The Burlington Insurance Company, Appellant,v.NYC Transit Authority, et al., Respondents.

Brief

N.Y.April 26, 2017

To be Argued by: JOSEPH D’AMBROSIO (Time Requested: 30 Minutes) APL 2016-00096 New York County Clerk’s Index No. 102774/11 Court of Appeals of the State of New York THE BURLINGTON INSURANCE COMPANY, Plaintiff-Appellant, - against - NYC TRANSIT AUTHORITY and MTA NEW YORK CITY TRANSIT, Defendants-Respondents. BRIEF FOR PLAINTIFF-APPELLANT Of Counsel: JOSEPH D’AMBROSIO JAMES M. ADRIAN ANDREW I. MANDELBAUM JOHN A. MATTOON, JR. FORD MARRIN ESPOSITO WITMEYER & GLESER, L.L.P. Wall Street Plaza 88 Pine Street, 23rd Floor New York, New York 10005 Tel.: (212) 269-4900 Fax: (212) 344-4294 - and - ADRIAN CASSIDY & ASSOCIATES LLC 200 Park Avenue, Suite 1700 New York, New York 10166 Tel.: (646) 632-3704 Fax: (212) 682-0278 Attorneys for Plaintiff-Appellant Dated: July 5, 2016 i DISCLOSURE STATEMENT PURSUANT TO § 500.1(F) Pursuant to § 500.1(f) of the Rules of the Court of Appeals, Plaintiff- Appellant The Burlington Insurance Company (hereinafter “Burlington”), by and through its attorneys, Ford Marrin Esposito Witmeyer & Gleser, L.L.P. and Adrian-Cassidy, LLC, advises the Court as follows: The Burlington Insurance Company is a wholly-owned subsidiary of Guilford Insurance Company, which is a wholly-owned subsidiary of Alamance Insurance Company, which is a wholly-owned subsidiary of First Financial Insurance Company, which is a wholly-owned subsidiary of FFIC Holdings, Incorporated, which is a wholly-owned subsidiary of Burlington Insurance Group, Incorporated, which is a wholly-owned subsidiary of International Financial Group, Incorporated, whose shares are privately held. No publicly-traded company owns 10% or more of the outstanding shares of International Financial Group, Incorporated. ii TABLE OF CONTENTS TABLE OF AUTHORITIES ................................................................................ iv QUESTIONS PRESENTED FOR REVIEW ........................................................ 1 STATEMENT OF JURISDICTION ...................................................................... 2 PRELIMINARY STATEMENT ............................................................................ 4 STATEMENT OF PROCEDURAL HISTORY ................................................... 9 Factual Background ...........................................................................................10 Proceedings Below ..............................................................................................14 STANDARD OF REVIEW ...................................................................................16 ARGUMENT ..........................................................................................................18 I. THE DECISION CONFLICTS WITH THE ENDORSEMENT’S PLAIN MEANING, ORDINARY PRINCIPLES OF CONTRACT INTERPRETATION, AND THE DRAFTERS' INTENT .........................18 A. “Caused By” and “Arising Out of” Do Not Have the Same Plain Meaning ....................................................................................................18 B. Ordinary Contract Principles Support a Proximate Cause Trigger ..........21 C. The Drafters’ Intent, As Recognized by the Appellate Division, Was to Narrow the Scope of Additional Insured Coverage .....................27 D. The Decision is Inconsistent with the Parties’ Reasonable Expectations .............................................................................................31 II. THE FIRST DEPARTMENT’S INTERPRETATION OF THIS NARROWLY-WORDED ENDORSEMENT PROVIDES MORE EXTENSIVE COVERAGE THAN THIS COURT FOUND UNDER THE BROADER ENDORSEMENTS INTERPRETED IN WORTH CONSTRUCTION AND REGAL CONSTRUCTION .............................33 iii III. THE FIRST DEPARTMENT’S INTERPRETATION OF THIS ENDORSEMENT IS CONTRARY TO THE INTERPRETATION OF VIRTUALLY ALL OTHER COURTS ............................................38 IV. THE TRIAL COURT PROPERLY REJECTED THE PRIMARY ARGUMENTS RAISED BY NYCTA BELOW, WHICH ARGUMENTS WERE NOT ADDRESSED BY THE APPELLATE DIVISION ..................................................................................................48 A. The Payment Made By Burlington to Settle the Kenny Action