverage, that Travelers had no duty to defend Cohoes Realty. The Court stated that it did not agree with Insurance Corp.’s contention that Cohoes Realty was entitled to a defense based upon the language of the “Additional Insured-Managers or Lessor of Premises” endorsement of Arcy’s CGL coverage. In fact, the Court reasoned that not only does the CGL portion of Arcy’s policy exclude property owned by the insured from its coverage, but the endorsement cited by Insurance Corp. provides that, as an additional insured, it was covered “only with respect to liability arising out of that part of the premises leased to [Arcy].” Insurance Corp., at 1-2. The Court further stated that contrary to Insurance Corp.’s argument, it is apparent that this language only refers to liability stemming from third-party actions, not any potential liability of the landlord or property owner. Id.
Next, the Court found unconvincing Insurance Corp.’s argument that, given Cohoes Realty’s status as an additional insured under Arcy’s CGL coverage, Travelers is estopped pursuant to the anti-subrogation doctrine from seeking reimbursement from the damages that it already paid to Arcy. Id. at 3-4. The Court noted that the anti-subrogation doctrine prevents an insurer from commencing a suit against its own insured arising out of the risk for which the insured was covered. Id. The Court stated that since Arcy’s CGL insurance did not cover the subject loss and Cohoes Realty was not added to the business’ owners’ property insurance, Cohoes Realty cannot be considered Travelers “insured” and the anti-subrogation doctrine is simply inapplicable. Id.
Finally, the Court ruled that Insurance Corp.’s contention that a “waiver of subrogation” clause in the lease agreement between Cohoes Realty and Arcy barred Travelers from seeking subrogation was without merit. The Court stated that issues concerning the interpretation of the terms of Arcy’s lease with Cohoes Realty were not preserved in the parties’ stipulation. Id. at 5. The Court further stated that irrespective of the stipulation, the record did not support Insurance Corp.’s argument that questions of fact as to waiver exist. Id.
Learning Point
Courts continue to interpret the language of a policy in determining whether a party is designated as an additional insured. If an additional insured is only identified in a particular policy or portion of a policy, its rights will be limited. Further, the courts continue to apply the anti-subrogation doctrine only to a defendant that was an insured for the risk at issue.
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