96-16TH STREET, LLC v. PENN-STAR INSURANCE COMPANY

Background

96-16th Street, LLC owned property at 96-16th Street in Brooklyn and pursued construction of a new condominium. It hired Hyper Structure Corp. as the general contractor. Hyper Structure later hired Atlas NY Construction Corp. as a subcontractor. The contract between 96-16th Street and Hyper Structure contemplated the use of subcontractors and addressed payments to them.

Sukhwinder Singh filed a personal-injury lawsuit against 96-16th Street and Hyper Structure in New York state court. The lawsuit alleged that Singh was an Atlas employee who was injured in March 2020 when a scaffold collapsed while he was working on the project.

Penn-Star had issued 96-16th Street a policy covering certain bodily-injury damages for the period from January 10, 2020, through July 10, 2020. After receiving notice of Singh’s lawsuit, Penn-Star denied coverage and disclaimed any duty to defend or indemnify 96-16th Street. Penn-Star relied on three exclusions: the Contracted Persons Exclusion, the Independent Contractors Exclusion, and the Condominium Exclusion.

96-16th Street sought a declaration that Penn-Star had a duty to defend and indemnify it and sought recovery of defense costs. Both sides moved for summary judgment, a procedure allowing judgment without a trial when there is no genuine dispute about an important fact and one party is entitled to judgment under the law. Both parties agreed that the material facts were undisputed and that the policy language was clear and unambiguous.

Parties’ Arguments

Penn-Star argued that the exclusions plainly barred coverage for Singh’s injury lawsuit. 96-16th Street argued that the denial of coverage was wrongful and that none of the exclusions applied. In particular, 96-16th Street argued that Atlas had not contracted with Hyper Structure “on behalf of” 96-16th Street, that Atlas was not 96-16th Street’s agent, and that 96-16th Street did not direct or know that Hyper Structure had hired Atlas. It also argued that the Condominium Exclusion did not apply because the condominium offering plan had not yet been approved when Singh was injured.

Court’s Analysis

Applying New York law, the court explained that an insurer’s duty to defend is broader than its duty to indemnify. Even so, the duty to defend is limited by the coverage that the policy actually provides. If an insurer establishes that an entire lawsuit falls within a clear and applicable exclusion, the insurer has no duty to defend. The court also stated that the application of any one exclusion is enough to eliminate coverage.

The court held that the Contracted Persons Exclusion applied. That exclusion barred coverage for bodily injury to a person employed by an organization that contracted with others on an insured’s behalf for services. The court interpreted this language to cover an employee of a subcontractor hired through a contractor to perform work for the insured’s benefit. The undisputed facts showed that Hyper Structure contracted with Atlas to perform work on 96-16th Street’s project and that Singh alleged he was injured while employed by Atlas and working on that project.

The court rejected 96-16th Street’s argument that the exclusion required Atlas to be the insured’s agent or that 96-16th Street had to direct or know about Atlas’s hiring. The court found that the exclusion was not limited to employees of an insured’s agent. It also found that any possible breach by Hyper Structure of its contract with 96-16th Street would not change the scope of Penn-Star’s policy.

Because the Contracted Persons Exclusion applied, the court did not need to decide whether the Independent Contractors Exclusion also barred coverage. The court nevertheless stated that the Condominium Exclusion appeared to bar coverage as well. The court reasoned that this exclusion referred to work that was part of a newly built condominium and did not depend on approval of the condominium offering plan by a government agency.

Disposition

The court held that Penn-Star had no duty to defend or indemnify 96-16th Street in connection with Singh’s injury lawsuit. It granted Penn-Star’s motion for summary judgment and denied 96-16th Street’s motion for summary judgment. The court directed the Clerk to enter judgment for Penn-Star Insurance Company and close the case.