Woodbury, NY, June 16, 2017 –– Allocating risk for construction accidents is a vital concern for property owners, developers, general contractors and subcontractors. This is especially true in New York where application of New York’s Labor Law has resulted in steady insurance premium increases for decades. Risk allocation typically takes two forms: (1) contractual indemnification and (2) additional insured protection for liability “arising out of” or “caused by” contractors work.
Historically, additional insured protection did not require proof that the contractor’s negligence caused the accident. For example, if a subcontractor’s employee sustained an injury on a jobsite, additional insured coverage would generally be triggered under the subcontractor’s liability insurance policy—regardless of whether the subcontractor’s or the additional insured’s negligence caused the accident—based solely upon the fact that it was that subcontractor’s employee that was injured.
On June 6, 2017, the Court of Appeals, New York’s highest court, issued a decision in Burlington Insurance Company v. NYC Transit Authority that dramatically reshapes how additional insured coverage will be applied under the most common additional insured provision—this provision essentially provides coverage for liability “caused, in whole or in part, by” a contractor’s operations. Upsetting years of prior legal decisions, the Court has found that this “caused by” language requires proof that the contractor’s operations “proximately caused” an accident before additional insured coverage is triggered. According to the Court, “proximate cause” means a contractor’s “negligent” act or “some other actionable deed.” “Other actionable deed,” while not clearly defined by the Court, is probably synonymous with a finding of liability, which is likely similar to negligence.
In short, absent proof that a contractor’s negligence caused an accident, additional insured coverage under the “caused by” endorsement will likely not be triggered.
The practical considerations of this case for developers, general contractors and subcontractors are profound in that subcontractors’ insurers will likely resist tenders for longer periods of time while they confirm (via litigation and investigation) that their insureds’ negligence caused the accident. This may lead to increased litigation costs, which may impact your insurance program.
As with any major decision from the Court of Appeals, we can expect later cases to impact how the Court’s ruling should be applied. We will continue to monitor developments and provide updates as these new ground rules for risk allocation are applied.
