LM Insurance Corporation v. James River Insurance Company and Arch Specialty…

Background

LM Insurance Corporation brought claims concerning the insurers’ responsibilities for an underlying personal-injury lawsuit arising from a construction accident at 48 Wall Street. 48 Wall, LLC owned the premises, InsideSquad, Inc. was the general contractor, DATO A/C Inc. was a subcontractor, and Star Heating & Cooling Corp. performed HVAC work for DATO. LM Insurance Corporation insured 48 Wall, while James River Insurance Company insured InsideSquad. Arch Specialty Insurance Company insured DATO.

The underlying lawsuit settled for $2.6 million. LM Insurance Corporation and James River each paid their respective $1 million policy limits, and 48 Wall’s excess carrier paid the remaining $600,000. Arch did not contribute because it relied on exclusions in its policy with DATO. The Arch policy listed 48 Wall and InsideSquad as additional insureds, but it also contained an endorsement excluding coverage for worker injuries arising from subcontractor work unless the subcontractor had specified insurance and had agreed in writing to defend and indemnify DATO and other named insureds.

The parties filed cross-motions for summary judgment. Summary judgment is a decision without a trial when the evidence shows there is no genuine dispute over a fact important to the outcome and the moving party is entitled to judgment under the law.

Arch’s Coverage Exclusion

The court held that the exclusion endorsement was clear. It assigned the relevant subcontractor-related duties to DATO, the policy’s only named insured. The court rejected the argument that the policy’s separation-of-insureds provision required the exclusion to be analyzed separately from the perspective of 48 Wall or InsideSquad. Those entities were additional insureds, not named insureds, and the endorsement stated that the exclusion applied to any claim arising from work performed by an uninsured subcontractor.

The court also rejected the argument that applying the exclusion would make the additional-insured endorsement meaningless. The additional-insured endorsement could provide coverage in situations where the exclusion’s conditions were satisfied, including if DATO’s subcontractor had the required insurance and written indemnity agreement.

The court further found no genuine dispute that DATO and Star lacked a written contract meeting the endorsement’s requirements. Even without considering statements challenged as hearsay, the record included an investigator’s review of DATO’s files, which found no written contract with Star and no relevant insurance policy naming DATO as an additional insured. The parties also did not genuinely dispute that subpoenas seeking contracts went unanswered. The court therefore held that the exclusion applied and declared that Arch had no obligation to provide additional-insured coverage to any party in connection with the underlying lawsuit.

Duty to Defend

The court distinguished Arch’s duty to defend from its duty to provide coverage for the ultimate loss. Under New York law, the duty to defend is broader and continues while factual or legal uncertainty leaves open a possible basis for coverage.

The court found that uncertainty existed before its ruling. It was not initially clear from the underlying complaint whether Star had agreed in writing to indemnify DATO. There were also unresolved legal questions about how to interpret the exclusion together with the separation-of-insureds provision, and whether the policy language was ambiguous. Although the court ultimately ruled for Arch on those questions, it held that Arch was obligated to defend 48 Wall and InsideSquad in the underlying lawsuit until the court resolved them.

Disposition and Remaining Issues

The court denied in part and granted in part LM Insurance Corporation’s and James River’s motions for summary judgment. It granted in part and denied in part Arch’s motion for summary judgment. The court declared that Arch had no obligation to provide additional-insured coverage to any party in the underlying lawsuit but had a duty to defend 48 Wall and InsideSquad.

The court did not resolve the priority of coverage among the three insurers. It directed the parties to meet and confer about the amount of any money judgments for LM Insurance Corporation and James River and to submit a joint letter by October 10, 2025, addressing whether they had resolved that issue and proposing a process for resolving any remaining issues.