New York’s Highest Court Applies Proximate Cause Test To Additional Insured Endorsement

In The Burlington Insurance Company v. NYC Transit Authority, et al., (N.Y. June 6, 2017), the New York Court of Appeals – New York’s highest court – held that when an insurance policy states that additional insured coverage applies to 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 argument that an additional insured obligation is owed under this language when the named insured is without fault. In so holding, the Court concluded that the Appellate Division “erroneously interpreted” this policy language as extending coverage to injury only causally linked to the named insured and “wrongly concluded that an additional insured may collect for an injury caused solely by its own negligence, even where the named insured bears no legal fault for the underlying harm.” Thus, the Court of Appeals rejected the notion that “caused, in whole or in part” equates to “but for” causation. The Court also rejected the First Department’s conclusion that the phrases “arising out of” and “caused by” do not “materially differ.”

Burlington concerned coverage for an underlying matter arising out of a project in which New York City Transit Authority (“NYCTA”) contracted with Breaking Solutions, Inc. (“BSI”) to provide equipment and personnel and for BSI to perform tunnel excavation work on a New York City subway. BSI purchased CGL insurance from Burlington with an endorsement that afforded additional insured coverage to NYCTA, MTA and the City as additional insureds “. . . only with respect to liability for ‘bodily injury’ , ‘property damage’. . . caused, in whole or in part, by” 1. Your acts or omissions; or 2. The acts or omissions of those acting on your behalf.”

During the policy period, an MTA employee fell off an elevated platform as he tried to avoid an explosion after a BSI machine touched a live electrical cable that was buried in concrete at the excavation site. Suit was filed against the City and BSI asserting claims under New York’s Labor Law, as well as for general negligence and loss of consortium. Burlington assumed the defense of BSI and accepted the City’s tender under a reservation or rights. The City impleaded NYCTA and MTA, asserting claims for indemnification and contribution based on a lease of certain transit facilities. NYCTA tendered its defense to Burlington as an additional insured.

Burlington initially accepted NYCTA’s defense subject to a reservation of rights. However, discovery revealed that the BSI machine operator could not have known about the location of the cable or the fact that it was electrified and, the trial court, as a result, dismissed the plaintiff’s claims against BSI with prejudice. Thereafter, Burlington settled the underlying case, disclaimed coverage to NYCTA and MTA and commenced a subrogation and coverage action against NYCTA and MTA. The trial court granted Burlington’s motion for summary judgment, concluding that NYCTA and MTA were not additional insureds. The Appellate Division reversed, concluding that “the act of triggering the explosion . . . was a cause of [the employee’s] injury” within the meaning of the policy.”

On appeal to the Court of Appeals, NYCTA and MTA argued that “caused, in whole or in part” means “but for causation.” The Court disagreed and sided with Burlington, concluding that there was no coverage obligation because, “by its terms, the policy endorsement is limited to those injuries proximately caused by BSI [the named insured].” The Court reasoned that not all “but for” causes result in liability and “[m]ost causes can be ignored in tort litigation.” In contrast, “’proximate cause’ refers to ‘legal cause’ to which the Court has assigned liability.” The Court acknowledged that “but for BSI’s machine coming into contact with the live cable, the explosion would not have occurred and the employee would not have fallen or been injured,” but “that triggering act was not the proximate cause of the employee’s injuries.” As such, BSI was not at fault and the plaintiff’s injury was “due to NYCTA’s sole negligence in failing to identify, mark, or de-energize the cable.”

In reaching its conclusion, the Court discussed the amendment of the ISO form in 2004 to replace the “arising out of” language with “caused, in whole or in part,” noting that the change was “intended to provide coverage for an additional insured’s vicarious or contributory negligence, and to prevent coverage for the additional insured’s sole negligence.”

 

 



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