The Phoenix Insurance Company v. Hudson Excess Insurance Company

Background

Estée Lauder hired Nucor for a renovation at a Bumble and Bumble salon. Nucor hired Anfield Interiors, Inc. as a subcontractor to perform work including drywall and ceiling installation. Juan Fernandez, an employee of Manhattan Fine Cleaners, allegedly was injured on September 11, 2017, when a temporarily suspended ceiling collapsed onto him. Fernandez later sued parties involved in the renovation in New York state court. The action eventually included Nucor and Estée Lauder and was consolidated with related claims.

Nucor’s agreement with Estée Lauder required Nucor to maintain insurance covering bodily-injury claims arising from Nucor’s or its subcontractors’ work and to add Estée Lauder as an additional insured. Nucor’s contract with Anfield likewise required insurance covering Nucor and the “Owner” as additional insureds, with that coverage primary and non-contributory. Phoenix insured Nucor, while Hudson insured Anfield under a primary commercial general-liability policy. Phoenix also had an excess-insurance provision stating that its coverage would be excess when other coverage was available to an additional insured.

Phoenix repeatedly asked Hudson to defend and indemnify Nucor and Estée Lauder. Hudson ultimately agreed to defend Nucor under its primary policy but did not accept Phoenix’s tender under Hudson’s excess policy, and it denied or did not respond to later tenders involving Estée Lauder. Phoenix then sued Hudson and moved for partial summary judgment.

Issues and legal standard

The motion asked whether Hudson had a duty to defend Nucor and Estée Lauder in the underlying action, whether Hudson’s coverage was primary to Phoenix’s, and whether Phoenix had waived its right to seek defense costs. The court applied New York law. Under New York’s broad duty-to-defend rule, an insurer must defend when the underlying pleadings or facts known to the insurer create a reasonable possibility of coverage. The duty to defend is separate from the duty to indemnify, meaning an insurer may have to provide a defense even if it ultimately does not have to pay the underlying judgment or settlement.

Nucor’s coverage

The court found that Nucor was an additional insured under Hudson’s primary policy. Anfield’s contract with Nucor expressly required coverage for Nucor as an additional insured, and Hudson’s policy extended coverage for liability caused in whole or in part by Anfield or people acting on Anfield’s behalf.

Hudson argued that the underlying plaintiff had not sued Anfield directly and therefore had not alleged facts creating a reasonable possibility that Anfield caused the accident. The court rejected that argument. It considered the underlying complaint, third-party complaints, and facts known to Hudson. Nucor’s third-party complaint alleged that Anfield’s wrongful conduct, negligence, carelessness, or breach of contract caused the accident. Another third-party complaint alleged that Anfield was performing construction work at the site when the accident occurred and that the injuries arose from Anfield’s work. The underlying complaint also alleged negligence by Nucor and its agents or servants, while the contracts showed that Anfield was performing ceiling work for Nucor. These allegations and facts created a reasonable possibility that Anfield proximately caused the injury. The court therefore held that Hudson had a duty to defend Nucor.

Estée Lauder’s coverage

The court also held that Estée Lauder was an additional insured under Hudson’s primary policy. The Anfield-Nucor contract required coverage for the “Owner,” but did not name Estée Lauder directly. The court examined the contract together with the incorporated purchase order and the Estée Lauder-Nucor agreement. That agreement defined “Owner” as The Estée Lauder Companies, Inc. The court concluded that the contracts unambiguously used “Owner” to refer to Estée Lauder. It also held that, even if the term were ambiguous, the available contract evidence resolved the issue in Estée Lauder’s favor because the renovation agreement and payment provisions made sense only if “Owner” referred to Estée Lauder.

The court rejected Hudson’s argument that Phoenix lacked standing to seek a coverage declaration for Estée Lauder. Estée Lauder had already been named as a defendant in the underlying action, Phoenix had offered to defend it, the underlying litigation was ongoing, and Hudson had refused or failed to respond to Phoenix’s tenders. These circumstances created a sufficiently immediate dispute. Because the underlying allegations and facts known to Hudson created a reasonable possibility of coverage based on Anfield’s role, the court held that Hudson had a duty to defend Estée Lauder as well.

Priority of coverage

The court ruled that Hudson’s coverage was primary and Phoenix’s coverage was excess. Hudson’s policy stated that its coverage was primary, and its endorsement required primary and non-contributory coverage when a written contract required it. The Anfield-Nucor contract imposed that requirement for Nucor and Estée Lauder. Phoenix’s policy, by contrast, stated that its coverage was excess whenever other insurance was available to an additional insured. Accordingly, Hudson’s obligations under its primary policy came before Phoenix’s obligations under the Phoenix policy.

Waiver

Hudson argued that Phoenix had waived any right to recover defense costs incurred after December 2, 2019, when Phoenix rejected Hudson’s offer to defend Nucor under the Hudson primary policy alone. The court rejected that defense. It found no clear, deliberate, and intentional relinquishment of Phoenix’s rights because Phoenix continued seeking coverage, immediately asked Hudson to reconsider, later retendered the defense, and ultimately brought this lawsuit. The court therefore found that Phoenix had not waived its position that Hudson had a duty to defend.

Disposition and limits of the ruling

The court granted Phoenix’s motion for partial summary judgment. It held that Hudson had a duty to defend Nucor and Estée Lauder under the Hudson primary policy, that Hudson’s coverage was primary to Phoenix’s, and that Phoenix had not waived its rights. The court expressly did not decide who caused Fernandez’s injury, whether either insurer ultimately had a duty to indemnify him, or the amount and reasonableness of defense costs. A status conference was set for August 16, 2023, and the clerk was directed to close Docket Number 43.