Pepco Constr. of NY, Inc. v CNA Ins. Co.

[*1] Pepco Constr. of NY, Inc. v CNA Ins. Co. 2003 NY Slip Op 51745(U) Decided on September 17, 2003 Supreme Court, Kings County Partnow, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on September 17, 2003
Supreme Court, Kings County

Pepco Construction of New York, Inc., et ano., Plaintiffs

against

CNA Insurance Company, Defendant



10553/02

Mark I. Partnow, J.

Upon the foregoing papers, defendant CNA Insurance Company (CNA) moves for summary judgment dismissing plaintiffs Pepco Construction of New York, Inc. (Pepco) and State National Insurance Company's (State) declaratory judgment action against it. Pepco and State cross-move for partial summary judgment against CNA and seek an order: (1) declaring that CNA must defend Pepco in an action entitled Farduchi v United Artists Theatre Circuit, Inc. et al. (the underlying action), pending in Queens County Supreme Court; (2) declaring that Pepco's coverage under the CNA insurance policy is primary to Pepco's coverage under its insurance policy with State; and (3) compelling CNA to reimburse State for all legal fees, costs and expenses it has incurred defending Pepco in the underlying action. [*2]

Background

In a written agreement dated October 6, 1997 (the prime contract), nonparty United Artist Theatre Circuit, Inc. (UA) hired Pepco to serve as the general contractor on a project involving the construction of a movie theater owned by UA. In a supplementary rider to the prime contract, Pepco agreed to procure liability insurance covering personal injuries sustained on the project in the amount of $1,000,000 per occurrence. Pepco further agreed to add UA as an additional insured under the policy.

In a written subcontract agreement dated October 30, 1997 (the subcontract), Pepco hired non-party Sav-Mor Mechanical, Inc. (Sav-Mor) to perform heating, ventilation, and air-conditioning work on the construction project. Thereafter, Sav-Mor sub-subcontracted certain work to F.R.P. Sheet Metal Contracting Corporation (FRP). Article 13.1 of the subcontract, which applies to the types of insurance and coverage limits that Sav-Mor is obliged to procure, is blank. However, Article 2.1 of the subcontract states in pertinent part that "[Sav-Mor] shall assume toward [Pepco] all obligations and responsibilities which [Pepco], under the Prime Contract, assumes toward [UA]. [Pepco] shall have the benefit of all rights, remedies and redress against [Sav-Mor] as [UA], under the Prime Contract, has against [Pepco]." Furthermore, under Article 1.1 of the subcontract, the prime contract is expressly incorporated into the subcontract documents.

On September 17, 1998, one Sandro Farduchi was injured in trip and fall accident at the construction site. By summons and complaint dated October 14, 1999, Mr. Farduchi brought the underlying action in Queens County Supreme Court against UA, Pepco, Sav-Mor, FRP and two other parties, alleging violations of Labor Law §§ 240 (1), 241 (6), 200, as well as common-law negligence.

At the time of the underlying accident, Pepco was insured under a liability policy issued by State while Sav-Mor was insured under a liability policy issued by CNA. Sav-Mor's policy with CNA contained a "Blanket Additional Insured Endorsement" which extended coverage to "any person or organization (called additional insured) whom you are required to add as an additional insured on the policy under a written contract or agreement." However, under this provision, this additional insured coverage was limited to liability arising out of Sav-Mor's work on the underlying project, or the work of a party hired by Sav-Mor. Finally, the additional insured provision provided that "any coverage provided hereunder shall be excess over any other valid and collectible insurance available to the additional insured whether primary [or] excess . . . unless a contract specifically requires that this insurance be primary."

In a letter dated August 9, 1999, Pepco's attorneys requested that CNA assume Pepco's defense and indemnification in the underlying action based upon Sav-Mor's alleged agreement to list Pepco as an additional insured under its liability policy. When it failed to receive a satisfactory response to this request, Pepco and State brought the instant declaratory judgment action.

CNA's Motion for Summary Judgment[*3]

CNA now moves for summary judgment dismissing Pepco and State's action. In so moving, CNA argues that Sav-Mor never agreed to list Pepco as an additional insured in the subcontract. Accordingly, CNA reasons that Pepco does not qualify as an additional insured under the Blanket Additional Insured Endorsement in the CNA policy and therefore, there is no basis for Pepco and State's claim that Pepco is covered under the CNA policy. In support of this argument, CNA points out that Article 13.1 of the subcontract was left blank.

