On October 10, 2013, the New York Court of Appeals, in Soto v. J. Crew Inc., et al., unanimously affirmed both the trial court and the Appellate Division, First Department, and held an employee of a commercial cleaning contractor was not engaged in “cleaning” under New York Labor Law § 240(1) (also known as the “Scaffold Law”), when he fell from a four-foot-tall A-frame ladder while attempting to dust a six-foot-tall display shelf at a retail store and, therefore, was precluded from recovery for his injuries against the store and the building owner.

Labor Law § 240(1) imposes a nondelegable duty and absolute liability upon owners and contractors for failing to provide safety devices necessary for workers that are subjected to certain elevation-related risks.  To recover under Labor Law § 240(1), the injured worker must establish: (i) he was engaged in a covered activity, i.e., erection, demolition, repairing, altering, painting, cleaning or pointing of a building structure; and (ii) he was injured as a direct result of not having adequate protection from elevation-related risks.

In Soto, the plaintiff brought suit against the retail store and the building owner based upon various theories, including the violation of Labor Law § 240(1), alleging he sustained injuries while engaged in a commercial cleaning activity. On appeal to New York’s highest court, the Court of Appeals unanimously affirmed the lower courts, finding the Legislature did not intend for the Scaffold Law to provide coverage to injured employees engaged in all cleaning activities occurring in a commercial setting. Rather, “routine, household window washing”-type activities, such as the dusting performed by the plaintiff, do not fall within the purview of the Scaffold Law.

To clarify the reach of the Scaffold Law, the cour, set forth the following guidepost of activities that do not qualify as “cleaning” within the purview of Labor Law § 240(1): (i) routine activities such as the ordinary maintenance and care provided to a commercial property on a frequent and recurring basis; (ii) activities that do not require specialized equipment or expertise nor the unusual deployment of labor; (iii) activities involving insignificant elevation risks comparable to those inherent in typical domestic or household cleaning; and (iv) activities that are unrelated to an ongoing construction, renovation, painting, alteration or repair project.

Applying the above factors to the instant matter, the Court of Appeals agreed with the lower courts, finding the plaintiff’s dusting of a six-foot-high display shelf did not fall within the ambit of Labor Law § 240(1), but rather, was a mere routine task, with no specialized equipment, knowledge or tools, that involved a height differential analogous to the cleaning of a home, and had no relation to any construction activity.

The instant decision demonstrates the intent of the Court of Appeals to limit any further expansion of the Scaffold Law in the context of commercial cleaning based upon its distinction between covered and non-covered cleaning activities. As a matter of practice, by providing a list, which focuses on those “cleaning” activities that fall outside of the statute as opposed to those that fall within the statute, New York courts, going forward, are granted far less discretion in their interpretation and application of the Scaffold Law in the context of “cleaning.”

Following a five-day jury trial and four hours of deliberation, Matthew Vitucci obtained a favorable verdict for our client, Megabus, in the matter of Ebrahem v. Coach Leasing, Inc., tried in the United States District Court for the Southern District of New York before Judge Shira A. Scheindlin. The verdict came back apportioning liability 50/50 and awarding no pain and suffering damages and medical expenses totaling only $11,700. Defendants’ 50% apportioned share of damages, resulting in a net award of only $5,850. Plaintiff’s last settlement demand was $3.2 million and in closing argument, plaintiff requested a verdict amounting to $2.4 million.

The case arose from an accident that occurred in 2012 at the Manhattan entrance to the Lincoln Tunnel in which the defendants’ bus and plaintiff’s livery taxi had a minor side-swipe collision where each party alleged the other caused the impact. Plaintiff alleged that this accident caused injury to his left knee requiring a partial menisectomy and lumbar spine injury necessitating a six-level lumbar fusion.

