NY Court of Appeals Places Limit On The Broadly Construed "Arising Out Of" Language Contained In Additional Insured Endorsement
July, 2008
New York’s highest court recently issued a decision limiting the broadly construed “arising out of” language contained in a commercial general liability policy’s additional insured endorsement. Additional insured endorsements typically state that coverage is extended to entities that qualify as or are listed as additional insureds “but only with respect to liability arising out of your [the named insured’s] operations.” The additional insured endorsement’s “arising out of” language has long been broadly interpreted, triggering additional insured coverage when there is a connection between an underlying injury and the named insured’s operations (i.e., the claimant is the named insured’s employee, or the named insured’s subcontractor’s employee, or the claimant is injured in the named insured’s work area). In Worth Constr. Co. v. Admiral Ins. Co., 10 N.Y.3d 411, __ N.Y.S.2d __ (2008), the Court of Appeals held that an accident did not “arise out of” an insured’s operations where, even though the claimant was injured on steps constructed by the insured, it was conceded that the insured had not been negligent in causing the accident.
Worth Construction Co., Inc. (“Worth”) was the general contractor for the construction of an apartment complex. Worth subcontracted with Pacific Steel, Inc. (“Pacific”) for construction of a staircase and hand railings. The subcontract required that Pacific provide commercial general liability insurance naming Worth and the site owner as additional insureds. Farm Family Casualty Insurance Company (“Farm Family”) was Pacific’s commercial general liability insurer.
After Pacific installed the metal portion of the stairs, another subcontractor hired by Worth was to fill the stairs with concrete. Once the concrete was poured and walls were erected around the stairs, Pacific was to return to the site to complete its portion of the project by affixing the hand railings to the walls.
In November, 2001, after the stairs were installed but before the walls were raised, Michael Murphy, an employee of Fasciano Iron Works Inc. (“Fasciano”), was injured when he slipped on fireproofing that was applied to the stairs by a fireproofing subcontractor. Pacific played no role in either contracting for or applying the fireproofing, nor did it subcontract with Fasciano for the performance of any work at the site.
Murphy filed a personal injury action against the owner of the premises and Worth as the general contractor. Because the Complaint alleged that Murphy was injured on the staircase installed by Pacific, Worth forwarded a copy of the Complaint to Farm Family demanding defense and indemnification under the terms of the policy, and Worth commenced a third-party action against Pacific seeking contribution and indemnification. Worth also commenced a declaratory judgment action against Farm Family, seeking defense and indemnification in the underlying action and reimbursement of attorneys’ fees it expended to date.
The Farm Family policy’s additional insured endorsement stated that the policy is amended to include Worth as an insured “but only with respect to liability arising out of [Pacific’s] operations or premises owned by or rented to you.” Farm Family and Worth both moved for summary judgment in the declaratory judgment action. The motion court declared that Farm Family was obligated to defend and indemnify Worth under the terms of the policy and ordered it to reimburse Worth for the attorneys’ fees it incurred in defending the underlying action.
However, while Farm Family and Worth were awaiting the court’s decision in the declaratory judgment action, Pacific moved for summary judgment dismissing Worth’s third-party complaint in the underlying action. In its response to that motion, Worth conceded that any negligence claim it asserted against Pacific lacked factual merit and should be dismissed.
Once the underlying court dismissed Worth’s third-party action against Pacific, Farm Family moved to renew its motion in the declaratory judgment action, asserting that, by its admissions, Worth conceded that the accident did not arise out of Pacific’s work or operations. The motion court granted Farm Family’s motion, modifying its previous decision and holding that Worth’s concession that Pacific was not negligent established as a matter of law that the accident did not arise out of Pacific’s operations, and therefore, Farm Family was not required to provide coverage to Worth under the terms of the additional insured endorsement. The Appellate Division modified the motion court’s order, holding that it was immaterial whether Pacific completed the installation of the stairs or whether its installation was negligent, but rather, for coverage purposes, it was “sufficient that [Murphy’s] injury was sustained on the stairs.”
The Court of Appeals, noting that the phrase “arising out of” has been interpreted by it to “mean originating from, incident to, or having connection with” and requires “only that there be some causal relationship between the injury and the risk for which coverage is provided,” held that “[o]nce Worth admitted that its claims of negligence against Pacific were without factual merit, it conceded that the staircase was merely the situs of the accident. Therefore, it could no longer be argued that there was any connection between Murphy’s accident and the risk for which coverage was intended.” Id., at 416. The Court held that although generally, “the absence of negligence, by itself, is insufficient to establish that an accident did not ‘arise out of’ an insured’s operations,” Worth “conceded that the stairs themselves were not a proximate cause of Murphy’s injury,” and so, Worth was not entitled to defense and indemnification from Farm Family as an additional insured. Id.
Learning Point
As a result of the Worth holding, under New York law, the “arising out of your work or operations” trigger for additional insured coverage requires something more than a passive connection between the accident and the insured’s work or operations. While the Court did not explicitly hold that proximate causation itself is required in order to satisfy an additional insured endorsement’s “arising out of” condition, some level of causation, aside from a circumstance that provides a place or time for the accident to happen, is required.
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