U.S. Specialty Insurance Company v. Massachusetts Bay Insurance Company

Background

A worker, Russel James, was injured while unloading doors at a construction project. He later sued several project participants in New York state court, alleging negligence and violations of the New York Labor Law. The defendants included the project owner, the general contractor, the hardware supplier, and the trucking company. The hardware supplier also brought the door manufacturer into that lawsuit as a third-party defendant.

U.S. Specialty insured the general contractor and the owner under a general liability policy. Massachusetts Bay insured the hardware supplier and listed the general contractor and owner as additional insureds. The hardware supplier’s contract with the general contractor required it to obtain insurance for the owner and general contractor on a primary and non-contributory basis. U.S. Specialty defended the owner and general contractor after Massachusetts Bay rejected an initial request to take over the defense and later failed to respond to a renewed request.

U.S. Specialty sued Massachusetts Bay and Hanover and moved for partial summary judgment against Massachusetts Bay. Summary judgment is a ruling without a trial when the relevant facts are not genuinely disputed and the moving party is entitled to judgment under the law. The motion asked the court to decide whether Massachusetts Bay had a duty to defend and, if so, how the defense costs should be allocated.

Duty to Defend

Applying New York law, the court explained that an insurer’s duty to defend is broader than its duty to pay a covered loss. The duty arises when the allegations in the underlying lawsuit create a reasonable possibility that the policy covers the claim. The court therefore examined the allegations in the state-court complaint, the bill of particulars, and the third-party complaint.

Massachusetts Bay’s policy covered suits seeking damages for bodily injury caused by an accident in the United States. Its additional-insured endorsements covered injuries caused, in whole or in part, by acts or omissions of the hardware supplier or people acting on the supplier’s behalf.

Massachusetts Bay argued that the policy did not apply because the hardware supplier itself had not proximately caused James’s injury. The court rejected that argument. It held that the policy language also covered acts or omissions by people acting for the hardware supplier. The state-court pleadings alleged that delivery personnel and other subcontractors had negligently handled the door delivery, failed to train or screen personnel, and failed to provide adequate protection. The court held that these allegations created a reasonable possibility that the trucking company or door manufacturer had caused the injury while acting on the hardware supplier’s behalf.

The court also rejected Massachusetts Bay’s reliance on the policy’s exclusion for injuries arising from the ownership, maintenance, use, or entrustment of an automobile owned, operated, rented, or loaned to an insured. Although James was injured while unloading doors from a truck, Massachusetts Bay did not identify pleadings showing that the truck was owned or operated by an insured under its policy. The pleadings instead suggested that the trucking company owned and operated the truck, and the trucking company was not an insured under the Massachusetts Bay policy.

Priority and Allocation of Defense Costs

The parties disagreed about whether Massachusetts Bay’s coverage was primary or excess compared with U.S. Specialty’s coverage. That question would determine how the insurers should share defense costs. The Massachusetts Bay policy contained several provisions addressing other insurance, including provisions that could make its coverage primary or excess and provisions concerning automobile-related losses.

Judge Engelmayer found that the parties’ briefing had not adequately analyzed how those provisions fit together. The court identified unresolved questions about whether the policy language was clear or ambiguous, what effect the hardware supplier’s contract should have, whether the policies covered the same risk and provided the same level of coverage, and whether the policy’s automobile-related priority provision applied.

Because the record and briefing did not reliably resolve the priority question, neither side had shown entitlement to judgment as a matter of law on that issue. The court denied summary judgment on priority without prejudice to a further motion limited to that question.

Disposition

Judge Paul A. Engelmayer granted in part U.S. Specialty’s motion for partial summary judgment to the extent it sought a declaration that Massachusetts Bay was obliged to defend in the state-court action. He denied without prejudice the motion to the extent it sought a declaration concerning the priority of the U.S. Specialty and Massachusetts Bay policies. The court directed counsel to meet and discuss resolving the case and to propose a schedule for renewed summary-judgment briefing if necessary.