Plaintiff offered the expert testimony of the performing spinal surgeon, Dr. Sebastian Lattuga; the performing knee surgeon, Dr. Neofitos Stefanides; an expert engineer, Grahme Fischer; and an expert economist, Dr. Debra Dwyer. Despite the testimony of these experts, Mr. Vitucci was able to persuade the jury that that the majority of the alleged injuries and medical treatment were due to pre-existing degenerative disc disease and knee degradation, and not to the impact from this accident. Furthermore, he was able to persuade the jury that the cost of future medical expenses offered by Dr. Dwyer were both erroneously calculated (as she had to concede on the stand) as well as inappropriately large.

Prior to the trial, plaintiff claimed that he could no longer work at all and was making a claim for lost wages since the date of accident through his projected working future. Successful surveillance taken prior to trial, however, led to plaintiff withdrawing his lost wages claim.

Defendants relied upon the testimony of neurosurgeon Dr. Douglas Cohen, orthopedic surgeon Dr. Gregory Montalbano, and biomechanical engineer Dr. Mariusz Ziejewski.

On August 27, 2013, the New Jersey Appellate Division addressed an issue of first impression in the State of New Jersey, and perhaps the nation. Specifically, in Kubert v. Best, a unanimous court found that a person who texts someone that is driving can be held liable for personal injuries sustained by others who are involved in an accident with the recipient driver.

Although the Kubert court refuted that it was opening the floodgates to litigation against remote texters because the duty is limited to situations where the remote texter knows or has reason to know that recipient is driving and likely to read the text while operating his vehicle, it is nevertheless anticipated that plaintiffs’ attorneys will attempt to pursue such a claim where the recipient driver has a limited policy.

In Kubert, a driver and passenger of a motorcycle each lost a leg as a result of collision with a vehicle driven by an 18-year-old driver, Kyle Best. Best had crossed the center line of the road, and struck the plaintiff’s motorcycle head on because he was distracted by a text he received from his 17-year-old girlfriend, Shannon Colonna, immediately prior to the accident.

It was undisputed that Best had violated New Jersey’s prohibition against texting while driving. Therefore, a settlement was reached between the plaintiffs and Best. However, plaintiffs subsequently brought suit against Colonna upon the basis that she aided and abetted Best’s unlawful texting. Plaintiffs alternatively argued that Colonna had an independent duty to avoid texting a person who was driving a motor vehicle. Colonna interposed a motion for summary judgment upon the basis that she was not present in the vehicle when the accident occurred, and therefore was unaware that Best was driving at the time he received her text.

The trial court granted Colonna’s motion for summary judgment and the Appellate Division affirmed. The Appellate Division agreed that there was insufficient evidence that Colonna was aware that Best was driving at the time they exchanged texts. However, the Appellate Division rejected the defendant’s claim that a sender of a text never has a duty to avoid texting a person driving a vehicle.

Rather, after conducting a “full duty analysis,” the Appellate Division concluded that a sender of a text “may” be liable if he “knew or had special reason to know that the driver would read the message while driving and would thus be distracted from attending to the road and the operation of the vehicle.”

In reaching this determination, the dourt noted that neither New Jersey nor any other jurisdiction has dealt with this issue. Therefore, the court relied on several New Jersey cases wherein passengers of motor vehicles were held liable for accidents because they either encouraged the drivers to violate the law or failed to warn others that the driver was violating the law (e.g., drinking while intoxicated).

The court cautioned that its decision should not be construed to mean that “the mere sending of a wireless transmission” is enough to impose liability. Rather, the court emphasized that it must shown that the remote sender knew or had reason to know that the recipient was driving and likely to read the text message while driving. The court reasoned that this limitation is warranted because “the sending of a text message by itself does not demand that the recipient take action.” Stated differently, “it is the primary responsibility of the driver to obey the law and to avoid distractions.”