Was Not a “Voluntary Payment” .................................................................48 B. The Anti-Subrogation Rule, By Definition, is Inapplicable if NYCTA is Not Entitled to Additional Insured Coverage from Burlington ........52 C. Burlington, as Equitable Subrogee of the City of New York, Is Entitled to Indemnification from NYCTA Pursuant toNYCTA’s Obligations Under the 1953 Lease with the City .....................................................53 CONCLUSION .......................................................................................................57 iv TABLE OF AUTHORITIES Cases Aetna Cas. & Surety Co. v. Liberty Mut. Ins. Co., 91 A.D.2d 317, 459 N.Y.S.2d 158 (4th Dep’t 1983) ........................................................ 45, 46, 47 Am. Empire Surplus Lines Ins. Co. v. Crum & Forster Specialty Ins. Co., 2006 U.S. Dist. LEXIS 33556 (S.D. Tex. May 23, 2006) ....................................39 Am. Ref-Fuel Co. v. Res. Recycling, Inc., 307 A.D.2d 939, 763 N.Y.S.2d 657 (2d Dep’t 2003) .....................................................................................................56 Am. General v. Progressive, 110 N.M. 741, 799 P.2d 1113 (1990) ........................51 Am. Guarantee and Liability Ins. Co. v. CNA Reinsurance Co., 16 A.D.3d 154, 791 N.Y.S.2d 525 (1st Dep’t 2005) ............................................................... 44, 45 Argentina v. Energy World Wide Delivery Corp., 93 N.Y.2d 554, 693 N.Y.S.2d 493 (1999) ......................................................................................22 Belt Painting Corp. v. TIG Ins. Co., 100 N.Y.2d 377, 763 N.Y.S.2d 790 (2003). .16 Bigby v. U.S., 188 U.S. 400 (1903) ..........................................................................23 BP A.C. Corp. v. One Beacon Ins. Group, 8 N.Y.3d 708, 840 N.Y.S.2d 302 (2007) ............................................................................... 48, 53 Broadway Houston Mack Dev., LLC v. Kohl, 71 A.D.3d 937, 897 N.Y.S.2d 505 (2d Dep’t 2010) .....................................................................................................50 Chapel v. Mitchell, 84 N.Y.2d 345, 618 N.Y.S.2d 626 (1994) ...............................56 Coleman v. City of New York, 91 N.Y.2d 821, 666 N.Y.S.2d 553 (1997) ....... 54, 55 Consolidated Coal Co., Inc. v. Liberty Mut. Ins. Co., 406 F. Supp. 1292 (W.D. Pa. 1976) ....................................................................................................26 Consolidated Edison Co. of N.Y. v. Allstate Ins. Co., 98 N.Y.2d 208, 746 N.Y.S.2d 622 (2002) ......................................................................................16 v Continental Cas. Co. v. Fifth/Third Bank, 418 F. Supp. 2d 964 (N.D. Ohio 2006) ..................................................................................................51 Cragg v. Allstate Indem. Corp., 17 N.Y.3d 118, 926 N.Y.S.2d 867 (2011) .... 21, 31 Crespo v. City of New York, 303 A.D.2d 166, 756 N.Y.S.2d 183 (1st Dep’t 2003) ............................................................................................. 44, 45 Custom Cartage, Inc. v. Motorola, Inc., 1999 U.S. Dist. LEXIS 16462 (N.D. Ill. Oct. 14, 1999) ........................................................................................52 Dale Corp. v. Cumberland Mut. Fire Ins. Co., 2010 U.S. Dist. LEXIS 127126 (E.D. Pa. Nov. 30, 2010)................................................................................ 39, 44 E.J. Stewart, Inc. v. Aitken Products, Inc., 607 F. Supp. 883, 888 (E.D. Pa. 1985)......................................................................................................27 Engineering & Construction Innovations, Inc. v. L.H. Bolduc Co., 825 N.W.2d 695 (Minn. 2013) ...................................................................... 40, 41 Fed. Ins. Co. v. Arthur Andersen & Co., 75 N.Y.2d 366, 553 N.Y.S.2d 291 (1990) ......................................................................................51 First Mercury Ins. Co. v. Shawmut Wood-Working & Supply, Inc., 48 F. Supp. 3d 158 (D. Conn. 2014). ............................................................. 