Zurich American Insurance Company v. Certain Underwriters at Lloyd's of London…

Background

The Port Authority of New York and New Jersey hired LaGuardia Gateway Partners LLC as the developer of a construction project at LaGuardia Airport. LaGuardia Gateway Partners subcontracted with Skanska-Walsh Joint Venture to perform project work. The contract required Skanska to indemnify LaGuardia Gateway Partners and the Port Authority for certain losses, including losses connected to third-party bodily-injury claims arising from Skanska’s negligence or contractual breaches.

Skanska, LaGuardia Gateway Partners, and the Port Authority were insured under a Contractors Controlled Insurance Program. Zurich American issued the primary commercial general liability policy, Arch issued the first excess layer, and Lloyd’s issued the second excess layer. The Lloyd’s policy followed the Zurich American policy. The policy included an employer’s-liability exclusion with an exception for liability assumed under an insured contract.

On January 21, 2018, Quentin Mayo, a Skanska employee, was injured while working on the project. Mayo sued the Port Authority and LaGuardia Gateway Partners. Zurich American agreed to provide coverage for those defendants’ defense and the underlying lawsuit. Lloyd’s later asked why defense counsel had not brought a third-party claim against Skanska for common-law indemnity, because Mayo was employed by Skanska. Zurich then filed this declaratory-judgment action.

Motion and Legal Issue

Zurich moved for summary judgment against Lloyd’s. Summary judgment is a final ruling without a trial when the evidence shows no genuine dispute over a fact that could affect the result and the moving party is entitled to judgment under the law. Zurich sought a declaration that New York’s anti-subrogation rule barred Lloyd’s from causing the Port Authority or LaGuardia Gateway Partners to pursue common-law indemnification or contribution against Skanska.

The court identified the issue as whether the anti-subrogation rule applied when Lloyd’s sought to recover through its insureds against another named insured. Under New York law, an insurer generally may not seek subrogation against its own insured for a claim arising from the risk covered by the policy. The rule prevents an insurer from shifting a loss to its insured and reduces conflicts that could affect the insurer’s defense of its insureds.

Court’s Analysis

The court held that the rule’s two essential requirements were satisfied. First, Lloyd’s was seeking to subrogate against Skanska, which was a named insured. Second, the risk of injury to Skanska employees was covered by the Lloyd’s policy. The court concluded that the employer’s-liability exclusion and insured-contract exception meant the policy covered a contractual indemnity claim brought by LaGuardia Gateway Partners or the Port Authority against Skanska.

Lloyd’s argued that the contract’s insurance-recovery provision made indemnity effectively unavailable unless the Port Authority or LaGuardia Gateway Partners had losses beyond their insurance coverage. The court rejected that position. It explained that the policy’s coverage of the indemnity claim, rather than the likelihood that the claim would actually be needed, controlled the anti-subrogation analysis. The court also rejected the argument that the rule required a present conflict of interest.

The court distinguished the prior decisions cited by Lloyd’s. In one, the relevant policy expressly excluded coverage for the claim, while the Lloyd’s policy here covered indemnity claims against Skanska. In the other, the contract required a loss above a specified threshold before indemnification became available. Here, the contract had no such threshold. Instead, it required indemnification for covered losses and addressed how insurance recoveries would reduce those losses.

The court further determined that the contract required indemnification against liability, not only indemnification after payment of a loss. Under the court’s reading, the right to indemnification arose when the Port Authority’s or LaGuardia Gateway Partners’ liability became fixed, even if those parties had not yet paid the claim.

Disposition

The court granted Zurich’s motion for summary judgment. It declared, as a matter of New York law, that the anti-subrogation rule precludes Lloyd’s from commencing a claim for common-law indemnification or contribution against Skanska. The Clerk was directed to enter final judgment, close the motion at Docket Number 32, and close the case.