In short, although Kubert has given rise a to a “new” duty against remote texters in New Jersey, as indicated by Judge Espinosa in his concurring opinion, “the bar set by the majority for the imposition of liability is high and will rarely be met.” That is because it will be extremely difficult to prove that the sender knew or had reason to know that the driver was going to violate his duty to avoid distractions, such as text messages received while operating a motor vehicle.

On June 11, 2013, in a unanimous decision, the New York Court of Appeals, in K2 Inv. Group, LLC v American Guar. & Liab. Ins. Co., reiterated the rule in New York that where an insurer disclaims defense coverage, relying upon a policy exclusion, and the disclaimer is invalid, the insurer may not rely on the exclusion to dispute indemnity coverage, when the insured defaults in the underlying action.

It is well-settled in New York that disclaimer is unnecessary when a claim falls outside the scope of a policy’s coverage portion, since “requiring payment of a claim upon failure to timely disclaim would create coverage where it never existed.” Matter of Worcester Ins. Co. v. Bettenhauser, 95 N.Y.2d 185, 188 (2000).

But once complaint allegations fall within the scope of a policy’s coverage portion, caution is warranted. In Lang v. Hanover Ins. Co., 3 N.Y.3d 350, 356 (2004), the Court of Appeals noted in dicta that where an insurer wrongly disclaims coverage and a default judgment is rendered against its insured, “having chosen not to participate in the underlying lawsuit, the insurance carrier may litigate only the validity of its disclaimer and cannot challenge the liability or damages determination underlying the judgment.”

The K2 decision now makes clear that the discussion in Lang was more than mere dicta and that the court meant what is said when it limited insurers who have refused to defend their insured, resulting in a default judgment, to litigating the validity of the disclaimer.

The K2 plaintiffs were two limited liability companies that made loans totaling $2.83 million to Goldan, LLC, a company owned by the named insured attorney Jeffrey Daniels. The loans were to be secured by mortgages. When Goldan failed to repay the loans, the K2 plaintiffs discovered that their mortgages had not been recorded. The K2 plaintiffs then sued Goldan and Daniels, as to the latter asserting that Daniels had acted as an attorney for the K2 plaintiffs with respect to the loan transaction and that his failure to record the mortgages was “a departure from good and accepted legal practice.”

When Daniels tendered the defense of the suit to his legal malpractice insurer, American Guaranty, it declined coverage, citing an exclusion for “[c]laims … arising out of … the Insured’s capacity or status as an ‘an officer, director, partner, trustee, shareholder, manager or employee of a business enterprise.'” Daniels defaulted, and the K2 plaintiffs obtained a judgment against him for legal malpractice only. Daniels then assigned to the K2 plaintiffs all his rights against American Guaranty, and they commenced an action seeking to recover the judgment.

Both the trial court and the Appellate Division, First Department, found that the exclusions were inapplicable, although a dissenter in the Appellate Division concluded that issues of fact existed as to whether the exclusions applied. It seems that American Guaranty’s position on appeal was that there were questions of fact regarding the application of the policy exclusion precluding summary judgment in favor of the plaintiffs.

The Court of Appeals rejected the invitation to reach the dispute whether there were questions of fact or not. It reasoned that American Guaranty’s position that there were questions of fact regarding the application of the policy exclusion was tantamount to an admission that it wrongfully disclaimed the duty to defend its insured, and since American Guaranty admitted its disclaimer on the duty to defend was invalid, it was required to indemnify its insured for the underlying judgment.

Practically speaking, we were not surprised by K2 because of the Court’s admonition in Lang. Since Lang, our practice has been to advise insurers to disclaim coverage on the duty to defend only when: (i) the claim falls outside the policy’s coverage portion (without considering exclusions); or (ii) an exclusion clearly applies based upon either the complaint allegations themselves, or undisputed facts. In summary, unless the insurer is confident that, based upon the evidence on hand at the time of the disclaimer, it can win a summary judgment motion on the duty to defend, the insurer should not disclaim coverage.

