Insurer Not Required To Provide Unlimited Employers' Liability Coverage When Out-Of-State Insured Failed To Alert Insurer To In-State Operations
July, 2008
New York’s Highest Court recently held that an Insurer was not required to add an unlimited employer’s liability endorsement to a policy that was delivered in New Jersey, to a New Jersey insured, for risks located in New York. Preserver Ins. Co. v. Ryba, No. 08-97, 2008 WL 2338635, slip op. 05305 (N.Y. 2008). The Court interpreted a standard form workers’ compensation and employers’ liability contract, relying heavily on both the New Jersey and New York Workers Compensation and Employers Liability Manuals for its analysis. Ultimately, the Court concluded that since the insured failed to alert the Insurer to its in-state operations, the policy, which specified that the workers’ compensation and employers’ liability laws of New Jersey applied, did not obligate the Insurer to provide limitless employers’ liability coverage pursuant to New York’s requirements.
Arthur Ryba was an employee of East Coast Stucco Construction, a New Jersey company. East Coast Stucco had a workers’ compensation and employers’ liability policy with Preserver Insurance Company, also a New Jersey company. The policy was underwritten and issued in New Jersey. While working for East Coast Stucco at a New York location, Ryba fell from scaffolding and suffered grave injuries, including paralysis. Ryba filed suit against the homeowner of the New York location where he was injured, and the homeowner ultimately commenced a third-party action against East Coast Stucco. Preserver, No. 08-97, slip op. at 2.
Preserver disclaimed coverage and refused to defend or indemnify East Cost Stucco. Preserver then filed a declaratory judgment action seeking a declaration that it had no duty to defend its insured because Ryba’s accident was not necessary or incidental to East Coast Stucco’s work in New Jersey, and if it must provide employers’ liability insurance, coverage was limited to $100,000.00. The homeowner counter-claimed that Preserver was time barred from disclaiming coverage and that Preservers’ employers’ liability coverage was limitless, as if the Policy were underwritten in New York. Id. at 2-3. Both the trial court and the Appellate Division agreed that, because the policy was “issued for delivery” in New York, Preserver was time barred from disclaiming coverage and the policy required unlimited employers’ liability coverage. Id. at 3-4.
Reiterating the New York rule that a policy is issued for delivery if it covers both an insured and a risk located in New York, the Court of Appeals found that since New York was a state included in the Item 3.C Other States Insurance clause of the Preserver policy, the policy covered New York risks. However, as East Coast Stucco was a New Jersey company, with its offices only located in New Jersey, East Coast Stucco was not a New York insured, and the policy was not “issued for delivery” in New York. Id. at 7-8. Accordingly, the Court concluded that as “the policy was neither actually ‘delivered’ nor ‘issued for delivery’ in New York, Preserver [was] not required by Insurance Law section 3420 (d) to make timely disclaimer of coverage.” Id.
The Court then turned to the question of whether the policy obligated Preserver to provide unlimited employers’ liability coverage. The Court closely analyzed the language of the Preserver policy, which mirrored the format and language of model policies appearing in both the New York and New Jersey Workers Compensation and Employers Liability Manuals (the “Manuals”). Id. at 4. The “Information Page” of the Preserver policy specified the type of coverage provided under the policy. For instance, the policy stated: “Item 3.A Workers Compensation Insurance: Part One of the policy applies to the Workers Compensation Law of the states listed here: New Jersey.” Id. at 5. Similarly, the employers’ liability coverage clause referred back to the workers’ compensation coverage provision, noting that “it applies to work in each state listed in Item 3.A.” Id. The employers’ liability section of the policy also limited Preserver’s liability to $100,000.00 per accident. Id. at 9. Finally, the policy contained a provision, Item 3.C, for Other States Insurance, stating that part of the policy “applies to the states, if any, listed here: All states except ND, OH, WA, WV, WY and states designated in Item 3.A.” Id. Thus, the policy’s Item 3.C Other States Insurance clause did not include New Jersey, the state listed in Item 3.A of the Information Page. Item 3.C, did, however, include New York.
The Item 3.C Other States Insurance provision also provided that if work began in an included state “all provisions of the policy will apply as though that state were listed in Item 3.A of the Information Page.” Id. at 9-10. Because New York was included in the Item 3.C Other States Insurance provision, and because the New York Manual requires that insurance policies provide unlimited employers’ liability coverage, the homeowner argued that Preserver owed unlimited coverage to East Coast Stucco since the accident occurred in New York. Id. at 9.
Noting that this interpretation not only ignored the plain language of the policy, the Court emphasized the fact that East Coast Stucco did not advise Preserver that its operations extended to New York. Id. at 10. Both the New York and New Jersey Manuals contain an instruction that “‘[i]f the [insurance] company learns that the insured is conducting operations in a 3.C state, and if the company agrees to continue coverage, the company should add that state to Item 3.A and remove it from 3.C’” Id. at 11. The New York Manual also requires that a policy providing both workers’ compensation and employers’ liability coverage, as the Preserver policy did, include the New York Limit of Liability Endorsement. This endorsement prevents the Insurer from limiting its employers’ liability coverage. Significantly, the endorsement is also explicit that it only applies when “‘New York is shown in Item 3.A’.” Id. at 12.
The Court deemed these instructions from the Manuals significant. Reasoning that if East Coast Stucco advised Preserver of its New York operations, Preserver would have been required to make New York an Item 3.A state, and consequently, would have been required to follow New York law. Id. at 11-12. However, since East Coast Stucco did not advise Preserver of its New York work, Preserver was not obligated to make New York an Item 3.A state, was not required to issue the New York Limit of Liability Endorsement, was not bound by New York workers’ compensation and employers’ liability laws, and therefore was exempt from New York’s unlimited liability requirements. Id. at 13. The Court held that Preserver’s liability was capped at $100,000.00. Id. at 14.
The Court concluded with an aside regarding an amendment to the New York Workers Compensation Law. Effective September 9, 2007, section 50 (2) of the Workers Compensation Law compels out-of-state employers with operations and/or employees in New York to maintain workers compensation insurance “‘through a policy issued under the law of this state’.” Significantly, the New York Workers’ Compensation Board stated that this amendment to section 50 (2) can only be satisfied when New York is listed in Item 3.A of a policy’s Information Page. Id. at 13-14.
Learning Point
An Insurer is not obligated to provide unlimited employers’ liability coverage pursuant to New York’s requirements, if the out-of-state insured has not alerted the Insurer that operations have begun in New York. The Court’s holding in this case is consistent with an amendment to New York Workers’ Compensation Law section 50(2), which requires out-of-state employers with operations and/or employees in New York to maintain workers’ compensation insurance issued pursuant to New York law.
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