Federal Insurance Company v. Mt. Hawley Insurance Company

Background

Federal Insurance Company issued primary and excess liability policies to Wieden & Kennedy, Inc. (“W&K”), which rented space at 150 Varick Street and hired Conelle Construction Corp. as general contractor for renovations. Mt. Hawley Insurance Company issued primary and excess liability policies to Conelle. The Mt. Hawley policies included an additional-insured provision and an exclusion for designated ongoing operations, including “all exterior work above 2 stories.”

An employee of a subcontractor, Mauro Cordova, was injured when a scaffold collapsed while he was working inside the building. Cordova sued W&K, the building owner, Conelle, and another contractor. A state court granted Cordova summary judgment on his claim under New York Labor Law § 240(1). The parties later entered a high-low settlement, and Federal paid Cordova $8.95 million on W&K’s behalf. Federal then sought a declaration that Mt. Hawley had to indemnify W&K, reimbursement for Federal’s payment, and attorneys’ fees. The parties filed cross-motions for summary judgment, which asks whether the undisputed record requires judgment as a matter of law.

Additional-Insured Coverage

The court held that W&K qualified as an additional insured. The parties did not dispute that W&K was an owner under the endorsement, that the written contract required Conelle to obtain additional-insured coverage for W&K, or that Conelle performed the work for W&K.

The court also held that Conelle’s work caused W&K’s liability. The state court had found liability under Labor Law § 240(1), which requires contractors and owners to provide adequate protection against certain elevation-related risks. The court concluded that this ruling established that Conelle was a proximate cause of Cordova’s injury through actionable conduct, namely failing to provide adequate protection. The court rejected Mt. Hawley’s argument that coverage required a separate finding of negligence.

Exterior-Work Exclusion

The court held that Mt. Hawley did not prove that the exterior-work exclusion applied. The exclusion covered specific work performed outside the building, not the entire renovation project. Cordova testified that he was inside the building, on a scaffold placed on the sixth-floor concrete floor, installing plywood on an interior wall when the scaffold collapsed.

The court rejected Mt. Hawley’s argument that the renovated area became exterior space because it was designed as an open-air park or balcony. The area remained within the building’s structure, and there was no evidence that Cordova’s specific actions occurred outside or were tied to an exterior component. The court also noted that policy exclusions must be interpreted narrowly.

Primary Coverage

The court held that Mt. Hawley’s policies provided primary coverage. W&K’s Federal policy stated that its coverage was excess over insurance provided by an organization working under contract for W&K or insurance under which W&K was included as an insured. The Mt. Hawley policies met both conditions because Conelle worked under contract for W&K and W&K was an additional insured.

The Mt. Hawley policies also stated that their coverage was primary under the circumstances. The W&K-Conelle contract required Conelle’s insurance to be primary to insurance separately carried by W&K. The court rejected Mt. Hawley’s argument that its excess policy should apply only after Federal’s primary policy was exhausted, explaining that New York’s horizontal-exhaustion rule did not apply in these circumstances, including because of the underlying indemnity agreement between W&K and Conelle.

Disposition

Judge Lorna G. Schofield granted Federal’s motion for summary judgment and denied Mt. Hawley’s motion. The court declared that Mt. Hawley had a duty to indemnify W&K for liabilities incurred in the underlying action and that this duty was primary to Federal’s coverage. The court ordered Mt. Hawley to reimburse Federal for indemnity payments made on W&K’s behalf, up to the amount of insurance required and provided for in the W&K-Conelle contract. The court stated that the amount under the parties’ settlement agreement was currently before the state court judge in the underlying action and directed the Clerk of Court to close the case.