28, 30 Garcia v. Federal Ins. Co., 969 So.2d 288 (Fla. 2007) ...........................................42 Gilbane Building Company v. Admiral Ins. Co., 664 F.3d 589 (5th Cir. 2011) ......20 Goldman & Sons v. Hanover Ins. Co., 80 N.Y.2d 986, 592 N.Y.S.2d 645 (1992) ......................................................................................16 Hamlet at Willow Cr. Dev. Co., LLC v. Northeast Land Dev. Corp., 64 A.D.3d 85, 878 N.Y.S.2d 97 (2d Dep’t 2009) .................................................51 Hartford Fire Ins. Co. v. California, 509 U.S. 764 (1993) .....................................28 vi HBE Corp. v. Harleysville Grp., Inc., 2015 U.S. Dist. LEXIS 131972 (N.D.N.Y Sept. 30, 2015) .............................................................................. 44, 47 Hobbs v. Shingobee Builders, Inc., 2013 Mich. App. LEXIS 1792 (Nov. 7, 2013) .......................................................................................................43 Jorge v. Travelers Indem. Co., 947 F. Supp. 150 (D.N.J. 1996) .............................51 Liberty Mut. Ins. Co. v. Zurich Am. Ins. Co., 2014 U.S. Dist. LEXIS 42471 (S.D.N.Y. Mar. 28, 2014). ............................................................................. 43, 44 Lipper Holdings, LLC v. Trident Holdings, LLC, 1 A.D.3d 170 766 N.Y.S.2d 561 (1st Dep’t 2003) ......................................................................17 Markevics v. Liberty Mutual Ins. Co., 97 N.Y.2d 646, 735 N.Y.S.2d 865 (2001). .....................................................................................53 Maroney v. New York Central Mutual Fire Insurance Company., 5 N.Y.3d 467, 805 N.Y.S.2d 533 (2005) ................................................. 32, 33, 47 National Abatement Corp. v. National Union Fire Ins. Co. of Pittsburgh, Pa., 33 A.D.3d 570, 824 N.Y.S.2d 230 (1st Dep’t 2006) ............................................17 Nat’l Union Fire Ins. Co. v. XL Ins. Am., Inc., 2013 U.S. Dist. LEXIS 68467, 2013 WL 1944468 (S.D.N.Y. May 6, 2013) ................................................. 43, 44 Nomura Holding Am., Inc. v. Fed. Ins. Co., 45 F. Supp.3d 354 (S.D.N.Y. 2014) ....................................................................................................22 Nor-Son, Inc. v. Western National Mut. Ins. Co., 2012 Minn. App. Unpub. LEXIS 411 (Minn. App. May 14, 2012) ..............................................................43 North Star Reins. Corp. v. Cont’l Ins. Co., 82 N.Y.2d 281, 604 N.Y.S.2d 510 (1993) ....................................................................................................................53 NYP Holdings v. McClier Corp., 65 A.D.3d 186, 881 N.Y.S.2d 407 (1st Dep’t 2009) ....................................................................................................50 O’Dowd v. American Surety Company of New York, 3 N.Y.2d 347, 165 N.Y.S.2d 458 (1957) ......................................................................................53 vii O’Dwyer v. Manchester Ins. Co., 303 So.2d 347 (Fla. Dist. Ct. App. 1974 ...........30 Ocean Acc. & Guar. Corp. v. Hooker Electrochemical Corp., 240 N.Y. 37 (1925) ...............................................................................................51 Olin Corp. v. Am. Home Assur. Co., 704 F.3d 89 (2d Cir. 2012) ...........................21 Ortiz v. New York City Tr. Auth., 30 Misc. 3d 1208A, 958 N.Y.S.2d 647 (Sup. Ct., N.Y. County, 2010) ..............................................................................54 Pierce v. Syracuse Univ., 236 A.D.2d 870, 653 N.Y.S.2d 753 (4th Dep’t 1997) ....................................................................................................53 Pro Con Inc. v. Interstate Fire & Cas. Co., 794 F. Supp. 2d 242 (D. Me. 2011) ...25 Raven v. Universal Strapping Corp., 2015 NY Slip Op. 06579 (2d Dep’t Aug. 19, 2015) ......................................................................................................24 Red Ball Motor Freight, Inc. v. Employers Mut. Liability Ins. Co., 189 F.2d 374 (5th Cir. 1951) ................................................................................20 Regal Construction Cor. v. National Union Fire Ins. Co. of Pittsburgh, PA, 15 N.Y.3d 34, 904 N.Y.S.2d 338 (2010) ...................................................... passim Rodrigues v. N&S Building Contractors, Inc., 5 N.Y.3d 427, 805 N.Y.S.2d 427 (2005) ......................................................................................................... 