The Charter Oak Fire Insurance Company v. HDI-Gerling America Insurance Company

Background

The case concerns which of two insurers had the primary duty to defend and indemnify parties sued in an underlying New York state-court personal-injury action. The accident occurred in commercial space owned by Crale Realty, LLC, leased to Dukane Fabrics Intl. Inc., and subleased to Euromarket Designs, Inc., which does business as Crate and Barrel.

Euromarket’s sublease required it to obtain commercial general-liability insurance that protected Dukane and Crale against liability arising from occurrences at the property. Euromarket obtained a policy from HDI-Gerling America Insurance Company, referred to as the HDI Policy. Dukane separately obtained a policy from The Charter Oak Fire Insurance Company, referred to as the Charter Oak Policy.

Mark and Katherine Cascarella later sued Crale, Dukane, Euromarket, and another party in state court, alleging that Mark Cascarella was injured at the property on December 28, 2015. Charter Oak undertook the defense of Crale and Dukane, but asked HDI to provide their defense and indemnification. HDI declined. Charter Oak then brought this action seeking a declaration that HDI owed those obligations and seeking reimbursement for defense costs Charter Oak had incurred.

Crale’s additional-insured status

Both parties moved for summary judgment, a procedure allowing judgment without a trial when the admissible evidence shows no genuine dispute over a material fact and the moving party is entitled to judgment as a matter of law.

The court held that Crale was an additional insured under HDI’s “Managers or Lessors of Premises” endorsement. Although the endorsement’s title referred to lessors, its text covered liability arising from ownership, maintenance, or use of the part of the premises leased to Euromarket. The court reasoned that Crale qualified as a lessor because it owned the property and leased it to Dukane. The sublease also required insurance protecting Crale against liability from occurrences at the property.

HDI argued that the more limited “Owners, Lessees or Contractors” endorsement controlled and did not cover Crale because it applied to liability caused by Euromarket’s acts in the performance of its ongoing operations for an additional insured. The court rejected that argument. It found that the HDI Policy did not adopt the sublease’s definitions, that the endorsements were not mutually exclusive, and that the language of the lessor endorsement covered Crale. The court also stated that the headings of the endorsements could not override their unambiguous text.

Priority of coverage

The court next compared the policies’ “other insurance” provisions to determine which policy had priority. The Charter Oak Policy expressly stated that it was excess over other insurance available when the insured was added as an additional insured under another policy, including umbrella or excess insurance. The court found that this language made Charter Oak’s coverage excess to HDI’s coverage.

HDI argued that two provisions in the Charter Oak Policy conflicted because one referred to other primary insurance while the endorsement referred to both primary and excess insurance. The court rejected that argument, finding the provisions consistent. In any event, the court held that the endorsement controlled because it stated that it modified the policy and changed the insurance provided in the policy’s main text.

The court said it did not need to resolve the more difficult question of whether HDI’s policy was generally primary or excess. Under New York law, the Charter Oak Policy was excess to HDI’s policy because Charter Oak’s policy expressly made itself excess even to other excess insurance. The court therefore held that HDI’s coverage was primary relative to Charter Oak’s coverage.

Holding and disposition

The court held that HDI owed Dukane and Crale a duty to defend in the underlying action, owed them a duty to indemnify in that action, and had primary coverage compared with Charter Oak. Charter Oak’s coverage obligations were excess to HDI’s.

Accordingly, Charter Oak’s motion for summary judgment was GRANTED in full, and HDI’s cross-motion was DENIED. The parties were directed to confer within three weeks about the amount HDI should pay Charter Oak for defense costs already incurred. If they could not agree, they were directed to explain how the disagreement should be resolved and whether referral to a magistrate judge or court-annexed mediation would be appropriate.