Nicoletti, Gonson, Spinner, LLP

Court of Appeals Decision Significantly Alters Scope Of Additional Insured Coverage

The New York Court of Appeals, New York’s highest court, has just handed down a decision that materially restricts the scope of coverage provided by certain additional insured endorsements. In Burlington Ins. Co. v NYC Tr. Auth., ___NY3d___, 2017 NY Slip Op 04384 [2017] the court was faced with a situation where the Named Insured (BSI) had not been negligent in operating a machine that touched a live electrical cable buried in concrete at the excavation site. BSI had merely been following the plans provided to it. The NYC Transit Authority had failed to identify, mark, or protect the electric cable and also failed to turn off the cable power. Nonetheless, the NYCTA sought additional insured coverage relying on an endorsement that contained “caused … by” language that prior decisions had equated to the broadly interpreted “arising out of” endorsements.

Rejecting the NYCTA’s claim, the court held that as the injury must be “caused, in whole or in part” by BSI, a showing of proximate causation was required. It was not sufficient for a finding to be made that “but for” BSI’s actions the NYCTA would not have been liable.

The Burlington court made clear that:

The endorsement’s reference to “liability” caused by BSI’s acts or omissions further confirms that coverage for additional insureds is limited to situations where the insured is the proximate cause of the injury. Liability exists precisely where there is fault …..That the policy extends coverage to an additional insured “only with respect to liability” establishes that the “caused, in whole or in part, by” language limits coverage for damages resulting from BSI’s negligence or some other actionable “act or omission.”

The result of the decision in Burlington is to significantly raise the bar for meeting the requirements where this “caused by” language is employed in an additional insured endorsement. Thus, it is no longer enough to show that the named insured’s conduct had some connection to a loss, they have to be a proximate cause of it. Hence, while under the prior interpretation BSI’s carrier would have been obligated to defend and indemnify as their named insured’s actions had unwittingly contributed to the loss, under the new approach there is no coverage because BSI’S actions were not negligent (not a proximate cause of the accident). While the scope of the ruling will obviously be subject to refinement in subsequent decisions, for the moment all carriers should be carefully considering their position as their coverage obligations, and those of other carriers, may have been materially altered by this decision.