6, 23, 24 Schwartz v. Merola Bros. Construction Corp., 290 N.Y. 145 (1943) .................6, 20 Shannon v. B.L. England Generating Station, 2013 U.S. Dist. LEXIS 168715 (D.N.J. Nov. 27, 2013) ..........................................................................................20 Smith v. Toys “R” Us, Inc., 2012 N.J. Super. Unpub. LEXIS 2080 (Sept. 5, 2012) ......................................................................................................42 Stewart v. Federated Dep’t Stores, 662 A.2d 753 (Conn. 1995) ..................... 27, 30 viii Strauss Painting, Inc. v. Mt. Hawley Ins. Co., 105 A.D.3d 512, 963 N.Y.S.2d 197 (1st Dep’t 2013), mod on other grounds, 24 N.Y.3d 578, 2 N.Y.S.3d 390 (2014) ..........................................................................................45 The United Pacific Ins. Co. v. Schetky Equipment Co., 217 Ore. 422, 342 P.2d 766 (1959) ..............................................................................................52 Underwriters at lloyd's of London v. Cordova Airlines, Inc., 283 F.2d 659 (9th Cir. 1960) .......................................................................................................43 Union Carbide Corp. v. Affiliated FM Ins. Co., 68 A.D.3d 534, 535-36, 891 N.Y.S.3d 347, 350 ................................................................................................22 Universal Am. Corp. v. National Union Fire Ins. Co. of Pittsburgh, Pa., 25 N.Y.3d 675, 680, 16 N.Y.S.3d 21 (2015) ........................................................16 Utica Nat’l Ins. Co. of Texas v. Am. Indem. Co., 141 S.W.3d 198, 203 (Tex. 2004) ............................................................................................................20 Vikhor v. City of New York, 43 A.D.3d 914, 916, 842 N.Y.S.2d 456 (2d Dep’t 2007) .....................................................................................................54 W & W Glass Sys., Inc. v. Admiral Ins. Co., 91 A.D.3d 530, 937 N.Y.S.2d 28 (1st Dep’t 2013) ................................................................. 19, 46 Wausau Underwriters Ins. Co. v. Old Republic Gen. Ins. Co., 2015 U.S. Dist. LEXIS 103954 (S.D.N.Y. Aug. 7, 2015) ....................................44 Westview Assocs. v. Guar. Nat’l Ins. Co., 95 N.Y.2d 334 (2000) ...........................21 Worth Construction Co. v. Admiral Ins. Co., 10 N.Y.3d 411, 859 N.Y.S.2d 101 (2008) .............................................................................. passim Wozniak v. City of New York, 35 Misc. 3d 1242A, 2012 NY Slip Op 51108 (U) (Sup. Ct., N.Y. County, 2012) ..............................................................................55 ix Statutes and Rules N.Y. Const. Art. 6 § 3(a) ..........................................................................................16 N.Y. C.P.L.R. R. 2103(b)(2) ...................................................................................... 9 N.Y. C.P.L.R. § 5501(b). .........................................................................................16 N.Y. C.P.L.R. § 5513(b) ............................................................................................ 9 N.Y. Labor Law § 240. ................................................................... 11, 34, 37, 55, 56 N.Y. Labor Law § 241 .......................................................................... 11, 34, 37, 56 N.Y. Labor Law § 200 .............................................................................................11 N.Y. Pattern Jury Instructions §2.70 ........................................................................23 N.Y. Work. Comp. Law § 11………………………………..……………………56 Other Authorities 6B Appleman, Insurance Law & Practice [rev ed], § 43117 .................................. 46 Arthur Karger, Powers of the New York Court of Appeals § 23 .............................. 