City of New York v. Harleysville Insurance Company

Background

The City of New York sued Harleysville Insurance Company over Harleysville’s alleged duty to defend the City in an underlying personal-injury action. The parties filed cross-motions for summary judgment on the third and fourth causes of action in the amended complaint. The first and second causes of action concerned a separate underlying tort action that had settled, and the City anticipated dismissing its related claims.

In 2018, Prestige Pavers of NYC Inc. entered into a contract with the City, acting through the New York City Department of Parks and Recreation, to reconstruct an entrance path at Poor Richard’s Playground. Prestige was a named insured under Harleysville’s commercial general-liability policy for June 1, 2019, through June 1, 2020. The policy required Harleysville to defend an insured against a suit seeking damages for covered bodily injury or property damage. Endorsements also identified the City as an additional insured for liability caused, in whole or in part, by the named insured’s acts or omissions.

The underlying Calderon Action alleged that, on October 18, 2019, a gate at Poor Richard’s Playground fell on M.M., a minor child, causing serious and permanent injuries. The complaint named the City and certain City agencies, but not Prestige. It alleged that the City and its agents were negligent in the ownership, operation, management, maintenance, design, or control of the gate and playground. The Calderon Action remained pending, and no liability determination had been made.

The City notified Harleysville of the Calderon Action and demanded a defense on April 8, 2022. Harleysville refused, stating that the City had not shown a contractual obligation to defend the City for its own independent negligence, that the matter had not been adjudicated, and that the complaint did not directly allege wrongdoing by Prestige. Harleysville later reiterated that there was no evidence Prestige caused the incident and that the City therefore did not qualify for additional-insured coverage.

Legal standard and analysis

Summary judgment is appropriate when no genuine dispute of material fact exists and the moving party is entitled to judgment as a matter of law. The court applied New York law concerning an insurer’s duty to defend. That duty is broader than the duty to indemnify, meaning the insurer’s obligation to pay damages. An insurer must defend when the allegations in the underlying complaint suggest a reasonable possibility of coverage. The insured need not prove that coverage or liability ultimately exists at the defense stage.

The court rejected Harleysville’s argument that the City had to establish that Prestige actually caused the injury before Harleysville’s duty to defend arose. The Calderon Complaint alleged that the City and its agents were responsible for maintaining and controlling the gate. The court found a reasonable possibility that Prestige was acting as the City’s agent and that Prestige’s negligence caused the gate to fall. The court also found a reasonable possibility that Prestige was still performing ongoing operations when the incident occurred, based on the timing of the inspection and punch-list documents. Any ambiguity about coverage had to be resolved in favor of the insured.

The court explained that the absence of a liability finding in the Calderon Action did not eliminate the duty to defend. It also held that the fact that Prestige was not named as a defendant in the underlying action did not defeat the City’s additional-insured coverage. The court distinguished cases concerning the duty to indemnify, which requires the insurer to pay covered losses, because those cases did not control the broader duty to defend.

Ruling and further proceedings

The court denied Harleysville’s motion for summary judgment and granted the City’s motion for summary judgment. It ruled that the City was entitled to a defense in the Calderon Action as an additional insured, at least until the incident is later proven to fall outside the policy’s coverage.

The court also agreed that the City was entitled to attorney’s fees and costs incurred in defending the Calderon Action, beginning when the City first tendered the claim to Harleysville on April 8, 2022, and continuing until Harleysville assumes the defense. The court deferred determining the amount because the City had not submitted supporting time records. It directed the parties to submit a proposed briefing schedule for determining the fees and costs.