Julian D. Ehrlich (Handout)
On June 6, 2017, the Court of Appeals decided Burlington Ins. v. NYC Transit Auth., which will have a major impact on those purchasing and issuing liability insurance. The court in Burlington interprets coverage in commonly found additional insured (AI) endorsements.
To lay a foundation for the context of this decision, it is helpful to briefly review the recent history of additional insured Commercial General Liability (CGL) policy forms widely used in the real estate, hospitality and construction industries.
In 2004, the Insurance Services Office (ISO) changed the trigger language in many of its AI forms from “arising out of work” to “caused by acts or omissions” of the named insured. More completely quoted, these endorsements provide additional insured coverage “… only with respect to ‘bodily injury’ or ‘property and advertising injury’ caused in whole, or in part, by 1. Your [the named insured's] acts or omissions.”
This wording continues to be found in the current 04 13 version of many of the most commonly used ISO additional insured endorsements including the 20 38, 20 33, 20 24 and 20 26. In addition, many insurers write customized or manuscript AI endorsements using the same language.
In Burlington, a divided Court of Appeals held that where the upstream party seeking additional insured coverage, often referred to by courts as the presumptive additional insured, is solely negligent, coverage will not be triggered.
The nature of causation, so frequently challenging,1 was at the heart of the dispute.
Pursuant to the reasoning of the court, the “caused by acts or omissions” AI trigger wording requires a “proximate cause” not a “ but for” nexus between the named insured and the loss. The court refers to ISO’s expressed intent that the 2004 changes exclude AI coverage where the upstream party is solely negligent and surveys other states’ similar interpretations to support its finding.
In Burlington, a NYC Transit Authority (NYCTA) worker was injured while trying to avoid an explosion caused when a contractors’ machine touched a live electrical cable at a subway tunnel excavation project. The upstream presumptive additional insured NYCTA sought coverage from Burlington, the CGL insurer for the owner of the machine, Breaking Solutions, pursuant to insurance contract requirements.
However, according to the court because the worker’s injury was entirely the fault of the NYCTA for failing to identify, mark or de-energize the cable, the loss could not be said to be caused by the acts or omissions of the named insured contractor. Thus, the NYCTA was not entitled to additional insured coverage.
This decision restricts AI coverage and says so explicitly.
However, even under Burlington where the presumptive additional insured is up to 99 percent negligent, it can presumably still be insured for its own negligence.
In addition, this decision is likely to slow risk transfer since causation is often hotly contested. Where causation is disputed and the AI endorsement has this trigger wording, coverage may be dependent on an adjudication of fault which could take years to decide and raises other issues.
For example, verdict sheets typically require the jury to decide whether the defendant’s negligence was a (not the) proximate cause of the injury or damage. Proximate cause is defined in NY Pattern Jury Instructions (PJI) 2:70, which states: “An act or omission is regarded a cause of an injury if it was a substantial factor (emphasis added) in bringing about the injury … . There may be more than one cause of an injury but to be substantial, it cannot be slight or trivial.”
Often this explanation exacerbates juror confusion in tort cases and now we can expect more appeals on proximate cause in coverage contexts.
Also, frequently, as in Burlington, the named insured is not a party to the underlying civil suit so insurers may have to either intervene requesting special interrogatory questions to the jury or affirmatively bring declaratory judgment coverage actions to determine the apportionment of fault and causal nexus between parties and non-parties. Accordingly, we can expect more, not less, coverage litigation.
In addition, in recent years, there has been a national trend to amend anti-indemnity statutes to restrict additional insured coverage.2 Although that trend has not made it past the bill stage in New York, practitioners with clients doing business in multiple states should take notice. Those amendments essentially void insurance procurement provisions that require additional insured coverage broader in scope than that permitted by contractual indemnity.
ISO responded to this trend by adding “to the fullest extent permitted by law” to AI endorsements, but courts that follow the Burlington interpretation may also have to accord AI endorsements with local anti-indemnity statutes.
Moreover, parties and their representatives will need to take special care when crafting insurance procurement requirements to ensure the intended risk transfer is accurately phrased and to avoid breach of contract to purchase insurance situations.
Burlington overturns years of established law in the First Department. Prior precedent, as reviewed in the decision, had held that “arising out of” and “caused by acts or omissions” triggers were to be given the same effect. Moreover, where the named insured’s employee was injured, the employment relationship alone was sufficient to trigger AI. Additional insured coverage is more complicated and protracted now.
The dissent accuses the majority of reading a negligence component and a proximate requirement into the endorsement when none was written but easily could have been. The exacerbation of the dissent is perhaps best expressed in the following sentence: “The majority’s approach could threaten the stability and sureness of our bedrock rules of insurance policy interpretation.”
Surely more precise ISO wording could have avoided much of the disagreement. Perhaps ISO will clarify its language when it next changes its forms. Until then, we all must take the plunge with this bit of new guidance and watch out for the sharp rocks upstream and downstream in risk transfer. Coverage lawyers will have more work than ever.
1. Julian D. Ehrlich, “Consistency on Sole Proximate Cause Falls Flat,” NYLJ, Sept. 14 ,2015.
2. Julian D. Ehrlich, “The Looming Death of Additional Insured Status,” NYLJ Sept. 25, 2012.