Second Department Reminds Carriers About Tenders And

Additional Insured Status

As part of our continuing commitment to provide outstanding representation and to serve as an information resource, we wish to inform you of a recent decision concerning additional insured status.

One of the continuing sources of frustration and agitation to insurance adjusters, carriers and self-insureds is tenders and additional insured status. Although it is often clear to the additional insured that they are entitled to defense and indemnification from the other carrier, the refusal of a carrier to honor its obligations to its additional insureds is common. The hope is that if the carrier stonewalls and "kicks the can" down the road, the tender issue may disappear perhaps through settlement.

A recent decision by the Second Department reminds carriers of their obligations to their additional insureds. In Mack-Cali Realty Corporation v. NGM Insurance Company, the underlying accident occurred when a UPS worker allegedly fell while climbing onto the loading dock of premises owned by Mack-Cali Corporation (“Mack-Cali”) to deliver a package to a tenant in the building, Westchester County Electric, Inc. (“WCE”). WCE had obtained a business owner’s liability insurance policy through NGM Insurance Company (“NGM”) and had named Mack-Cali as an additional insured. Mack-Cali also insured itself with Lexington Insurance Company. Thereafter, the UPS worker commenced an action against WCE and Mack-Cali. When Mack-Cali tendered its defense to NGM, NGM refused the tender and Mack-Cali commenced an action seeking a judgment declaring that NGM was obligated to defend and indemnify Mack-Cali in the underlying personal injury action. The Supreme Court granted Mack-Cali’s motion, finding that Mack-Cali was entitled to defense by NGM as an additional insured. NGM appealed to the Second Department. The Second Department affirmed.

The Second Department first noted that an insurer's duty to defend its insured is exceedingly broad and an insurer will be called upon to provide a defense whenever the allegations of a complaint suggest a reasonable possibility of coverage. If a complaint brings any facts which bring the claim even potentially within the protection purchased, the insurer is obligated to defend. The Second Department also reiterated that an additional insured is entitled to the same protection as a named insured. The Court wrote

that "the standard for determining whether an additional insured is entitled to a defense is the same as that which is used to determine if a named insured is entitled to a defense".

The Appellate Division rejected NGM’s contention that the accident did not arise out of the ownership, maintenance or use of the leased premises. The Second Department found that there was a causal relationship between the UPS worker’s injury and the risk for which coverage was provided, that is bodily injury sustained in delivering packages. The court wrote that "since the UPS worker was delivering packages to the subject premises that were intended for WCE, the accident occurred in the course of an activity necessarily incidental to the operation of the space leased".

The Second Department also rejected the notion that the loading dock was not part of the leased premises. The Court found that the use of the loading dock was incidental to the covered premises as a means of delivering packages to WCE in the operation of its business. The Second Department rejected the NGM's contention that there was no coverage because the UPS worker may have been negligent by attempting to use the loading dock to access the interior of the office or by using the stairs adjacent to the loading dock. The Second Department also reminded NGM that allegations that trigger a duty to defend also trigger an obligation to pay defense costs.

The Appellate Division wrote that "since NGM’s duty to defend under the terms of the policy is triggered by a suit against an insured, such duty arose upon the commencement of the underlying personal injury action". The Second Department thus, squarely rejected the often invoked fiction that defense costs only are payable from when a tender is made to the insurance company. The Second Department also found that the NGM policy was primary to any coverage that Mack-Cali may have procured on its own. Since the Lexington policy contained a provision which provided that the Lexington policy was excess over any other valid policy, the NGM policy did not specifically indicate that it was excess to any other policy.

The objections raised by NGM are standard fare when a carrier wants to avoid its obligation to an additional insured. Although some are truly laughable, (there is no coverage because the additional insured was negligent), the refusal to honor one's obligations will be expensive for the carrier since the carrier has now incurred 2 sets of legal expenses including a possible appeal. This case should be kept handy and provided to adjusters when dealing with stonewalling carriers.

Should you have any questions, please do not hesitate to call.

Thomas M. Bona

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