NYC Transit case's impact on additional insured coverage

In a significant break with case law, the Court of Appeals ruled in Burlington v. NYC Transit Authority that additional insured endorsement on a commercial general liability (CGL) 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.”

Appellate case law had previously held that, where the named insured’s employee was injured, the employment relationship alone was sufficient to trigger additional insured coverage for endorsements with this wording, which includes most of the current 04 13 and 12 19 Insurance Service Organization (ISO) forms.

However, Burlington involved the rare case where the party seeking additional insured, often called putative additional insured or upstream party, was the employer. Rarer still, the putative AI stipulated to 100% fault precluding any possibility that the named insured proximately caused the injury.

More often, the upstream parties are owners and general contractors seeking additional insured from downstream employers, and there is often ample factual support establishing that the employer proximately caused the injury, thereby triggering additional insured coverage.

Recent case law suggests that an employer’s prior knowledge of a dangerous condition or methods which the injured employee alleges caused the loss, or a failure by the employer to address that situation with proper instruction, can establish proximate cause and trigger additional insured coverage.

Proximate cause & employers

Where the pleadings allege that a downstream party was the proximate cause of the loss, there will likely be no argument that the downstream insurer owes at least a defense under additional insured coverage. However, where the downstream party is the employer, there is a greater likelihood of disputes over AI coverage.

Because Workers’ Compensation Law §19 prohibits injured workers from suing their employers, the pleadings in cases brought by these employees will usually contain allegations against only other parties, often owners and general contractors for labor law violations. Typically, complaints by injured workers only identify the employer in passing but make no allegations that the employer was the proximate cause of the injury.

However, in these cases, investigation and discovery are frequently rife with workers’ claims of prior complaints to their foremen about unsafe conditions, equipment or methods and improper instruction, direction, control, supervision and training.

Moreover, it has long been a staple of coverage interpretation that extrinsic facts, disputed and undisputed, can expand, but not restrict, an insurer’s duty to defend.

Thus, notice to the employer of the risks alleged to have caused the accident, as well as the employer’s supervisory responsibilities, can be relevant and potentially decisive to determining additional insured coverage from the employer’s CGL insurer to upstream parties.

Recent decisions

Twice so far in 2021, the Appellate Division, First Department held that even where there were no pleadings containing allegations against the employer, proximate cause was established through notice of the condition to the employer or their alleged failure to provide proper direction.

For example, in Old Republic Gen. Ins. v. Consol. Edison Co. of N.Y., the court held that deposition testimony of plaintiffs’ coworker that the employer had allowed its workers to use an elevator with a history of malfunctioning despite prior notice, as well as available alternative access to the site by two ladder systems established proximate cause sufficient to trigger additional insured for the upstream party which hired the employer.

In Old Republic, the testimony as to the non-party employers’ failure to supervise and instruct its employees to avoid a dangerous condition evidenced proximate cause of the plaintiffs’ injuries when they were riding in the elevator, which came to a sudden stop.

Similarly, in WDF v. Harleysville Ins. Co. of N.Y., evidence of the non-party employers’ direction and control of the underlying injured plaintiff’s work sufficiently demonstrated a causal connection to trigger an additional insured obligation by the employers’ insurer.

Duty to defend

Often, employers’ insurers reject an upstream party’s additional insured tender as premature pending a judicial determination that the employer proximately caused the loss.

However, the First Department in both WDF and Old Republic found proximate cause in declaratory judgment coverage actions without judicial determinations as to causation in the underlying personal injury suits.

Moreover, if the employer is not a party, there may never be such a determination.

However, in WDF the court found the employer’s CGL insurer owed the upstream general contractor both defense and indemnity additional insured coverage, although the indemnity claims against the employer had been dismissed from the underlying personal injury case.

Similarly, in many cases, the employer’s insurer will know at the time of additional insured tender that its insured set in motion a relatively short chain of events that could have been reasonably anticipated to lead to the loss.

In such cases, there will be foreseeability, a potentially critical element of proximate cause, and thus, the insurer will have enough information to accept additional insured coverage.

In addition, in Labor Law §240 cases, upstream parties may also be able to establish proximate cause by imputing the injured workers’ negligence to the employer.

Lessons learned

WDF and Old Republic demonstrate several subtle but often significant aspects of additional insured coverage analysis.

First, the employer can be a proximate cause of a loss without being a party to the underlying claim and before any judicial finding that the employer was negligent.

Next, additional insured analysis is not contingent on a determination of any concurrent contractual indemnity claim by the putative additional insured against the employer.

As the court stated in WDF, the employers’ “contractual indemnification obligation was separate and distinct from [the employer’s insurer] duty to defend and indemnify under the additional insured endorsement of its policy.”

This is consistent with established principles of risk transfer that additional insured and contractual indemnity obligations differ in nature and run to different parties.

Additional insured coverage obligations run to the downstream party’s insurer whose duty to defend is broader than the duty to indemnify. In contrast, contractual indemnity obligations run to the downstream party, whose duty to defend is no greater than the duty to indemnify.

Early in the life of a claim, the insurer for the employer should have access to a wealth of information beyond the pleadings. Often the extent of the employers’ involvement, supervision, direction, control, training, notice of the allegedly unsafe conditions, improper methods or equipment or other indications of proximate cause is clear from documentation such as incident/accident reports, OSHA reports, and took box and safety meeting minutes.

In addition, the employers’ post-loss investigation may reveal prior similar incidents, prior complaints of like conditions or methods and the workers’ compensation file may also have similarly relevant information.

Since this information is likely to be uncovered during investigation and discovery by the upstream parties, it would be wise for the employers’ insurer to do its own thorough and prompt inquiry when considering whether to accept an additional insured tender.

Conclusion

In the four years since Burlington was decided, parties have frequently wrestled over the nature of “proximate cause” as evidenced by over 200 citations to that case across the country.

While Burlington made a significant change, it did so under facts so exceptionally rare as make that decision of limited impact.

Far more often, the putative additional insured will not be the employer but instead an upstream party seeking risk transfer from the employer.

As the above discussion highlights, while employer status alone does not make for proximate cause, in many cases, additional insured will be appropriate from downstream insurers based on the employer’s involvement and coverage can be properly determined at the time of the upstream party’s additional insured tender.

Julian D. Ehrlich is senior vice president claims of Aon’s Construction Services Group in New York.

Opinions expressed here are the author’s own. 

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