As a side note, some commentators have suggested that K2 may be drastically changing the law by overruling Servidone Const. Corp. v Sec. Ins. Co. of Hartford, 64 N.Y.2d 419, 423-25(1985), which held that “an insurer’s breach of [its] duty to defend does not create coverage and that, even in cases of negotiated settlements, there can be no duty to indemnify unless there is first a covered loss.”

We are not sure K2 will have such a broad effect. Although the K2 decision is broadly worded, it is not clear that Lang and K2 apply when the insured (or another insurer) defends the underlying action, and there is no default judgment against the insured. In Servidone, the insured did defend the case, and in that situation the Court of Appeals permitted the insurer to litigate whether the settlement payment was for a covered loss. K2 does not explicitly overrule Servidone, and may be simply clarifying the rules in the situation where the insured defaults. This will be an issue to watch.

Creating a national network of law firms to share technology, information,
and best practices for the insurance and claims industry

With a focus on continued expansion and increased services to clients, Gallo Vitucci Klar LLP joins 19 other law firms across the United States in launching the website for the Themis Advocates Group.

Throughout the years, GVK has counted insurance companies, self-insureds and third-party administrators among the many clients for whom the firm provides valuable and cost-efficient services. As a founding member of Themis Advocates Group, GVK looked to help create a national network of law firms that were similar in their mission and in their openness to exploring innovative ways to better serve clients in the insurance industry. By establishing this national network of preeminent law firms that share information, procedures, technology and client feedback, GVK and the other members of Themis Advocates Group are able to provide the most skilled, aggressive and cost-efficient legal services to their vast array of clients. One of the cornerstones of the organization is the active participation of member firm clients in the numerous scheduled Themis events to support meaningful communication between members and the clients with whom they work.

To learn more about Themis Advocates Group, visit www.themisadvocatesgroup.com.

On January 17, 2013, the New York Appellate Division, First Department decided QBE Insurance Corporation v. Jinx-Proof, Inc., et al., No 114856/10, 2013 WL 174089 (1st Dept. January 17, 2013), affirming the New York County Supreme Court’s prior award of summary judgment to QBE Insurance Corporation (“QBE”) in this declaratory judgment action. The court held that QBE properly disclaimed coverage as to its insured, Jinx-Proof, Inc. (“Jinx-Proof”), under QBE’s General Liability policy’s Assault and Battery Exclusion, in connection with an underlying bodily injury action that alleged both negligence and assault and battery causes of action where “reservation of rights letters” were timely issued to Jinx-Proof specifically denying coverage for the assault and battery claims. Although QBE entitled its letters as a “reservation of rights” and a separate “disclaimer letter” was never issued, the court found that QBE’s reservations of rights letters sufficiently notified Jinx-Proof of lack of coverage under its policy’s Assault and Battery Exclusion in a timely manner, should only an assault and battery cause of action exist.

By way of background, on August 25, 2007, while a patron Jinx-Proof’s Manhattan bar, the underlying plaintiff got into a fight with the bar security guard, which escalated such that plaintiff was struck in the face by a glass thrown by the guard. Thereafter, plaintiff brought suit against the security guard as well as Jinx-Proof seeking recovery for the injuries she sustained. Jinx-Proof tendered its defense to QBE on January 28, 2008. Although the majority of claims asserted in the underlying action sounded in assault and battery, plaintiff also asserted negligence claims, which had the potential for falling within the scope of the QBE Policy.  As such, QBE responded to Jinx-Proof by letters dated January 31, 2008, and February 26, 2008, respectively. Both letters were labeled “reservation of rights,” and agreed to defend Jinx-Proof under a reservation of rights; however, at all times, QBE pointed out the lack of any coverage available for any assault and battery claims.

