Chapter Twenty-Five

• Jurisdiction: New York

Chapter Twenty-five

General Liability Coverage for Bodily Injury and Property Damage

Carl J. Pernicone, Esq. Judith Zuckerman Frantz, Esq.

I. Introduction

General liability insurance indemnifies the insured against loss resulting from legal liability for damages for “bodily injury” or “property damage” caused by an “occurrence” arising out of specified hazards. These policies provide the insured, usually a business, with coverage for the type of risks inherent in managing commercial operations. While the specific risks vary widely with the business or activity of each individual insured, there are standard policy forms containing language common to virtually all liability policies. The most common type of general liability insurance for businesses is commercial general liability (CGL) insurance. In the 1940s, insurance industry organizations, including the Insurance Rating Board and the National Bureau of Casualty Underwriters, and later the Insurance Services Office (ISO), worked together to draft the “standard form comprehensive liability policy,” which is now known as the commercial general liability policy.

The standard form CGL policies, which have been the mainstay of commercial liability protection for many years, were developed and periodically revised by insurance company associations for use throughout the casualty insurance industry. The CGL policy broadly covers all types of business-related exposures, including construction claims as well as the great bulk of current toxic and environmental coverage litigation.

This chapter examines the coverage provisions of the CGL policy and discusses how New York courts have interpreted significant policy terms.

II. The Insuring Agreement

A. Introduction

All insurance policies have the same basic provisions: (1) a coverage clause or insuring agreement that broadly describes the acts or conduct covered by the policy and identifies the event that triggers the insurer’s coverage and the duty to defend; (2) conditions with which the insured must comply to obtain coverage for a particular claimant; and (3) exclusions that delete coverage for certain acts, conduct or risks otherwise within the scope of the insuring agreement.

The insuring agreement in the standard form CGL policy provides, in pertinent part:

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies.

We will have the right and duty to defend the insured against any “suit” seeking those damages. However, we will have no duty to defend the insured against any “suit” seeking damages for “bodily injury” or “property damage” to which this insurance does not apply. We may at our discretion investigate any “occurrence” and settle any claim or “suit” that may result.

. . .

b. This insurance applies to “bodily injury” and “property damage” only if:

(1) The “bodily injury” or “property damage” is caused by an “occurrence” that takes place in the “coverage territory”; and

(2) The “bodily injury” or “property damage” occurs during the policy period. ³¹⁶¹

The terms of the insuring agreement, which are defined in the policy, have generated extensive case law construing their meaning.

B. The Insured

The party who enters into an insurance contract with the insurer is identified as the “insured.”³¹⁶² As a general rule, the term “insured,” as used in the standard CGL policy, refers to the owner of the insured business or property to whom the policy is issued and by whom the policy premium is paid.³¹⁶³ It does not include a person appointed to receive a portion of the proceeds in case of a loss.³¹⁶⁴

What about an “additional insured”? Are the rules any different for determining when and under what circumstances it may be entitled to coverage under a CGL policy? Since the Court of Appeals decided BP Air Conditioning Corp. v. One Beacon Insurance Group (BP),³¹⁶⁵ liability insurers have been obligated to provide an additional insured with defense coverage for a claim alleging liability arising from the named insured’s operations. The Court ruled that additional insured coverage arising from the named insured’s operations is not contingent on an up-front determination of liability and that an insurer’s duty to defend an additional insured is co-extensive with its duty to defend an insured. An exception to the broad defense obligation was stated in Worth Construction Co., Inc. v. Admiral Insurance Co. (Worth),³¹⁶⁶ where the additional insured conceded in the record that the named insured had no liability for the underlying matter. Based on that admission, there could be no liability and the Worth court sustained the insurer’s refusal to afford the additional insured a defense in the underlying claim.

