New York Court of Appeals to Decide Potential
The United States Court of Appeals for the Second Circuit recently asked the New York Court of Appeals to decide whether a certificate of insurance issued by an insurance agent that states that a policy is in force, but also that the certificate is not evidence of coverage, and is for informational purposes only, estops the insurer from denying coverage to an additional insured under the policy.
The issue arose out of a claim by a worker, who was injured on a construction project resulting in his bringing suit against the owner, 5182 Group, LLC. (hereinafter “Owner”), and 10 Ellicott Square Court Corporation (hereinafter “Construction Manager”). 10 Ellicott Square Corporation and 5182 Group, LLC vs. Mountain Valley Indemnity Company, Ct. of Appeals, 2d Circuit, (Dec. 23, 2010).
The Owner and Construction Manager had entered into a Construction Agreement with Ellicott Maintenance, Inc. for partial demolition of the Graystone Building in Buffalo, New York, on August 14, 2003. The Construction Agreement required Ellicott Maintenance to obtain primary insurance coverage for itself as well as the Owner and Construction Manager. It also mandated that prior to the commencement of the work, certificates of insurance naming the Owner and Construction Manager as additional insureds be provided. The Construction Agreement was not signed by the parties until September 12, 2003. On August 19, 2003, Mountain Valley’s agent issued a Certificate of Insurance (“COI”) listing Ellicott Maintenance as the named insured and the Owner and Construction Manager as additional insureds. The COI contained the standard “ACORD” language advising that it was issued for information only, conferred no rights on the certificate holder and was subject to all the terms, exclusions and conditions of the policy of insurance.
Mountain Valley issued a primary policy of insurance with $1,000,000 liability limits, and an umbrella policy with $2,000,000 limits. Both the primary and excess policies provided that they insured any person or organization whom Ellicott Maintenance agreed in writing to insure. The primary policy specifically provided that the written agreement had to be “executed….prior to the ‘bodily injury.’” However, the umbrella policy did not provide that coverage was effective only if the written agreement between Ellicott Maintenance and any additional insureds was “executed” before the date of injury.
On September 9, 2003, David DelPrince, an employee of a subcontractor hired by Ellicott Maintenance, was injured on the job site. DelPrince brought suit in New York Supreme Court against the Owner and Construction Manager on October 28, 2004. They turned the suit papers over to Mountain Valley which disclaimed upon the grounds that the Construction Agreement had not been signed on behalf of the parties before DelPrince was injured, as required by the primary policy, as well as late notice for failure to timely notify Mountain Valley of DelPrince’s injury.
Plaintiffs filed a declaratory judgment action in Federal District Court for the Western District of New York, and following motions for summary judgment, the District Court held that the Construction Agreement was “executed” within the policy requirement, and further that the COI incorporated the terms of the primary and umbrella policies, and that the Company was estopped from denying coverage to Plaintiffs. The Court also rejected Mountain Valley’s late notice defense.
On appeal, the Second Circuit reversed, and held that the Construction Agreement was not “executed” for purposes of complying with the requirements of the primary policy. The Court held that “New York courts employ the standard indicated by the definition in Black’s, [Law Dictionary] requiring that a contract be either signed or fully performed before it can be considered executed.” See Burlington Insurance Company v Utica First Insurance Company, 71 A.D.3d 712 (2d Dept 2010).
The Second Circuit noted that New York’s intermediate Appellate Courts are divided on the issue of whether an insurer may be estopped from denying coverage where its agent issues a certificate of insurance relied upon by an additional insured. The Court held that under New York contract law a certificate of insurance is merely evidence of a contract for insurance, and is not conclusive proof that a contract exists. The Court cited cases from the Third and Fourth Appellate Departments holding that “a certificate of insurance can estop an insurance provider from denying coverage where the parties intended to provide coverage to the party seeking it if the certificate was issued by an agent within the scope of its authority, and if the party seeking coverage reasonably relied on the certificate of insurance by, for example, beginning the construction work.” See Niagara Mohawk Power Corp. v. Skibeck Pipeline Company, 270 A.D. 2d 867 (4th Dept 2000) and Bucon, Inc. v Pa. Mfg. Ass’n Ins. Co., 151 A.D. 2d 207 (3d Dept 1989). However, both the First and Second Departments have declined to find estoppel based on a certificate of insurance. AM. Ref-Fuel Co. of Hempstead v. RES. Recycling, Inc., 248 A.D.2d 420 (2d Dept 1998) and Nicotra Grp., LLC v Am. Safety Indemnity Co., 48 A.D.3d 253 (1st Dept 2008).
Based upon the diversity of authority among the Appellate Divisions, on this significant state law issue, the Court certified the question of the estoppel effect of a certificate of insurance to the New York Court of Appeals for its determination. A decision from the Court of Appeals is expected within the next several months.
This is a significant issue which frequently arises in the context of construction injury claims. As such, we will be following this case closely, and will keep our readers informed of developments regarding this case.
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