QBE commenced the instant action on November 15, 2008, seeking a declaration that it could deny coverage to Jinx-Proof as all claims asserted in the underlying action were rooted in intentional tortious behavior. QBE moved for summary judgment, and by Order dated August 17, 2011, the New York County Supreme Court found QBE had clearly denied coverage for all assault and battery claims in the underlying action with the requisite degree of specificity when it stated that it would “not be defending or indemnifying [Jinx-Proof] under the General Liability portion of the [QBE] policy for the underlying assault and battery allegations.” Moreover, even with the possibility Jinx-Proof could be held liable under theories of negligence, the trial court held that any potential negligence claims were outweighed by the application of the Assault and Battery Exclusion.

While four of the five justices agreed that the lower court’s decision should be affirmed, there was some difference of opinion amongst these justices, leading to two separate concurring opinions. In the first opinion, two of the justices concluded that the attendant circumstances rendered QBE’s two reservation of rights letters as effective disclaimers of coverage. The justices opined that while a reservation of rights does not typically afford an insurer the opportunity to subsequently deny coverage for a claim, the mere use of the term “reservation of rights” should not defeat the effective written disclaimer contained within its two letters to its insured. The second concurring opinion similarly concluded the QBE letters provided clear and unambiguous language that a reasonable person would not have expected coverage for assault and battery claims. Once all potentially covered claims in the underlying action were dismissed, it was clear that QBE had no further coverage obligation as the remaining claims sounded in assault and battery and, therefore, were not covered under the QBE General Liability Policy.

The one dissenting justice disagreed, finding QBE’s two letters, by their terms, nothing more than a reservation of rights. QBE did not use clear and unambiguous language as required for an effective written disclaimer of coverage; rather, both letters were deemed to be contradictory and confusing. As such, summary judgment was not appropriate as QBE had a continuing defense obligation.

As the majority ultimately affirmed the trial court finding QBE to have effectively disclaimed coverage to Jinx-Proof, a further appeal to the Court of Appeal is likely. This decision is nonetheless instructional with respect to disclaimers and reservation of rights. In sum, any basis for disclaimer must be timely asserted within the 30-day period set out by New York Insurance Law Section 3420(d) citing to the specific policy provisions.

Gallo Vitucci Klar, LLP (“GVK”) is pleased to announce that the firm has partnered with Zarwin, DeVito, Kaplan, Schaer & Toddy, PC (“Zarwin”), a Pennsylvania law firm, and Sheehy Ware & Pappas, P.C. (“Sheehy”), a Texas law firm with unparalleled experience in defending catastrophic weather claims (“CAT”), to allow the newly formed team to take a leading role in the defense of property damage litigation arising out of Superstorm Sandy in New Jersey, New York and Pennsylvania.

Unlike most firms in the New York/New Jersey/Pennsylvania area, because of its affiliation with the Texas law firm that handled so many of these claims from previous catastrophic storms, GVK and its team of affiliated law firms will be able to provide an experienced litigation team unrivaled by its competitors. After all, this region has never encountered the amount of losses that has occurred from Superstorm Sandy and as a result this region’s law firms simply have not had the hands-on experience with the massive assault of claims that will occur here. Steve Grubbs, a partner at the Texas law firm of Sheehy Ware, who spearheads its CAT Group, successfully defended almost 1500 of these lawsuits for many of the largest admitted and surplus insurers resulting from Hurricanes Dolly, Rita and Ike. When this invaluable knowledge is added to GVK’s and Zarwin’s years of litigation experience, this “team” of law firms is positioned to field a highly focused, efficient, and economical defense that can and will provide their clients with the best possible defense of these claims.

A formal announcement with more details of the affiliation is expected in the next 10 days. If you would like to know more about this program, please contact Howard P. Klar, hklar@gvlaw.com, and Richard J. Gallo, rgallo@gvlaw.com at (212) 683-7100.

