Zurich American Insurance Company v. XL Insurance America, Inc.

Background

The court had previously granted in part and denied in part the parties’ cross-motions for summary judgment. Zurich then moved for reconsideration under Southern District of New York Local Civil Rule 6.3. The motion challenged two earlier holdings: that primary coverage under XL’s primary policy was capped at $1 million, and that XL’s excess policy was not primary to Zurich’s primary policy.

The underlying dispute concerns insurance coverage for state-court litigation arising from a personal injury at a construction site. The injured person was employed by D.A. Collins Construction Co., Inc., which had contracted with the City and subcontracted with Hayward Baker, Inc. The City sued or otherwise brought claims against HBI in the state-court action for common-law and contractual indemnification and contribution. That state-court action remained ongoing when this opinion was issued.

Zurich insured D.A. Collins under primary and umbrella policies and agreed to defend the City as an additional insured up to a total liability limit of $6 million. XL insured HBI’s parent, Keller Foundations, LLC, under a primary policy and an excess policy. The City was an additional insured under both XL policies subject to stated conditions. The XL primary policy had a $2.5 million per-occurrence and aggregate limit, subject to a $650,000 deductible. The XL excess policy had a $5 million per-occurrence and aggregate limit and identified the XL primary policy as the controlling underlying policy.

The HBI subcontract required HBI to name D.A. Collins and the City as additional insureds on a primary, non-contributory basis. It required commercial general liability coverage of $1 million per occurrence and $2 million in the aggregate. It separately required umbrella or excess coverage sufficient to provide a total of $5 million per occurrence and in the aggregate.

Reconsideration standard

The court explained that reconsideration is an extraordinary remedy. It generally requires an intervening change in controlling law, newly available evidence, or a need to correct a clear error or prevent manifest injustice. It is not a vehicle for relitigating old issues, presenting new theories, or seeking another round of argument on the merits.

The $1 million limit on XL’s primary coverage

The court held that its earlier reliance on the “Broader” clause was erroneous. That clause limited the scope of the insurance coverage—how broad the coverage was—but did not determine the dollar amount of the coverage. The court corrected that part of its reasoning.

The court nevertheless concluded that the result remained correct. The XL primary policy’s “Limits” clause and “Most We Will Pay” clause both limited additional-insured coverage to the lesser of the amount available under the XL primary policy and the amount required by the relevant contract. Under the HBI subcontract, the required primary commercial general liability coverage was $1 million per occurrence. Accordingly, the court held that primary coverage under the XL primary policy was capped at $1 million.

The court rejected Zurich’s argument that the subcontract required XL to provide $2.5 million in primary coverage and allowed Zurich to treat the combined primary and excess coverage as a $6 million pool that could be reapportioned. It read the subcontract as separately addressing primary coverage and umbrella or excess coverage. In the court’s view, treating the provisions as Zurich proposed would conflate separate policies and impose on XL primary-insurance obligations it had not agreed to provide.

The court also rejected Zurich’s attempt to give the “Most We Will Pay” clause a different meaning from the “Limits” clause. Because both clauses appeared in endorsements to the XL primary policy, the court read them together and harmonized them. In context, “the most we will pay” referred to the most XL would pay under the primary policy in its capacity as a primary insurer, not the most XL might pay under all of its policies and capacities combined.

Whether XL’s excess policy was primary to Zurich’s policy

The court reaffirmed its earlier holding that XL’s excess policy was not primary to Zurich’s primary policy. Under the general rule the court applied, excess insurance is not triggered until the primary policies have been exhausted, although the parties may contract around that rule if the policy clearly says so.

Zurich relied on the XL excess policy’s primary-insurance endorsement, which stated that coverage for an additional insured would apply on a primary and non-contributory basis when required by a written contract or agreement. The court interpreted that language to mean that the XL excess policy could operate as primary only after the excess policy was triggered. It did not make the excess policy primary to Zurich’s primary policy before the other primary policies were exhausted.

The court further concluded that Zurich was repeating arguments it had already made in the summary-judgment briefing. Those arguments did not justify reconsideration.

Disposition

Judge Lewis J. Liman denied Zurich’s motion for reconsideration. The court corrected its prior explanation concerning the “Broader” clause, but left intact the conclusions that XL’s primary coverage was capped at $1 million and that XL’s excess policy was not primary to Zurich’s primary policy. The Clerk of Court was directed to close the motion.