Yangtze Realty, LLC v. Sirius America Insurance Co.
The plain meaning of the exclusionary clause invoked by the defendant bars coverage for, inter alia, property damage arising out of work performed on behalf of the insured by a subcontractor where no prior written agreement exists indemnifying and holding harmless the insured in the event of a loss (see Wilson v Sirius Am. Ins. Co., 44 AD3d 754). The defendant submitted evidence showing that the property damage in the underlying action was caused by the work of a subcontractor hired by the insured plaintiffs, and that the insured plaintiffs' written agreement with this subcontractor did not contain the required indemnity and hold harmless language. Accordingly, the defendant established, prima facie, that it was not obligated to defend and indemnify the plaintiffs in the underlying action (see Global Constr. Co., LLC v Essex Ins. Co., 52 AD3d at 656).
Some insurance carriers have attached so-called "contractor's conditions" endorsements to Commercial General Liability policies covering contractors. A typical such endorsement will condition coverage on the named insured contractor obtaining hold harmless agreements and/or additional insured status from its subcontractors. If the named insured fails to obtain these things, the endorsement reduces or eliminates coverage for ensuing losses.
For those who may be inclined to think that the courts would never enforce such an endorsement, read this December 13, 2011 opinion from the New York Supreme Court Appellate Division, Second Department. The appellate justices dispatched the named insured's claim in four short paragraphs.
The lesson: Be aware of what's in the CGL policies your contractor clients are buying. Make sure your clients are aware. Document that your clients are aware. Look for better options in the market, including the excess line market, if need be.
No one wants to be surprised this way at claim time.
If only the contractors would listen to us... This presents a new question I have for you. Let's say the property owner obtains all additional insured and Hold Harmless & O.C.P. from the G.C. and in the contract with the G.C. it states it is the G.C.'s responsibility to obtain all COI's and Hold Harmless agreements from subs and subs-subs naming the G.C. And the property owner as A.I. and on the HH Agrements, and the G.C. fails to do so. Where does that leave the property owner as far as coverage? Will the G.C's insurance carrier defend the property owner? I ask this with regards to any type of claim but specifically regarding labor law issues?
Posted by: Mike Brothers | January 23, 2012 at 02:22 PM
Without a doubt, the courts in New York are enforcing a variety of endorsements similar to the "contractor's conditions" endorsements. Those include endorsements that elimimate the "insured contract" exception to the contractual liability exclusion and/or remove coverage for injuries to subcontractors' employees. These "Swiss Cheese" policies may lead to substantive tort reform when our legislative leaders realize that carriers cannot afford to accept the risk of Labor Law lawsuits. We shall see.
Posted by: Dan D. Kohane | January 23, 2012 at 04:01 PM
@Mike -- Without a specimen copy of a contractor's condition endorsement to look at, I can only speculate. However, I believe that the G.C.'s CGL policy will not cover or defend the property owner as an additional insured in this situation. If the exclusion in the endorsement is worded in a way that's similar to the CGL policy, the exclusion probably says something like, "This insurance does not apply to..." This is a broad statement that the insurance doesn't apply at all to any insured, rather than eliminating it for the named insured only.
@Dan -- Maybe someday. They haven't been too receptive to that line of reasoning in the past. In the mean time, of course, it is the contractor who pays the price for this in the form of uninsured lawsuits that will likely drive him out of business.
Posted by: Tim Dodge | January 24, 2012 at 10:39 AM