The Court of Appeals of New York was required to determine whether the term “residence premises” in an insurance contract is ambiguous where an insured purchased a homeowners policy in advance of a closing date, but was unable to move in due to the need for major repairs. This case is Dean v. Tower Insurance Company of New York, 2012 WL 5256638. (Note that this opinion is uncorrected and subject to revision before publication in the New York Reports.)

The Deans entered into a contract to purchase a home in 2005. The closing was scheduled to take place in March 2005. The Deans acquired a homeowners policy effective as of the closing date. The closing was delayed until May 2005. After the closing, the Deans discovered extensive termite damage to the house and they had to make repairs. Work progressed on the house over the course of the year following the closing and the policy was renewed in March 2006. The renovations were substantially completed when, in May 2006, a fire completely destroyed the house.

The Deans notified the insurer, Tower Insurance, of the fire loss. The insurer disclaimed coverage on the grounds that the dwelling was unoccupied at the time of the loss and so, the dwelling did not qualify as a residence premises. The insureds sued for breach of contract but the Supreme Court granted the insurer's motion for summary judgment. The Appellate Division modified the order of the Supreme Court, finding that Tower failed to satisfy its prima facie burden on a motion for summary judgment. The Division granted Tower leave to appeal to the Court of Appeals of New York on a certified question.

This court said that the standard for determining residency for purposes of insurance coverage requires something more than temporary or physical presence and requires at least some degree of permanence and intention to remain. In this instance, Dean claimed that between the date of the closing and the date of the fire, he was generally at the property at least five days a week. He also averred that he had built a table for eating purposes and would eat at the house every day and that he slept there on several occasions. Moreover, because the term “reside” is not defined in the policy, the term “residence premises” is ambiguous. This make it arguable that the reasonable expectations of an average insured is that occupancy of the premises would satisfy the policy's requirements. Since all of these points raise issues of fact that have to be settled, summary judgment was inappropriate.

The order of the Appellate Division was affirmed and the certified question was answered in the affirmative.

Editor's Note: In its decision, the Court of Appeals of New York basically held that a householder need not necessarily have conventional, or indeed, any furniture in a house to occupy it; his presence in it for sleeping and eating and working purposes can literally constitute occupancy. Dean did not actually reside at the house at the time of the fire, but he demonstrated an intent to reside there based on his actions. This raised triable issues of fact and this was enough, then, for the court to agree with the dismissal of the insurer's summary judgment.

Additional Insured Coverage

The United States Court of Appeals, Seventh Circuit, addressed the issue of coverage for an additional insured. This case is American Trucking and Transportation Insurance Company v. Allied Tube & Conduit Corporation, 2012 WL 3198523.

As part of its trucking agreement with Tyco, System Transport was required to designate Tyco and its subsidiaries as additional insureds on its comprehensive liability insurance policy purchased from American Trucking and Transportation Insurance Company (ATTIC). In 2007, Terry Morris, a System Transport employee, drove his company truck to pick up a load of steel tubing at a facility run by Allied Tube & Conduit Corporation. While attempting to secure the load of steel tubing, Morris alleges that he slipped on the tubing and fell off the truck, resulting in a severe injury to his lower spine and neurological damage.

Morris sued Allied, alleging that Allied was negligent for failing to have safe procedures and the proper equipment for loading and securing steel tubing. Allied, as a subsidiary of Tyco, tendered the lawsuit to ATTIC contending that ATTIC was required to defend and indemnify Allied under the terms of ATTIC's insurance agreement with System Transport. ATTIC rejected the tender, asserting that its insurance policy did not require ATTIC to defend Allied for its own alleged negligence.

ATTIC initiated this lawsuit against Allied, seeking a declaratory judgment that it had not duty to defend Allied. The district court ruled in favor of ATTIC and Allied appealed.

The U.S. Court of Appeals noted that the sole issue on appeal is the interpretation of ATTIC's insurance policy. The case actually turned on the language of the additional insured endorsement, and based on that language, the court said that there is no dispute that Allied qualifies as an additional insured. However, what was in dispute was how the additional insured provision should be interpreted. Allied interpreted the provision to mean that ATTIC must defend Allied for Allied's own negligent conduct simply because it is listed as an additional insured. ATTIC interprets the provision to mean that ATTIC is not required to defend Allied for Allied's own negligence, but must defend Allied only for claims arising out of System Transport's conduct as the named insured.

Allied argued that the additional insured language means that it is an insured and that any reference to an insured must include Allied. So, when the provision goes on to state that it covers situations where the additional insured(s) are liable to others … for the conduct of an insured, Allied said that this means the provision covers situations where Allied is liable to others for its own conduct. The court disagreed.

The court stated that, when read naturally, the first sentence of the additional insured provision does two things: it states that an additional insured is covered by the policy to the extent of the policy's terms and conditions; and, it introduces a limitation to the additional insured's coverage only to the extent that the additional insured is liable to others for the conduct of an insured under the applicable policy. In this last part of the first sentence, the court said, the limitation to an additional insured's coverage is described by making a distinction between the additional insured and an insured.

The court said that the only sensible reading of the endorsement's first sentence is that any additional insured is covered under the insurance policy only to the extent that the additional insured is liable for the conduct of the named insured. This means that Allied is covered by the policy only if it is liable for the conduct of System Transport, but not for its own conduct.