2 Business Insurance.com, ISO Seeking to Narrow CGL Cover for Additional Insureds, http://www.businessinsurance.com/apps/pbcs.dll/article?AID=9999100014005 ...29 Christopher J. Boggs, Contractual Risk Transfer and Endorsements to the CG, http://www.mynewmarkets.com/articles/101742/contractual-risk-transfer-and- endorsements-to-the-cgl. ..........................................................................................30 Christopher J. Boggs, The Progressively Narrowing Coverage of CG 20 10: Contractors and Additional Insured Endorsements, http://www.mynewmarkets.com/articles/95530/the-progressively-narrowing- coverage-of-cg-20-10-contractors-and-additional-insured-endorsements ..............29 x 16 G. Couch, R. Anderson & M. Rhodes, Cyclopedia of Insurance Law § 61:57 [rev. 2d ed. 1983] ................................................................... 24, 47, 51, 52 Phillip L. Bruner & Patrick J. O’Connor, Jr., Bruner and O’Connor on Construction Law § 11:167 (2010). ..............................28 Robert Marshburn, ISO Endorsements and CGL Policy - 10 01 Edition, http://certifiedriskmanagers.com/NewISOforms.htm ............................................29 Stacy A. Broman and Jenny L. Sautter, Additional Insured Endorsements: Recent Efforts to Limit Coverage to the Additional Insured, www.thefederation.org/documents/V57N1-Broman.pdf. .......................................29 W. Prosser & W. Keeton, Torts (5th Ed. 1984) ........................................................27 William Cary Wright and Clifford Shapiro, Construction Contract Indemnities, the “Insured Contract,” and Additional Insured Coverage, in Construction Insurance: A Guide for Attorneys and Other Professionals ............................. 19, 28 1 QUESTIONS PRESENTED FOR REVIEW 1. Whether a party is entitled to additional insured indemnity coverage-for injuries to its own employee-under a policy endorsement providing coverage for liability “caused by” the “acts or omissions” of the policy’s named insured, where the named insured is without fault and the putative additional insured’s negligence is the sole proximate cause of the injuries? ANSWER: No. The trial court correctly held that no indemnity coverage is afforded under these circumstances. The Appellate Division erred in reversing because its interpretation of the endorsement is inconsistent with the endorsement’s plain language and intent, conflicts with prior decisions of this Court, and is contrary to the interpretation given by courts nationwide interpreting this same exact policy language. 2. Whether an industry standard endorsement that limits additional insured coverage to liability “caused by” the “acts or omissions” of the named insured has the same meaning as prior standard endorsements which extended coverage broadly to liability “arising out of” the work or operations of the named insured? ANSWER: No. The Appellate Division erroneously held that there is no meaningful difference between these different endorsements. 2 STATEMENT OF JURISDICTION The Court of Appeals granted leave by Order dated May 5, 2016 and has jurisdiction with respect to this appeal as the Judgment constitutes a clear instance of party finality. The Judgment fully disposes of all of Burlington’s claims and all claims against Burlington. See Arthur Karger, Powers of the New York Court of Appeals § 23 at 138-45. Burlington hereby appeals from the Order and Decision of the Appellate Division, First Department dated August 11, 2015 (the “Decision”), which reversed the December 20, 2012 and December 17, 2013 Orders of Hon. Michael Stallman, J.S.C., and declared that Defendants-Respondents NYC Transit Authority and MTA New York City Transit (hereinafter, collectively “NYCTA”), were entitled to coverage as additional insureds under a general liability insurance policy issued by Burlington to its named insured, Breaking Solutions, Inc. (hereinafter “Breaking Solutions”), in the absence of any negligence on the part of Breaking Solutions, even though the policy requires that the underlying accident be “caused . . . by the acts or omissions” of Breaking Solutions. This case presents a question of insurance policy interpretation in the context of a standard form additional insured endorsement contained in many commercial general liability insurance policies. Many contractual arrangements require that one party provide additional insured coverage for another party. This requirement 3 is common in the construction industry, in which subcontractors are required to procure additional insured coverage for upstream parties such as the general contractor and the property owner. The scope of that additional insured coverage is the question before this Court. 