The Travelers Property Casualty Company of America v. Axis Insurance Company

Background

Travelers insured Sciame Constructions LLC under a commercial general liability and employee-benefits policy covering bodily injury caused by an accident during the policy period. The Travelers Policy stated that its coverage would be excess when other insurance was available to an insured added as an additional insured under another policy.

Axis insured Long Island Concrete, Inc. under a policy that identified Regulator Construction Corp. as a named insured. An endorsement extended additional-insured coverage to any person or organization that Regulator had agreed in a written contract to name as an additional insured before the loss or occurrence. The endorsement covered liability for bodily injury caused, in whole or in part, by Regulator’s acts or omissions or by acts or omissions of people acting on Regulator’s behalf in its ongoing operations.

Regulator’s construction agreement with Sciame required Regulator to obtain insurance protecting Sciame, JCM Jane Street Associates, and other specified parties as additional insureds on a primary and non-contributory basis. The agreement identified Sciame as the contractor and JCM as the owner.

Underlying injury and insurance dispute

Damian T. Herrera-Martinez sued Sciame and JCM in New York state court after he fell while working at the project site. He alleged negligence and violations of New York Labor Law. He alleged that Sciame, JCM, and their contractors and subcontractors failed to provide a safe workplace, proper safety devices, and fall protection.

Travelers provided and continued to provide a defense to Sciame and JCM. It tendered the claim to Axis and sent Axis the summons and complaint, but Axis did not respond. Travelers then brought this federal action seeking declarations that Axis had a duty to defend Sciame and JCM, that Axis’s coverage was primary and non-contributory, and that Travelers’ coverage was excess. Travelers also sought recovery of defense costs.

Arguments

Travelers relied on the Axis policy, the construction agreement, the allegations in the underlying lawsuit, and evidence concerning the accident. Axis argued that the underlying complaint did not allege that Regulator’s acts or omissions caused the injury. Axis also argued that Travelers could not rely on the co-worker’s statement, the third-party complaint, or other information outside the underlying complaint to establish a duty to defend. Axis further argued that JCM was not an additional insured because JCM lacked contractual privity with Regulator. In the alternative, Axis disputed summary judgment on priority of coverage and the amount and reasonableness of defense costs.

Court’s analysis

The court applied New York law. Under that law, an insurer’s duty to defend is broad. The insurer must defend when the allegations or facts known to it create a possible factual or legal basis for coverage, even if the insurer might ultimately have no duty to pay an indemnity claim. Doubts about coverage at the defense stage are resolved in favor of the insured.

The court held that the allegations and the co-worker’s statement created at least a possible basis for concluding that Regulator’s conduct proximately caused all or part of the injury. The statement said that the claimant was using a ladder and drill provided by Regulator, and that the drill contributed to the fall. The court therefore concluded that the accident was not necessarily caused solely by Sciame or JCM and that Axis could eventually be required to indemnify them.

The court also ruled that New York law permits an insurer’s duty to defend to be determined using facts known to the insurer outside the four corners of the underlying complaint. Axis therefore could not avoid its defense obligation merely because the complaint did not expressly identify Regulator’s conduct as a cause of the injury.

The court rejected Axis’s privity argument concerning JCM. The Axis endorsement did not require a direct contract between Regulator and the organization seeking additional-insured status. Instead, it covered any organization Regulator had agreed in writing to name as an additional insured. Because Regulator’s agreement covered JCM, the court held that JCM was an additional insured under the Axis Policy.

Finally, the court compared the other-insurance provisions. The parties did not dispute that the Axis Policy’s provision made its coverage primary to the Travelers Policy for Sciame and JCM. Axis’s objection that Travelers had not separately authenticated the policies did not prevent summary judgment because Axis had not disputed the quoted policy language or its authenticity in its Rule 56.1 response. Those facts were therefore treated as admitted for summary-judgment purposes.

Disposition

The court granted Travelers’ motion for summary judgment as to liability. The ruling established that Axis had to defend Sciame and JCM in the underlying action; that Axis’s defense obligation was primary and non-contributory to any defense available under the Travelers Policy; and that Travelers’ defense obligations were excess to Axis’s. The precise amount of defense fees owed by Axis remained for a later inquest. The clerk was directed to close the motion docket entry.