Western Waterproofing Company, Inc. v. Zurich American Insurance Company

Background

Western Waterproofing Company, Inc., doing business as Western Specialty Contractors, was a subcontractor on the Gotham Plaza construction project. On June 25, 2018, a Jekko mini crane tipped while Western employees were lifting a façade panel. Two Western employees were seriously injured, and the accident damaged the project and surrounding property. Work stopped, the New York Department of Buildings issued violations, and Western was terminated as a subcontractor.

Western brought this insurance-coverage action against several insurers. The motion addressed American Zurich Insurance Company’s workers’ compensation and employers’ liability policy. Western sought a declaration that American Zurich had a duty to defend it in an underlying lawsuit brought by BDG Gotham Residential, LLC and ZDG, LLC. That lawsuit sought project-related costs, including cost overruns, delays, repairs, penalties, investigation expenses, insurance deductibles, and related amounts. The underlying plaintiffs did not seek damages for the injuries to Western’s employees or reimbursement for payments made to those employees.

The parties filed cross-motions for summary judgment, which is a ruling without a trial when there is no genuine dispute over a fact that could affect the result and one side is entitled to judgment under the law. American Zurich argued that winning on the duty-to-defend issue also resolved coverage. Western sought partial summary judgment on its position that American Zurich had a duty to defend.

Policy and governing law

The policy stated that the employers’ liability insurance applied to bodily injury by accident or disease arising out of and occurring during an employee’s work. It also stated that American Zurich would pay sums Western legally had to pay as damages because of bodily injury to Western’s employees, when that injury was covered by the policy. The policy required American Zurich to defend claims against Western for damages payable under the insurance, but stated that it had no duty to defend claims not covered by the policy.

Applying New York law, the court examined the allegations in the underlying complaint and compared them with the policy. Under New York law, an insurer generally must defend when the underlying complaint alleges facts that potentially fall within the policy. But there is no duty to defend when the allegations plainly do not fit the policy and there is no possible factual or legal basis for coverage.

Court’s analysis

The court concluded that the policy was an employers’ liability policy, not general liability insurance. In the court’s explanation, employers’ liability insurance supplements workers’ compensation coverage and addresses an employer’s liability for an employee’s death, disablement, or injury. It does not cover every economic loss that follows an accident involving an employee.

Although the underlying complaint described the two employees’ injuries, the damages sought by BDG Gotham Residential and ZDG were for project-related economic losses. The court found that those losses would have existed even if the crane accident had caused no employee injuries. The underlying plaintiffs did not seek compensation for the employees’ injuries, payments to the employees or their family members, or other damages of the type covered by the policy.

The court rejected Western’s argument that the phrase “because of bodily injury” created coverage merely because an injury appeared somewhere in the chain of events. It held that the phrase required a stronger connection between the claimed damages and the employees’ covered bodily injuries. The court also rejected Western’s reliance on an earlier related proceeding because that proceeding involved a different policy issued by a different insurer and did not decide the scope of American Zurich’s employers’ liability policy.

Because the court found no duty to defend, it also ruled that American Zurich had no duty to indemnify Western for the damages sought. Indemnification means paying covered losses for which the insured is legally responsible.

Disposition

The court granted the defendants’ motion for summary judgment and denied Western’s partial motion for summary judgment. Specifically, American Zurich’s motion for summary judgment dismissing the claims against it was granted, and Western’s motion was denied. The court stated that the prior decision and its ruling appeared to have disposed of all claims, but gave the parties five business days to report if that was incorrect before directing the clerk to enter judgment dismissing the case and closing the file.