This interpretation is further supported by the second sentence of the provision that states the additional insured status ceases when the additional insured is no longer liable for the conduct of an insured. In other words, under Allied's reading, the second sentence would state that its additional insured status ceases when Allied is no longer liable for the conduct of Allied. But, this would be absurd since Allied is always liable for its own conduct. If, on the other hand, the interpretation of the phrase “the conduct of an insured” means the conduct of System Transport, the endorsement's second sentence has one sensible meaning: Allied's additional insured status ceases when Allied is no longer liable for the conduct of System Transport.

The Court of Appeals affirmed the judgment of the district court and held that Allied was not covered by the insurance policy for its own negligent conduct. The insurer was not required to defend the lawsuit against Allied.

Editor's Note: The question of when an additional insured has coverage under the named insured's liability policy usually centers around whether the additional insured is covered for its own negligence. Recent revisions of additional insured endorsements by ISO show the intent to eliminate coverage for the sole negligence of the additional insured, and this ruling by the U.S. Court of Appeals adheres to this way of thinking.

Reinsurance Ruling

The United States Court of Appeals, Second Circuit, has issued a ruling pertaining to reinsurance and the right of action against reinsurers. This case is Callon Petroleum Company v. National Indemnity Company, 472 Fed. Appx. 57 (2012).

The court dismissed a lawsuit filed against a reinsurer by the underlying policyholder. In its decision, the court noted the general rule that “reinsurance contracts are contracts of indemnity that give the original assured no right of action against the reinsurer”. The court also noted that New York law recognizes an exception if the reinsurance agreement contains a “cut through” provision granting policyholders a direct right of action against reinsurers that is apparent on its face.

In this instant case, article 14 of the agreement at issue explicitly makes clear that third parties have no rights whatsoever under the agreement. The court added that it has previously ruled that the very contract at issue in this case “explicitly provides that no one other than the reinsured shall have any rights or remedies against the reinsurer”.

Editor's Note: This case is presented to reiterate that point that an underlying policy holder does not have a right to sue the reinsurer over the reinsurance contract unless there is a specific cut through provision that establishes the right. The reinsurance contract is between the reinsurer and the reinsured; there is no privity of contract between the reinsurer and the policyholder.

The Duty to Defend and Vicarious Liability

A contractor brought an action against a debris removal subcontractor and the subcontractor's insurers,, alleging that the defendants were required to indemnify the contractor in an underlying personal injury action. This case is Category 5 Management Group, LLC v. National Casualty Insurance Company, 2012 WL 2424414.

In June 2007, Colonel McCrary Trucking (CMT) entered into a subcontract with CAT 5 to remove debris in Louisiana following Hurricane Katrina. In July 2007, Johnson, an employee of CMT borrowed a truck owned by CMT to attend a court hearing in Alabama. As he drove back to Louisiana, he allegedly drove through a red light in Alabama and collided with a car containing Tracy Lee and Breana Stuart and Celena Sprinkle. Celena and Breana suffered severe injuries.

A lawsuit was filed against Johnson, CMT, and CAT 5 for negligence and/or wantonness and negligent and/or wanton hiring, training, supervision, and entrustment. The defendants separately settled with the plaintiffs, and CAT 5 filed a cross-claim against CMT and its insurers (primary and excess insurers) alleging breach of contract for failing to defend and indemnify CAT 5.

The United States District Court for the Southern District of Alabama entered summary judgment in favor of the defendants and CAT 5 appealed.

The appeals court noted that CMT's policy defines insureds to include “anyone liable for the conduct of an insured described above but only to the extent of that liability”. Under Georgia law (which the Circuit Court applied since the last act of execution, the receipt and acceptance of the insurance policy, occurred in Georgia), the phrase “liable for the conduct of an insured” is synonymous with vicarious liability. So, the court decided that the insurers only have a duty to defend and indemnify CAT 5 for claims of vicarious liability.

In this instance, the original complaint did not expressly state that CAT 5 was vicariously liable and in fact, no notice was given on that point. The counts alleged against CAT 5 are for its own actions, not the actions of Johnson or any other party involved in the original case. Therefore, the complaint does not give notice to CAT 5 that it could be held vicariously liable for any individual's actions. The appeals court found that summary judgment was properly granted by the district court.

The court further noted that the insurance policies themselves stated that only parties held vicariously liable for the actions of the insured (CMT) will be covered by the policies. None of the extrinsic evidence provided by the parties led to court to conclude that CAT 5 could have been held vicariously liable rather than directly liable. Therefore, the insurers did not have a duty to indemnify CAT 5 in the underlying lawsuit.

As for the contract between CMT and CAT 5, it did not unequivocally state that CMT will indemnify CAT 5 for CAT 5's own negligent acts. Again, the complaint against CAT 5 alleged direct liability claims, not vicarious liability, so CMT is not required to indemnify CAT 5 and the district court's grant of summary judgment in favor of CMT is affirmed.

Editor's Note: A simple reading of the wording in the insurance policies of CMT and its contract with CAT 5 showed that only the vicarious liability of CAT 5 would be covered. A simple reading of the complaint against CAT 5 showed that direct liability, not vicarious liability, was alleged against CAT 5. The U.S. Court of Appeals, Eleventh Circuit, made its decision accordingly.