In opposition to CNA's motion and in support of their own cross-motion for an order declaring that CNA is obligated to defend Pepco in the underlying action, Pepco and State argue that Sav-Mor was obligated to procure liability insurance listing Pepco as an additional insured under the subcontract. Thus, State and Pepco conclude that Pepco might qualify as an additional insured under the Blanket Additional Insured Endorsement and CNA therefore has a duty to defend Pepco in the underlying action. In support of this argument, Pepco and State point out that under Article 2.1 of the subcontract, Sav-Mor agreed to assume the same obligations toward Pepco that Pepco had previously assumed toward UA in the prime contract. Among the obligations that Pepco had previously assumed toward UA was the duty to procure liability insurance listing UA as an additional insured.

The court finds that Article 2.1 of the subcontract, when read in conjunction with the insurance procurement obligations set forth in the incorporated prime contract, unambiguously requires Sav-Mor to procure liability insurance listing Pepco as an additional insured. Contrary to CNA's argument, the fact that Article 13.1 of the subcontract was left blank does not demonstrate that lack of such an obligation. Indeed, such a construction of the subcontract would impermissibly render Article 2.1 "meaningless or without force or effect" (Ronnen v Ajax Elec. Motor Corp., 88 NY2d 582, 589).

Given Sav-Mor's contractual obligation to procure liability insurance listing Pepco as an additional insured, there is a factual issue as to whether Pepco is covered as an additional insured under the Blanket Additional Insured Endorsement in Sav-Mor's liability policy with CNA. Consequently, CNA's motion to dismiss Pepco and State's action is denied.

Pepco and State's Cross Motion

Pepco and state cross-move for an order declaring that CNA must defend Pepco in the underlying action and reimburse State for all legal fees, costs, and expenses incurred in defending Pepco in the underlying action. "An insurer's duty to defend is broader than the duty to indemnify and arises whenever the allegations of the complaint against the insured, liberally construed, potentially fall within the scope of the risks undertaken by the insurer" (New York City Hous. Auth. v Commercial Union Ins. Co., 289 AD2d 311, 312, citing Frontier Insulation Contrs. v Merchants Mut. Ins. Co., 91 NY2d 169).

If it is ultimately established that the underlying accident arose out of Sav-Mor's work, or the work of a party hired by Sav-Mor (i.e., FRP), Pepco will qualify as an additional insured under the Blanket Additional Insured Endorsement in Sav-Mor's policy with CNA. Although it is presently unclear whether the underlying accident arose out of Sav-Mor's or FRP's work, given the fact that they are defendants in the underlying action, it is within the [*4]realm of possibilities. Accordingly, CNA is obligated to defend Pepco in the underlying action and to reimburse State for all legal fees, costs, and expenses it has incurred in defending Pepco up to this point.

Finally, State and Pepco seek an order declaring that Pepco's coverage under Sav-Mor's CNA policy is primary to Pepco's coverage under its insurance policy with State. In the subcontract, Sav-Mor agreed to list Pepco as an additional insured under its liability policy. In so doing, Sav-Mor signified that its own carrier (CNA) would provide Pepco with primary coverage on the risk (Pecker Iron Works of New York v Traveler's Ins. Co., 99 NY2d 391, 393-394). At the same time, the Blanket Additional Insured Endorsement in the CNA policy provides that the additional insured coverage will be excess "unless a contract specifically requires that this insurance be primary." Thus, because the subcontract requires Pepco's coverage as an additional insured to be primary, Pepco's coverage under the CNA policy will be primary to its coverage under its policy with State if it is ultimately determined that the CNA policy covers Pepco as an additional insured (id.).[FN1]

Summary

Accordingly, CNA's motion to dismiss Pepco and State's action is denied. Pepco and State's cross motion for an order declaring that CNA must defend Pepco in the underlying action and reimburse State for all legal fees, costs, and expenses it has incurred defending Pepco in the underlying action is granted. Pepco and States cross motion for an order declaring that Pepco's coverage under the CNA policy is primary to its coverage under the State policy is granted to the extent that it is ultimately determined that Pepco is covered under the CNA policy.

This constitutes the decision and order of the court.

E N T E R,

J. S. C. Footnotes

Footnote 1:Obviously, if it is ultimately determined that Pepco is not covered as an additional insured under the CNA policy because the underlying accident did not arise out of Sav-Mor or FRP's work, then Pepco's coverage under the CNA policy would not be primary.