Zurich American Insurance Company v. Scottsdale Insurance Company

Background

This declaratory-judgment action concerns insurance coverage for the Lopez Action, a New York state-court lawsuit arising from Fernando Lopez’s alleged injury at a construction project. Lopez sued LM Legacy Group, LLC, 412 W 15 Lessee, L.P., and Triton Construction Company, LLC. Those entities later sued Delco Electrical Corp., Scottsdale’s named insured, seeking contribution, indemnity, and related relief.

Delco’s contract with Triton required Delco to obtain commercial general liability insurance and name certain entities as additional insureds. The contract materials included a Contractor Controlled Insurance Program, or CCIP, a project-wide insurance program. The parties disputed whether Delco was enrolled in that program when Lopez was injured.

Sentinel Insurance Company issued Delco’s underlying policy, and Scottsdale issued an excess policy that followed form to the Sentinel policy. A follows-form policy generally provides coverage for conduct covered by the underlying policy. Scottsdale’s policy also contained a wrap-up exclusion for injuries arising from operations for which Delco was covered under a consolidated or similar wrap-up insurance program.

Zurich sought declarations that LM and 412 were additional insureds, that the wrap-up exclusion did not defeat coverage, and that Scottsdale owed primary and noncontributory coverage after exhaustion of the Sentinel policy. Scottsdale sought declarations that LM and 412 were not additional insureds, that Scottsdale had no duty to indemnify them, and that coverage priority was not ripe for decision.

Rulings on Additional-Insured Status

The Court held that LM and 412 qualify as additional insureds under the Scottsdale policy. The Scottsdale policy followed form to the Sentinel policy, which provided additional-insured coverage where Delco agreed in a written contract to add a party. The Court interpreted the Delco contract and its incorporated CCIP Manual as requiring coverage for LM and 412 as project-owner entities.

The Court did not rely on the disputed Exhibit B Requirements because the CCIP Manual was sufficient. The Court rejected Scottsdale’s challenge to the contract’s authenticity, finding that Scottsdale’s objection was conclusory and that the document could properly be considered at the summary-judgment stage.

The Court did not issue a declaration concerning Triton’s additional-insured status because Scottsdale had already agreed to provide Triton coverage for the Lopez Action. The Court concluded that there was no actual controversy requiring a declaration on that issue.

Rulings on the Wrap-Up Exclusion

The Court held that Scottsdale could not rely on the wrap-up exclusion to disclaim coverage for LM and 412. The exclusion applied to operations for which “you,” defined as Delco, was covered under a wrap-up program. The Court rejected Scottsdale’s argument that the exclusion applied even if Delco itself was not enrolled in the CCIP.

The Court also held that Scottsdale had not met its burden to prove that the exclusion applied. Under New York law, an insurer must establish clearly and unmistakably that an exclusion defeats coverage, and exclusions are strictly and narrowly construed. Zurich presented evidence supporting its position that Delco was not enrolled in the CCIP, while Scottsdale did not show otherwise. Because the Court resolved the issue on the policy language and burden of proof, it did not decide whether estoppel would also prevent Scottsdale from relying on the exclusion.

Coverage Priority and Other Issues

The Court did not decide whether Scottsdale’s policy had priority over Zurich’s policy. Although the parties agreed that the Sentinel policy was primary to both, the record did not show a practical likelihood that the Sentinel policy’s limits would be exhausted. The record also lacked information about amounts paid in the Lopez Action and possible defenses to liability. In addition, Zurich did not address whether the Scottsdale policy’s exception depended on proximate cause.

The Court therefore denied summary judgment concerning coverage priority without prejudice. The Court also found no actual controversy concerning attorney fees and costs, because Zurich had not sought reimbursement of those fees in this action.

Disposition

The Court denied Scottsdale’s motion for summary judgment. It granted in part and denied in part Zurich’s motion for summary judgment. The Court entered judgment declaring that LM Legacy Group, LLC, and 412 W 15 Lessee, L.P., qualify as additional insureds under the Scottsdale policy and that Scottsdale may not rely on the wrap-up exclusion to disclaim coverage for them. The parties were ordered to meet and confer about settlement and submit a joint status letter.