New York Court of Appeals Narrows Trigger for Additional Insured Coverage

New York's highest court recently issued a significant decision on the issue of when additional insured coverage is triggered under a commonly used commercial general liability policy endorsement. Burlington Insurance Co. v. NYC Transit Authority, ___ N.Y.3d ___, 2017 NY Slip Op 04384 (June 6, 2017).

As we previously reported in the Burlington case, a NYCTA employee fell off an elevated platform as he tried to avoid an explosion after a machine operated by Burlington's named insured, BSI, touched a live electrical cable buried in concrete at the excavation site. In the underlying personal injury action, it was determined that the BSI machine operator had no way of knowing that the cable was buried in concrete and that the accident was caused by NYCTA's failure to identify, mark or protect the electric cable (i.e., NYCTA was solely negligent for the accident).

The Burlington policy included an endorsement for additional insured coverage for the NYCTA "only with respect to liability for bodily injury . . . caused, in whole or in part, by your [the named insured's] acts or omissions [or] the acts or omissions of those acting on your behalf in the performance of your ongoing operations for the additional insured."

The New York State Appellate Division, First Department held the loss was caused by an "act" of the named insured since BSI was operating a machine that set off an explosion, even though BSI was not at fault for the accident. Accordingly, the Appellate Division found that the NYCTA was entitled to liability coverage for the loss as an additional insured under the Burlington policy, since the loss would not have occurred "but for" the use of BSI's machine.

The Court of Appeals granted leave to appeal and, in a 4-2 decision, reversed and granted summary judgment in favor of Burlington, holding that "where an insurance policy is restricted to liability for any bodily injury 'caused, in whole or in part' by the 'acts or omissions' of the named insured, the coverage applies to injury proximately caused by the named insured." The Court rejected the Appellate Division's view that "but for" causation was sufficient to trigger coverage, since the endorsement requires that the injury be "caused, in whole or in part" by the named insured, and "but for" causation cannot be partial. The Court also rejected the NYCTA's argument that "in whole or in part" was intended to provide additional insured coverage even if the loss was not "solely caused by" the named insured, concluding that the phrases "caused, in whole or in part, by" and "solely caused by" are not synonymous, either by their plain meaning or legal effect.

Two aspects of the decision are noteworthy for future considerations. First, and significantly, in Burlington Ins. Co., the Court of Appeals was deciding only whether the insurer had an obligation to indemnify NYCTA as an additional insured; while the underlying action was pending, the insurer acknowledged its "broad duty to defend" and provided NYCTA with a defense subject to a reservation of rights pending a final determination of the named insured's negligence. The Court of Appeals' decision did not address the insurer's defense obligation. Second, the injured party in the Burlington Ins. Co. was not an employee of the named insured, but rather, an employee of the alleged additional insured. It remains to be seen whether additional insured coverage could be similarly limited under this endorsement where the named insured's own employee is injured.

Nevertheless, the Burlington Ins. Co. decision marks a significant development in the law as to a policy endorsement that is often used for risk transfer purposes in construction projects, where project owners seek additional insured coverage under policies issued to general contractors, and general contractors seek additional insured coverage under policies issued to the many subcontractors who actually perform the work. This decision should put New York project owners and general contractors (and their insurers) on notice that their protections as additional insureds may be constricted where the accident is not proximately caused by the named insured's acts.