The Insurance Company of the State of Pennslyvania v. Freeman Decorating Company

Background

The Insurance Company of the State of Pennsylvania brought a breach-of-contract action against Freeman Decorating Company and Freeman Decorating Services, Inc. The dispute arose from earlier New York state-court personal-injury lawsuits involving William McCann, a Freeman employee who was injured while setting up for a trade show at a Hilton hotel. The underlying lawsuits were consolidated and asserted negligence claims against several defendants, including Hilton-related entities.

Hilton later brought claims against Freeman for contribution and breach of contract. Freeman obtained dismissal of Hilton’s claim concerning the failure to provide additional-insured coverage by arguing that Freeman had procured insurance covering Hilton. The plaintiff subsequently agreed to provide Hilton with a defense and indemnity in the underlying lawsuits. Those lawsuits settled for $2.05 million. The plaintiff paid $1.2 million toward the settlement on Hilton’s behalf and spent more than $1.4 million in total, including costs. The plaintiff sent invoices seeking reimbursement, but the defendants did not reimburse it.

Contracts and Coverage

The plaintiff issued Freeman a commercial general liability policy for the period from April 1, 2010, through April 1, 2011. The policy had a $3 million payout limit and required reimbursement for certain amounts the plaintiff paid, including payments made in good faith on behalf of an insured and litigation-related costs and expenses.

Freeman’s vendor agreement with Hilton required Freeman to obtain general-liability insurance with a $1 million per-occurrence limit and to name the agreement’s defined “Indemnitees” as additional insureds. The agreement’s indemnification provision included Hilton-related entities and required Freeman to indemnify the listed parties for claims connected to the agreement, Freeman’s services, or related acts or omissions, except for the negligence or willful misconduct of the indemnified parties or others.

Court’s Analysis

The court first applied judicial estoppel and collateral estoppel, doctrines that can prevent a party from taking a position inconsistent with one it previously asserted successfully or from relitigating an issue already decided. The court held that the defendants were barred from arguing that Hilton was never an additional insured because they had previously obtained dismissal of Hilton’s contract claim by arguing that they had procured coverage for Hilton.

The court then interpreted the policy and vendor agreement. It concluded that, read together, the provisions had one reasonable meaning: the defendants had to reimburse the plaintiff for money it spent defending Hilton as an additional insured.

The defendants argued that Hilton should not have received additional-insured coverage because the accident might have resulted from Hilton’s negligence rather than from Freeman’s operations. The court rejected that interpretation as unreasonable. The policy covered liability connected with the defendants’ acts or omissions or with operations carried out on their behalf. The parties agreed that McCann was operating the pallet jack as part of his work for Freeman when he was injured.

Applying New York law, the court explained that “arising out of” does not require proof that the insured’s conduct was the accident’s proximate cause or that the insured had greater comparative fault. It requires only a causal connection between the injury and the covered risk. Because McCann’s accident occurred while he was performing Freeman’s work, the court held that the accident arose out of Freeman’s operations despite the possibility of negligence by Hilton or another party. Hilton therefore qualified for coverage under both additional-insured provisions.

Disposition

The court granted the plaintiff’s motion for summary judgment. The opinion does not separately state the amount of the judgment or identify a further damages calculation.