Cover priority. Amendment of the law. – Assurance
United States: Cover priority. Amendment of the law.
To print this article, all you need to do is be registered or log in to Mondaq.com.
Is the priority of cover between insurance policies covering the same insureds and the same risk governed by the “Other insurance” clauses of the policies or by the indemnity clause of the underlying contract? Due to a change in the law, there is good news for non-negligent owners and general contractors who can now rely on their indemnification clauses in their contracts to establish the transfer of risk to subcontractor insurers. without taking into account the “Other insurance” provisions.
Until recently, the priority of coverage between various insurance policies providing coverage to the same insured or an additional insured for the same risk was determined solely by review of the “Other Insurance” provisions and endorsements of the insurance policies. insurance applicable regardless of contractual indemnification. obligations of the underlying commercial contract. Courts previously drew a clear distinction between the application of insurance policy provisions between and among insurers and contractual indemnification obligations in the commercial contract. That has now changed. Recent decisions, discussed below, now consider the trade contractor’s indemnification obligations to the owner and/or general contractor when determining priority of coverage between insurers. . Owners and general contractors should now be able to establish entitlement to subcontractor insurance coverage based on their indemnity agreement despite excess “Other Insurance” clauses in submaster policies. – contractors.
In a fundamental case on priority of coverage, Bovis Lend Lease v Great American Insurance Co53 AD3d 140
[1st Dept 2008] (“Bovis“), a wrongful death action, the Appellate Division reviewed the various primary, excess and umbrella policies of several contractors, each of which provided the owner and general contractor with additional insured coverage. Bovis The court found that the priority of coverage is determined by the language of the various applicable policies over the other policies. the Bovis The court overturned the lower court’s decision and held that the extent of coverage, including the priority of a given policy over other policies, was controlled by the terms of the relevant policy, not by the terms of the underlying commercial contract which required the insured to purchase coverage for additional insureds. the Bovis The court ruled that insurers have the right to rely on the wording of their own policies – their own contracts of insurance – between themselves and their named insured. the Bovis The court left the issue of contractual indemnity between the owner and the general contractor and trade contractors to be decided in the underlying personal injury action.
In a recent decision, however, Century On. Co c. Metro Transit Auth., 20-1474-CV, 2021 WL 4538633 [2d Cir Oct. 5,
2021](“Century“) the United States Court of Appeals for the Second Circuit decided the question of which relevant contractual clauses governed priority of coverage – the indemnification agreement in the underlying commercial contract or the insurance clause in the policy of the claimant Century Surety – and ruled on cases decided after Bovis that the New York Court of Appeals would resolve the ambiguity of New York’s law on priority of coverage differently. The Century Court reviewed decisions of the New York State Appellate Division in Indemnity Insurance Co. of North America v. St. Paul Mercury Insurance Co.74 AD3d 21 (1st Dep’t 2010), (Indemnity) and Arch Insurance Co. v. Nationwide Property & Casualty Insurance Co., 175 AD3d 437 (1st dept. 2019) (Arch). These cases involved a contractor who was hired to carry out a construction project under a commercial contract that contained an indemnification agreement in which the contractor agreed to indemnify the owner of the construction project. A sin Century, the effect of the indemnity agreement conflicted with the terms of the contractor’s insurance policy, which allegedly provided that the insurance was supplementary to any other insurance policy available. the Indemnity The court concluded that “priority of cover” as determined by the wording of the insurance policy was irrelevant due to the existence of an underlying indemnification agreement in the commercial contract between the insured. The compensation tribunal ruled that the contractor’s insurance would pay first because “the [owner’s] responsibility would always pass to [the contractor] and its insurers.
Indemnity74 AD3d to 26 Le Camber the court held that “[s]since
[o]the owners were entitled to contractual compensation of [the
contractor] and a complete transfer of responsibility, the
[contractor’s insurer] must respond before [owner’s
insurer] issued [o]owners.” Camber175 AD3d to 438. The Century The court predicted that if the issue was presented to it, the New York Court of Appeals would find reasoning in Bovis unconvincing and would follow the reasoning of Iindemnity and Camber. As is Century The court found that the contractor’s policy took priority over the owner’s policy, notwithstanding the “other insurance” provision in the Century Surety policy which purports to qualify the policy as a “true excess policy” because the indemnification agreement in the underlying commercial contract between Rukh and LIRR governs the resolution of this matter.” Century On. Co. vs. Metro. Tr.Auth., 20-1474-CV, 2021 WL 4538633, at *5 [2d Cir Oct. 5, 2021].
At least as far as general liability primary policies are concerned, given the Century, Indemnity and Camberthere is now a confluence between policy language and indemnification agreements in the commercial contract. Bovis involved both the owner and the general contractor seeking compensation from several specialist contractors, all of whom potentially played a role in the accident that resulted in the loss. Century, Indemnity and Camber owners apparently involved seeking to put the contractor’s policy ahead of their own coverage. Century, Indemnity and Camber related to key contractor policies. We believe that based on these decisions, we have a basis to push surplus carriers to a position of primacy as well. It is not clear if the Century court or for that matter, the New York Court of Appeals, would reach the same conclusion when there are multiple commercial contractors involved and/or when an owner or general contractor seeking to force subcontractor coverage before his own, would in fact be made primary if some degree of fault can be attributed to the owner or general contractor. One thing is certain in the light of Century The decision is that the priority of cover among insurers is now uncertain despite policy wording and that owners and general contractors are better placed to transfer risk sooner under the indemnity provisions of their contracts triggering cover. primary under the policies of the subcontractors, regardless of the “Other insurance” provisions in the policies.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
POPULAR ARTICLES ON: United States Insurance