Travelers Property Casualty Company of America v. Hudson Excess Insurance…

Background

Kyle Keys, an employee of RVS Construction Corp. (RVS), was injured after falling into an uncovered trench at a plumbing project site. Keys sued the project contractor, Richards Plumbing and Heating Co. (Richards), and the City of New York in New York state court. RVS was not named as a defendant, but Richards and the City brought third-party claims against RVS for contribution and indemnification.

Travelers insured Richards and defended Richards and the City in the underlying lawsuit. Hudson insured RVS under a policy that extended coverage to certain additional insureds, including organizations RVS agreed in writing to insure and the City for operations performed by RVS or on its behalf for which a government agency had issued a permit. Travelers asked Hudson to take over the defense, first on March 14, 2018, and again on January 6, 2021. Hudson refused both requests. Travelers stated that it had incurred $112,690.88 in defense costs, although the court found that figure did not establish the final amount recoverable.

Summary-judgment ruling

Travelers moved for partial summary judgment, which is a ruling that no genuine dispute of material fact requires a trial on the issues presented. The court applied New York law. Under that law, an insurer’s duty to defend is broader than its duty to indemnify and arises when the underlying allegations or facts known to the insurer create a reasonable possibility of coverage.

The court held that the boilerplate reference in the underlying complaint to subcontractors, standing alone, was too vague to establish a reasonable possibility of coverage. But the state court’s denial of RVS’s motion to dismiss the third-party claims showed that RVS might have contributed to Keys’s injury. That ruling, together with the evidence from Keys’s testimony, gave Hudson actual knowledge of a reasonable possibility of coverage when Travelers made its second tender. The court therefore held that Hudson had a duty to defend Richards from that second tender onward.

The court also held that the City qualified as an additional insured under a separate policy provision. The policy required operations performed by RVS or on its behalf for which a government agency had issued a permit; it did not require the permit to have been issued directly to RVS. Richards had received the permit and subcontracted permitted sewer-line work to RVS. The court therefore held that Hudson had a duty to defend the City as well.

Primary and excess coverage

Both Travelers and Hudson potentially covered the underlying lawsuit. The court explained that the policies’ “other insurance” provisions determine which coverage is primary and which is excess when multiple policies cover the same risk. Hudson did not address Travelers’ argument that Hudson’s coverage was primary. The court treated that silence as a concession and held that Hudson’s duty to defend Richards and the City was primary, while Travelers’ coverage was excess.

Reimbursement of defense costs

Because Hudson breached its duty to defend after the January 6, 2021 tender, the court held that Hudson must reimburse Travelers for reasonable defense costs incurred after that date. Those reimbursable costs include expenses connected with Richards’ and the City’s third-party claims against RVS because the court viewed those claims as an essential part of defending the underlying lawsuit.

The court did not determine the final amount of reimbursement. The amount submitted by Travelers included costs from before the second tender, omitted later costs, and was not supported by original invoices or comparable records. If the parties could not agree on the amount, the court said it would conduct a later proceeding to determine damages.

Disposition

The court granted Travelers’ motion for partial summary judgment. It declared that the City and Richards were additional insureds under Hudson’s policy, that Hudson was obligated to defend them in the underlying lawsuit, that Hudson’s coverage was primary, and that Travelers’ coverage was excess. The court also held that Travelers was entitled to reimbursement of defense costs incurred after the January 2021 second tender, including costs related to the third-party claims against RVS. The court denied Travelers’ letter motion for oral argument as moot.