What happens where the language of an additional insured endorsement provides coverage for a loss “caused, in whole or in part, by” the named insured’s “acts or omissions”? The Court of Appeals considered this question in Burlington Insurance Co. v. New York City Transit Authority.³¹⁶⁷ In Burlington, the court held an insurer’s duty to provide coverage extends only in circumstances where the named insured’s acts or omissions are a “proximate cause” of the claimed injury or damage. In so ruling, the Burlington court reasoned that by including “acts or omissions” language, the insurer required more than “but-for” causation. Indeed, the court ruled that additional insured coverage was unavailable unless negligence on the part of the named insured was the proximate cause of the plaintiff’s injury.

As a practical matter this means that, for indemnity purposes, additional insured coverage is unavailable where the acts or omissions of the party seeking such coverage were the proximate cause of the underlying plaintiff’s injury. Significantly, however, given the breadth of the duty to defend in New York, absent a judicial declaration or admission, an insurer may find it difficult to extricate itself from the defense of a claim.

Limiting language within an additional insured endorsement can also define which parties may or may not be eligible for coverage. In Gilbane Building Co./TDX Construction Corp. v. St. Paul Fire & Marine Ins. Co.,³¹⁶⁸ the Court of Appeals ruled that an endorsement providing additional insured coverage for persons “with whom [the named insured] agreed to add as an additional insured by written contract” required an actual written contract between the named insured and the party claiming additional insured coverage³¹⁶⁹. In so ruling, the Gilbane court upheld a line of cases decided by the First Department which denied coverage under blanket endorsements with respect to third parties who were not specified in written agreements made by others.

When synthesized, BP and Worth teach this practical lesson: Absent the kind of up-front determination of the named insured’s non-liability found in Worth, at least in the context of general liability coverage, where a named insured extends coverage to an additional insured and agrees in writing to defend the additional insured from liability arising from the named insured’s work, the additional insured is entitled to a duty to defend an underlying claim alleging liability arising from the named insured’s operations. Burlington and Gilbane demonstrate that words matter. A general liability insurer can include specific terms to limit the reach of its blanket additional insured coverage, by requiring a finding of negligence on the part of the named insured, as in Burlington, or by requiring privity with the party claiming the benefits of coverage, as in Gilbane.

C. Burden of Proof

The insured seeking to establish the existence of coverage under an insurance policy has the burden of proving all material terms and provisions of the policy.³¹⁷⁰ As a general rule, the party seeking coverage must satisfy its burden of proof by “clear and convincing evidence.”³¹⁷¹

However, at least one decision has concluded that the existence and terms of a lost or missing policy may be established by the lesser “preponderance of the evidence” standard, at least in cases where the court must determine whether a policy had ever been issued.³¹⁷² In Burt Rigid Box, Inc. v. Travelers Property Casualty Corp. (Burt),³¹⁷³ the Second Circuit declined to decide whether the District Court properly applied the “preponderance of the evidence” standard, as it found the evidence submitted by Burt to be sufficient and unopposed.³¹⁷⁴

The Burt approach was followed in Kenza Operating Corp. v. Allcity Insurance Co. (Kenza).³¹⁷⁵ In Kenza, the insurer asserted that no policy was ever issued to the claimant during the years in which an underlying claim of lead paint poisoning arose. The plaintiffs sought to prove the existence of the disputed coverage through secondary evidence, including a closing statement prepared by an attorney in connection with the purchase of the subject building, which shows an adjustment due to the seller for premiums paid on the disputed policies, and a statement filed by plaintiffs with a city agency stating that the alleged insurer insured the purchased building; however, plaintiffs failed to produce copies of any policy or certificate showing coverage. By applying the “preponderance of the evidence” standard, the Kenza court held that the plaintiffs did not meet their burden of showing sufficient proof to raise a triable issue as to the existence of the policies.

Material terms that the insured must prove include the existence of a policy, that the party is entitled to coverage, and the limits of liability. The insured is also required to prove that it complied with all conditions precedent to coverage under the policy, where the insurer asserts as a defense the insured’s failure to comply with such conditions.³¹⁷⁶

Conversely, the New York rule concerning limitations on coverage is that the burden of proving the existence and applicability of a policy exclusion...