LM Insurance Corporation v. Federal Insurance Company

Background

LM Insurance Corporation brought a declaratory-judgment action concerning insurance coverage for Old Slip Property LLC in an underlying state personal-injury action brought by Mary Guzman. Guzman alleged injuries after a glass panel detached from a revolving door while she was cleaning it on the fifteenth floor of Old Slip’s building. Old Slip owned and leased the building, BNY leased the fifteenth floor, and Guzman worked for PBM, a cleaning-services company with separate service contracts with Old Slip and BNY. The parties disputed whether Guzman was performing services for Old Slip or BNY when the accident occurred.

Old Slip was insured by LM Insurance, BNY was insured by Federal Insurance Company, and PBM was insured by New York Marine and General Insurance Company (NYMAGIC). The service contracts required PBM to name Old Slip and BNY as additional insureds under NYMAGIC’s policy. The lease required BNY to provide additional commercial-liability insurance to Old Slip through Federal.

LM Insurance sought declarations that Federal and NYMAGIC had duties to defend and indemnify Old Slip and that the additional coverage was primary to LM Insurance’s coverage. NYMAGIC and Federal also asserted claims against the other insurers. LM Insurance and NYMAGIC each moved for summary judgment, which is a ruling entered when no genuine dispute over a material fact requires a trial and the moving party is entitled to judgment under the law.

Federal’s Duty to Defend

The court held that Federal had a duty to defend Old Slip beginning when Federal received LM Insurance’s tender letter on May 20, 2019. Under Federal’s additional-insured endorsements, coverage potentially applied to liability arising from premises leased by BNY. The accident occurred while Guzman was cleaning a revolving door providing access to BNY’s leased office space, and BNY’s lease covered the entire fifteenth floor.

Under New York law, the duty to defend is broad and is generally determined by comparing the allegations in the underlying pleadings with the insurance policy. An insurer may also have a duty to defend when it has actual knowledge of facts establishing a reasonable possibility of coverage, even if the complaint does not itself allege a covered occurrence. The court concluded that LM Insurance’s tender letter gave Federal that information. It rejected Federal’s argument that the revolving door might not have been part of BNY’s leased premises and stated that it was unreasonable to infer that the door leading to BNY’s office was excluded from BNY’s lease.

NYMAGIC’s Duty to Defend

The court held that NYMAGIC had no duty to defend BNY or Old Slip. NYMAGIC’s policy required a written contract for additional-insured coverage, operations performed for the additional insured, and PBM’s being a cause, in whole or in part, of Guzman’s injuries. The written-contract requirement was undisputed. The court treated the remaining questions as whether Guzman was performing operations for BNY or Old Slip and whether PBM was a proximate cause of the injury.

LM Insurance and Federal relied on allegations in Old Slip’s third-party complaint and BNY’s crossclaims suggesting that Guzman may have failed to look for defects or cleaned the door unsafely. The court recognized that third-party complaints and crossclaims can sometimes trigger a duty to defend, but it also concluded that a court may examine whether their allegations plausibly establish coverage. Applying that approach, the court found that the undisputed facts did not show that PBM was a proximate cause of an unsafe revolving door whose glass panel detached. PBM and Guzman did not own the door or oversee its maintenance, so PBM at most furnished the occasion for the injury.

Federal’s Duty to Indemnify

The court declined to declare whether Federal had a duty to indemnify LM Insurance. Unlike the duty to defend, which can arise from allegations or known facts showing a reasonable possibility of coverage, the duty to indemnify depends on whether the facts establish a covered loss and liability by the insured.

Federal’s policy contained two relevant additional-insured endorsements. The court concluded that Old Slip was not listed as a designated organization and therefore could qualify only under the scheduled-person-or-organization endorsement. That endorsement did not cover liability arising from Old Slip’s sole negligence. The court therefore stated that Federal would have a duty to indemnify unless Old Slip was solely negligent, but held that deciding whether Old Slip was solely negligent was premature because liability issues remained unresolved in the underlying personal-injury action. Federal specifically argued that indemnity would not be owed if Old Slip had retained or assumed sole responsibility for maintaining and repairing the revolving door.

Disposition

The court granted LM Insurance’s motion for summary judgment to the extent it sought a declaration that Federal had a duty to defend Old Slip. It denied LM Insurance’s motion as to NYMAGIC’s duty to defend Old Slip and denied it without prejudice as to a declaration that Federal had a duty to indemnify LM Insurance. The court granted NYMAGIC’s motion for summary judgment declaring that it owed neither a duty to defend nor indemnify LM Insurance or Federal. The clerk was directed to close the motions.