Southwest Marine and General Insurance Co. v. United Specialty Insurance Co.: A Lesson in the General Limitations of Supplemental Insurance Provisions | Carlton Fields

in Southwest Marine and General Insurance Co. v. United Specialty Insurance Co .The U.S. District Court for the Southern District of New York recently highlighted the limitations of endorsing a general policy extending commercial general liability insurance to additional insureds.

Hanjo Contractors Inc. subcontracted Manhattan Steel Design to perform work on a building in New York. In February 2016, Manhattan Steel employee Oscar Perez was struck and injured by a falling object at the project site. Perez later filed a lawsuit against Hanjo and other defendants.

United Specialty Insurance Co. issued a commercial general liability policy to Manhattan Steel, which is not named as a defendant in the suit. The policy names Hanjo as an additional insured, but only with respect to liability for personal injury “caused, in whole or in part, by” the acts or omissions of Manhattan Steel, or the acts or omissions of those acting on behalf of Manhattan Steel in the performance of ongoing operations for the alleged additional insured. The policy also contains a “claim against exclusion,” which bars coverage for “bodily injury” to a Manhattan Steel employee arising out of and in the course of his or her employment, and an “independent contractor exclusion,” which excludes coverage for bodily injury to independent contractors.

Hanjo filed suit with United Specialty on October 4, 2016, and again on October 20, 2016, seeking coverage as an additional insured under Manhattan Steel’s CGL policy. United Specialty denied coverage on November 10, 2016, relying on limitations in the supplemental insurance endorsement and the action against and/or exclusion of the independent contractor. After the disclaimer, Hanjo and Southwest Marine and General Insurance Co., which provided Hanjo’s defense in the lawsuit, filed a declaratory action against United Specialty. Southwest and Hanjo sought a declaration in part that United Specialty had a duty to defend and indemnify Hanjo in the lawsuit as an additional insured under the Manhattan Steel CGL policy. Plaintiffs also contend that United Specialty waived its right to rely on the claims and independent contractor exclusion by waiting too long to disclaim coverage under New York Insurance Law Section 3420.

On motions for summary judgment, the plaintiffs argued that the allegations in the lawsuit create a reasonable probability that Perez’s injuries were proximately caused by Manhattan Steel’s acts and omissions, citing allegations that Perez was injured “while performing his duties” for Manhattan Steel . The court rejected this argument. The court recognized that in a 2019 decision All State Interior Demolition Inc. v. Scottsdale Insurance Co.state court of appeals held that coverage under such supplemental endorsement was triggered—even though there were no negligence claims asserted against the named insured—because: (1) the named insured’s actions were implicated by allegations in the complaint; and (2) a third-party complaint has been filed against said insured specifically alleging negligence. Plaintiffs contend that The whole country triggered coverage for Hanjo under a United Specialty policy issued to Manhattan Steel, but the court disagreed. The court found that the underlying complaint did not allege that Manhattan Steel created or controlled the conditions that led to Perez’s injury. Instead, the court noted that Hanjo and the other named defendants were the ones who controlled the job site, and that the complaint did not even mention Manhattan Steel other than stating that it was Perez’s employer. The court held that the actions of the named insured were not sufficiently involved for purposes of triggering the relevant additional insured language simply because the accident occurred on the job site.

As a result of its conclusion regarding the additional insured endorsement, the court found that it was not necessary to decide whether United Specialty’s disclaimer was timely under section 3420(d)(2). The court reasoned that section 3420(d)(2) does not require a timely disclaimer where liability is not assumed by an insured or additional insured.

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