The Travelers Indemnity Company v. Accredited Surety and Casualty Company

Background

Travelers insured Clune Construction Company, L.P. under a commercial general liability policy covering bodily injury caused by an accident during the policy period. Accredited Surety and Casualty Company insured Empire Architectural Metal Corp. under another commercial general liability policy. Accredited’s policy covered organizations for which Empire was working as additional insureds when the policy requirements were met, but only for injuries caused, in whole or in part, by Empire’s acts or omissions or those acting on Empire’s behalf.

Clune and Empire’s subcontract required Empire to provide labor, supervision, and a safety program; identify safe ways for its employees to access work areas, including fall-protection measures; and retain responsibility for employee safety. The subcontract also required Clune and 1221 Avenue Holdings, LLC to be additional insureds under Empire’s policy, with primary coverage.

Empire employee Wladyaslw Budz was injured while working at the construction project at 1221 Avenue of the Americas. He and Grazyna Budz sued Clune and 1221 Avenue in New York state court, alleging that the defendants and their contractors, agents, and employees were negligent. Budz alleged that the stairs were improperly constructed, placed, and maintained, and that the accident involved missing slats, missing guardrails, poor lighting, and tripping hazards. Another contractor, Hallen Welding Service, Inc., was later added to that lawsuit.

Travelers defended Clune and 1221 Avenue and sought reimbursement from Accredited. Accredited refused to assume the defense or reimburse Travelers’ defense costs. Travelers filed this federal lawsuit seeking declarations about Accredited’s duty to defend, the priority of the policies, and reimbursement of defense expenses. The underlying injury lawsuit remained pending.

Duty to Defend

The court explained that an insurer’s duty to defend is broad and arises when the underlying allegations or facts known to the insurer create a reasonable possibility of coverage. The court considered both the underlying complaint and facts outside that complaint.

The underlying complaint itself did not establish a reasonable possibility that Empire proximately caused Budz’s injury. It did not name Empire as a defendant and generally referred to the defendants’ contractors without specifically alleging that Empire caused the accident. But the court concluded that the complaint’s lack of specific allegations against Empire was not decisive because Budz could not sue his employer for the workplace injury under the circumstances described in the opinion.

The court relied on the subcontract’s safety provisions. Empire had safety responsibilities at the worksite, including responsibility for safe access and fall protection, and could not delegate those responsibilities. Although Accredited argued that Hallen alone was responsible for constructing the stairs and platform, the court stated that an injury may have multiple proximate causes. The court found a reasonable possibility that Empire’s failure to implement its safety responsibilities contributed substantially to Budz’s injury.

Because the undisputed facts showed that Empire might have been a proximate cause of the injury, the court granted Travelers’ partial summary-judgment motion on the duty to defend. Accredited therefore owed Clune and 1221 Avenue a duty to defend.

Priority of Coverage

The court compared the policies’ “other insurance” provisions to determine which policy was primary. Travelers’ policy stated that its coverage was excess when other coverage was available to Clune as an additional insured. Accredited’s policy provided primary coverage for organizations that Empire was required by contract to add as additional insureds.

Because the subcontract required Clune and 1221 Avenue to receive primary additional-insured coverage under Empire’s insurance, the court ruled that Accredited’s policy was primary to the extent both policies covered Budz’s injuries. Travelers’ policy was excess.

Indemnification and Disposition

The court distinguished the duty to defend from indemnification. The duty to defend depends on a reasonable possibility of coverage, while indemnification depends on actual liability and actual coverage. The court found a genuine dispute over whether Empire’s conduct actually caused the accident and whether Accredited’s policy ultimately covered it. Therefore, the court did not resolve the indemnification issue on summary judgment.

The court granted Travelers’ motion for partial summary judgment. It ordered Accredited to take up Clune’s and 1221 Avenue’s trial defense and reimburse Travelers for the defense costs Travelers had incurred. The court denied Accredited’s motion for summary judgment, including its request to reject Travelers’ defense and indemnification claims and dismiss the complaint in its entirety.