622 Third Avenue Company, L.L.C v. National Fire Insurance Company of Hartford

Background

622 Third Avenue Company, L.L.C. sought partial summary judgment against Harleysville Worcester Insurance Company concerning Harleysville’s duty to defend it in an underlying personal-injury action. National Fire Insurance Company of Hartford and Travelers Property Casualty Company of America joined 622 Third Avenue’s motion and sought declarations that Harleysville had to defend 622 Third Avenue with them on a co-primary basis.

Harleysville issued a commercial insurance policy to Architectural Flooring Restoration, or AFR. The policy’s additional-insured endorsement listed 622 Third Avenue and covered liability arising from AFR’s ongoing operations performed for 622 Third Avenue at “McCann Erickson @ 622 Third Avenue, NYC.” The policy also stated that Harleysville would defend an insured against a lawsuit seeking covered damages.

The underlying lawsuit alleged that Jason Vargas was injured while working on a construction and renovation project at 622 Third Avenue. It alleged that 622 Third Avenue and its contractors or subcontractors managed or controlled the work and had duties to maintain the premises safely. The allegations described a chain in which 622 Third Avenue or J.T. Magen & Company hired AFR, AFR hired JK Flooring, and Vargas worked for JK. Vargas alleged that he was injured in a stairwell because of unsafe conditions.

Harleysville initially acknowledged 622 Third Avenue’s additional-insured status and stated that it would provide coverage on an excess basis. In 2021, however, Harleysville took the position that the policy did not cover the claim because AFR was not performing operations for 622 Third Avenue and because the accident did not occur within the McCann Erickson space.

Legal standard and duty to defend

Under Federal Rule of Civil Procedure 56, summary judgment is appropriate when there is no genuine dispute about a fact that could affect the result and the moving party is entitled to judgment under the law. Applying New York law, the court explained that an insurer’s duty to defend is broader than its duty to indemnify. The duty applies whenever the allegations in the underlying complaint potentially fall within the policy’s coverage, even if those allegations are false or ultimately unsupported.

Courts generally compare the allegations in the underlying complaint with the insurance policy. An insurer may sometimes rely on evidence outside the complaint when that evidence is unrelated to the underlying case and conclusively shows that coverage is impossible. But evidence concerning disputed facts that matter to the underlying lawsuit cannot be used to defeat the duty to defend.

Analysis

The court held that the allegations in the underlying complaint triggered Harleysville’s duty to defend. The complaint alleged that AFR and its subcontractor were involved in the project, that Vargas was injured while working in connection with that project, and that 622 Third Avenue or its agents directed or managed the work. Under New York law, the policy’s “arising out of” language is interpreted broadly. The court concluded that these allegations potentially described liability arising from AFR’s ongoing operations performed for 622 Third Avenue.

The court also rejected Harleysville’s narrow interpretation of the covered location. The complaint placed the project and accident at 622 Third Avenue, and the allegations about the stairwell and its relationship to the project were, at worst, ambiguous. That ambiguity did not eliminate the duty to defend. The court explained that the accident did not necessarily have to occur inside the precise office space if the operations at the covered location had a connection to the accident and its location.

Harleysville relied on materials from the underlying litigation, including leases, contracts, work orders, invoices, discovery, and motion papers. Harleysville argued that these materials showed AFR was working for Interpublic rather than 622 Third Avenue and that Vargas was not permitted to use the stairwell. The court found that these issues were directly related to the merits of the underlying case, including the potential liability of 622 Third Avenue and the other parties. Harleysville therefore could not use that evidence to establish that it never had a duty to defend.

The court emphasized that an insurer may later seek to end a defense if undisputed facts establish that there is no possible basis for indemnity. But Harleysville could not use factual disputes being litigated in the underlying case to avoid its defense obligation from the beginning.

Priority among the insurers

Travelers and Hartford argued that Harleysville should share defense obligations with them on a co-primary basis. Their policies generally stated that their coverage was primary except when other primary insurance was available to an additional insured. Harleysville’s policy stated that its additional-insured coverage would be primary if a written contract specifically required that result; otherwise, the coverage would be excess. The policy also addressed circumstances involving other additional-insured coverage.

The court found that the record did not establish which policy had priority. Harleysville had not provided the operative contract showing whether it was required to provide primary coverage. The work order Harleysville cited did not address insurance and did not resolve the issue. Because a genuine dispute of material fact remained about whether Harleysville’s coverage was co-primary or excess, the court denied Travelers’ and Hartford’s cross-motions for summary judgment on their cross-claims against Harleysville. The court also declined to grant Harleysville relief on its cross-claims against Travelers and Hartford.

Disposition

The court granted 622 Third Avenue’s motion for partial summary judgment and found only that Harleysville owes 622 Third Avenue a duty to defend. The court denied Travelers’ and Hartford’s cross-motions for summary judgment. The opinion did not resolve whether Harleysville must share defense costs on a co-primary basis or whether its coverage is excess.