On Tuesday, December 11, 2012, in a surprising 4-2 split decision, the New York Court of Appeals in Guryev v. Tomchinsky, et al., exempted “condominium related defendants,” collectively described as the condominium building (including non-contracting unit owners), the board of managers and the building manager, from liability under New York Labor Law Section 241(6). In finding that such defendants do not constitute “owners” or “agents of owners” under Section 241(6), a necessary condition to the application of this statute, the plaintiff/worker who was injured in an individual condominium unit was not entitled to recovery from the condominium related defendants, but could recover from the individual owners of the unit that contracted with the plaintiff’s employer. In the face of a scathing dissent that called for reversal of the majority decision, the court notably made a distinction between condominium defendants and cooperative corporations (“co-ops”), who are considered owners for the purposes of the statute.

In Guryev, the plaintiff was injured while engaged in the renovation of an individual condominium unit within a condominium building owned and operated by the condominium related defendants. Specifically, during the course of his employment for a contractor, retained by the individual unit owner, the plaintiff sustained injuries when he was struck in the eye by a ricocheting nail. The individual unit owner had entered into the agreement with the plaintiff’s employer for renovation work, which was approved by the board of managers, who retained the right to insist upon compliance with the Industrial Code worker safety provisions. In this case, there was no lease between the condominium related defendants and the individual unit owner.

The issue on appeal was the fine distinctions relating to ownership of the premises, as the condominium defendants did not control the injury producing work. In affirming the holding of the Appellate Division, Second Department, the Court of Appeals explained that ownership, while a “necessary condition” is “not a sufficient one” for purposes of imposing liability upon non-contracting parties, under Labor Law Section 241(6). For instance, condominiums own only the land beneath the condominium building as each unit within the condominium building is separately owned by each individual unit owner. On the other hand, cooperative corporations (“co-ops”) are considered owners of the entire building, including all individual units therein, as said units are leased by the corporation to the shareholders.

Of significance, we note the strong dissent, which requests a reversal of the majority and legislative reform finding this holding “rips a gaping hole in the Labor Law’s protective mantle.” The dissent opined that because condominiums and co-ops retain a similar proprietary interest in the alteration of each individual unit, the Labor Law must apply to condominiums in the same manner as co-ops. To treat these condominiums differently, exempting condominiums from the strict liability under Labor Law Section 241(6) would contradict the broad remedial purpose of the Labor Law.

Although not explicitly stated, it seems the Court of Appeals holding is not limited to Labor Law Section 241(6), but broadly exempts condominiums and condominium-related entities from liability as owners under Sections 200 and 240 of the Labor Law. We will follow for any legislative developments in the wake of the court’s controversial decision.

Due to Hurricane Sandy, which has caused extraordinary damage and disruption in the states of New York and New Jersey, including, but not limited to, widespread power and utility outages, extensive transportation problems, and dislocation of employees and residents, the Governor for the State of New York has extended time periods established pursuant to the New York Civil Practice Law and Rules relating to Statute of Limitations and filing of appeals; the United States District Court for the Southern District of New York to the Court of Appeals for the Second Circuit has extended its deadlines for the filing of motions and appeals; and the United States District Court for District of New Jersey has issued an Order extending its filing dates.

Andrew Cuomo, Governor of the State of New York, issued an Executive Order relating to Statute of Limitations, wherein limitation periods established under the Civil Practice Law and Rules concluding on October 26, 2012, the date the disaster emergency was declared, have been suspended until further notice.  Similarly, time periods in which to appeal established under the Civil Practice Law and Rules concluding on October 26, 2012, have also been temporarily been suspended until further notice.

The United States District Court for the Southern District of New York to the Court of Appeals for the Second Circuit has extended deadlines concluding on October 29, 2012, for the filing of any appeal from the United States District Court for the Southern District of New York to the Court of Appeals for the Second Circuit, and the filing of any paper in a case pending in this Court until November 5, 2012.

In New Jersey, the United States District Court for District of New Jersey has issued an Order extending filing dates in this Court concluding on October 29, 2012, until November 7, 2012.

We will provide you with any modifications of these Orders that may develop, as well as any new Orders that are issued in light of the aftermath of Hurricane Sandy.

