Liberty Insurance Corporation v. New York Marine and General Insurance Company

Background

German Valbuena, a commercial window washer employed by Building Maintenance Service LLC, was injured while working in a construction area at 650 Madison Avenue. The building was owned by 650 Madison Owner, LLC. Valbuena and his wife sued 650 Owner and other parties in New York state court.

Americon Construction Inc. was performing construction work in the building. Its contract with 650 Owner required Americon to indemnify 650 Owner for certain liabilities connected with Americon’s work. Americon had an insurance policy issued by New York Marine and General Insurance Company that provided additional-insured coverage to 650 Owner. Building Maintenance Service also had an insurance policy issued by LM Insurance Corporation that provided additional-insured coverage to 650 Owner.

The state court dismissed Valbuena and his wife’s claims against Americon and most of their claims against 650 Owner. Most claims were later settled when LM Insurance Corporation paid $900,000 on behalf of 650 Owner. The remaining matter in the state court case was 650 Owner’s contractual indemnification claim against Americon, which was on appeal. The district court record did not establish that the state court had decided whether Americon’s conduct was a legal, or sufficiently direct, cause of Valbuena’s injuries.

LM Insurance Corporation sought summary judgment establishing that New York Marine had a continuing duty to defend 650 Owner and 650 Manager and that New York Marine’s coverage was primary. New York Marine sought summary judgment declaring that it had no defense or indemnity obligation and no obligation to reimburse defense costs. LM Insurance Corporation did not seek summary judgment on whether New York Marine ultimately had to indemnify 650 Owner, arguing that question was premature.

Duty to defend

Under New York law, an insurer’s duty to defend is broader than its duty to indemnify. The duty arises when the allegations in the underlying complaint create a reasonable possibility of coverage, and it continues until it is established with certainty that the policy does not cover the claim.

The NY Marine policy covered 650 Owner as an additional insured for bodily injury caused, in whole or in part, by Americon’s acts or omissions. The court interpreted that language to require proximate cause, meaning a legally sufficient connection between Americon’s conduct and the injury.

The underlying complaint alleged that the defendants, including Americon, negligently allowed dangerous conditions to exist during construction. Those allegations created a reasonable possibility that Americon’s conduct proximately caused Valbuena’s injury. The later bill of particulars did not eliminate that possibility. Although it referred to a lack of safety devices and debris on the radiator or step, those facts did not establish that BMS’s conduct was the sole cause of the injury. A third party’s conduct could contribute to an injury without necessarily severing Americon’s causal connection.

The state court’s dismissal of the claims against Americon also did not establish with certainty that Americon had not proximately caused the injury. The stated reasons for dismissal concerned Americon’s status and contractual relationships, not a definitive finding about proximate cause. Because the remaining state-court appeal could involve causation more generally, the district court held that New York Marine’s duty to defend 650 Owner continued. That duty also covered 650 Owner’s indemnification cross-claim because the cross-claim was an essential part of defending the underlying action.

The court reached a different result for 650 Manager. Only 650 Owner, not 650 Manager, was a party to the construction contract with Americon. The policy language therefore made 650 Owner, but not 650 Manager, an additional insured capable of receiving this coverage.

Duty to indemnify

The court denied New York Marine’s motion for summary judgment declaring that it had no duty to indemnify 650 Owner. The policy required the injury to have been caused, in whole or in part, by Americon’s acts or omissions. Because the underlying proceedings had not definitively resolved whether Americon proximately caused Valbuena’s injury, the court could not conclude that New York Marine had no indemnity obligation. The court did not finally determine that New York Marine was required to indemnify 650 Owner.

Priority of coverage

The court held that the NY Marine policy provided primary coverage and the LM Insurance Corporation policy provided excess coverage. Primary insurance generally pays first, while excess insurance applies after the primary coverage is exhausted.

The court relied on the policies’ other-insurance provisions and the contracts with 650 Owner. The LM Insurance Corporation policy made its coverage excess when 650 Owner was also covered as an additional insured under another policy for the same occurrence, claim, or lawsuit. Because 650 Owner was an additional insured under both policies, the NY Marine policy was primary. The court therefore granted the plaintiffs’ motion on the priority question.

Circular-recovery issue

The court did not grant summary judgment on whether the doctrine against circular recovery prevented New York Marine from having to pay. That doctrine can apply when a payment would ultimately return the parties to the same financial positions.

New York Marine argued that it might recover from LM Insurance Corporation through indemnification and subrogation after paying defense costs. The court found a disputed material fact about whether the indemnification clause in the contract between BMS and 650 Owner had been triggered. The underlying settlement did not admit or establish fault by 650 Owner or BMS, so the record did not show whether BMS had an indemnification obligation. Because that factual issue remained unresolved, the court held that summary judgment was inappropriate on the circular-recovery issue.

Disposition

Judge Gregory H. Woods granted the plaintiffs’ motion for summary judgment determining that New York Marine owed a duty to defend 650 Owner. He denied the plaintiffs’ motion as to 650 Manager. He granted the plaintiffs’ motion determining that the NY Marine policy was primary to the LM Insurance Corporation policy, while leaving unresolved whether the circular-recovery doctrine would prevent payment.

The court granted New York Marine’s motion for summary judgment as to its lack of a duty to defend 650 Manager and denied the motion as to 650 Owner. It denied New York Marine’s motions seeking declarations that it had no duty to indemnify 650 Owner and no obligation to reimburse the plaintiffs for defense fees and costs. The court directed the clerk to terminate the pending motions.