On June 12, 2012, the New York Court of Appeals in Admiral Ins. Co. v. Joy Contractors, Inc., 2012 WL 2092863 (NY June 12, 2012) held that an insurer can rescind coverage to an additional insured where the named insured has made a misrepresentation in an underwriting submission that deprives the insurer of the opportunity to evaluate the risks associated with the coverage. This decision is a radical departure from prior New York decisions regarding the rescission of coverage as to additional insureds.

Prior to this decision, courts in New York universally held that a named insured’s misrepresentation could not be imputed to the additional insured (thereby divesting it of coverage) on the grounds that each insured must be treated separately. In this decision, the Court of Appeals changed that rule and for the first time held that a named insured’s alleged misrepresentation may result in a rescission of the policy for all insureds. Gallo Vitucci Klar LLP represented the additional insured construction manager in this litigation and argued that the Court of Appeals should have followed the long-standing precedent in New York – i.e., that the named insured’s alleged misrepresentation in an underwriting submission cannot serve as a basis to rescind coverage to an additional insured.

By way of background, on March 15, 2008, Joy Contractors, Inc. (“Joy”) operated a tower crane that collapsed during the construction of a high-rise condominium at 303 East 51st Street in Manhattan, killing seven people and damaging several buildings. During the applicable policy period, Joy had primary and excess comprehensive general liability (CGL) coverage in place. The policies issued to Joy had named Reliance Construction Ltd. d/b/a RCG Group Ltd. (“RCG”), the construction manager on the project, as an additional insured. On March 27, 2008, Admiral Insurance Company (“Admiral”), Joy’s excess CGL carrier, issued a reservation of rights of letter to Joy warning that there might be no coverage based on inaccuracies in Joy’s underwriting submission that could render the excess policy void. Specifically, Admiral contended that: (i) Joy had represented that it was an interior drywall contractor that did not conduct exterior work; and (ii) Joy, in actuality, was the structural concrete contractor, performing work on the building’s entire exterior with a tower crane.

On June 8, 2008, Admiral filed an action against Joy, RCG and others seeking a declaration of no coverage. On June 25, 2009, the New York Supreme Court dismissed the rescission cause of action against RCG and opined that Joy’s alleged misrepresentations would have no effect on the additional insureds’ coverage. On February 17, 2011, the First Department affirmed the lower court’s holding. The Court of Appeals reversed the First Department’s ruling on the rescission issue and found that RCG may not be entitled to excess coverage from Admiral as an additional insured as a result of Joy’s purported misrepresentation. The Court of Appeals in its analysis accepted Admiral’s allegations about Joy’s misrepresentations to be true (as it must on motions for summary judgment). In reaching its holding, the Court of Appeals reasoned that Admiral evaluated a risk and collected a premium for providing excess coverage to a company and additional insureds that it thought were respectively an interior drywall contractor and other contractors associated with performing interior drywall work when in actuality it was issuing a policy for an entirely different risk – i.e., an exterior construction contractor that used a tower crane at a height many stories above street level and other insureds that assisted in the performance of same. The Court of Appeals concluded that dismissing the rescission cause of action against all the additional insureds would mean that the additional insureds would be allowed to rely on the terms of an insurance contract that may be deemed never to have existed.

This decision is generally a mixed bag for insurers. On the one hand, it permits carriers to rescind coverage to all insureds based on the misrepresentation of the named insured in an underwriting submission. On the other hand, it is a caveat to the insurers of building owners, general contractors and others that are routinely additional insureds on a subcontractor’s policy. Based on the Court of Appeals’ ruling, in the event a named insured subcontractor makes a misrepresentation in an underwriting submission, additional insureds may have their additional insured coverage vitiated, which means that the policies issued to the owners and general contractors may be exposed or reached earlier on the risk. We will monitor the effects that this decision will have on the lower courts in New York.