4 PRELIMINARY STATEMENT The additional insured endorsement at issue in this case is an amendment to earlier industry-standard endorsements which provided broad coverage to the additional insured for liability “arising out of” the operations or work of the named insured. Burlington’s amended endorsement was narrowed to only trigger coverage for the additional insured if the liability is “caused, in whole or in part, by [named insured’s] acts or omissions.” (R. 432). In this case, it is undisputed that the named insured, Breaking Solutions, did not cause the underlying accident in any way. Rather, the accident was caused solely by the acts of the purported additional insured, NYCTA. Yet, the First Department panel1 held that “caused by . . . acts or omissions” means nothing more than “arising out of” the named insured’s work. In other words, the Appellate Division adopted a “but for” causation test. Since Breaking Solutions was working on the job on the day of the accident and committed a “non- negligent” act (excavating concrete), the Appellate Division held that the injury to NYCTA’s employee (from tripping and falling from an elevated work bench) would not have occurred “but for” Breaking Solution’s “act” (excavating concrete). The Appellate Division therefore found that Burlington owed additional insured coverage in favor of NYCTA for an injury to NYCTA’s own employee 1 The Decision is a departure from earlier decisions issued by others panels of the Appellate Division, First Department over the past several years. See infra Argument III, at pp. 44-47. 5 involving an accident in which NYCTA’s negligence was the sole proximate cause. The fact scenario in this case presents this Court with an opportunity to determine whether there is any real limitation on the scope of additional insured coverage in New York. The Decision reaches a result contrary to (1) the endorsement’s plain language and the drafters’ intent as reflected in this Court’s prior decisions involving similar language; (2) this Court’s precedent in Worth Constr. Co., Inc. v. Admiral Ins. Co, 10 N.Y.3d 411, 859 N.Y.S.2d 101 (2008) and Regal Constr. Corp. v. National Union Fire Ins. Co. of Pittsburgh, PA, 15 N.Y.3d 34, 904 N.Y.S.2d 338 (2010); (3) decisions from the Fourth Department as well as other panels of the First Department; (4) decisions from virtually every other jurisdiction nationwide that has addressed this issue; and (5) the parties’ reasonable expectations. With respect to the plain meaning of the amended endorsement, courts have consistently held that “arising out of” are words of much broader significance than “caused by.” When read in its entirety, the amended endorsement plainly provides additional insured coverage so long as the additional insured is not the sole proximate cause of the accident, and so long as the named insured’s acts or omissions are at least a proximate cause, even if only a minor one. 6 The First Department panel’s strained attempt to equate the two endorsements forced it to ignore certain important words in the amended endorsement. For example, the “whole or in part” language contained in the amended endorsement is rendered superfluous and meaningless if the First Department panel’s interpretation is adopted. The reason is that there is no such thing as a partial “but for” cause. Accordingly, the “whole or in part” language is obviously tied to proximate cause, as reflected in New York’s Pattern Jury Instructions, which employ that same terminology. Partial “but for” cause simply makes no sense in this context. Indeed, this Court has already interpreted this same “caused in whole or in part by acts or omissions” language in the context of an indemnity contract. Even though the indemnity language did not specify that the “act or omission” be a negligent one, this Court held that proximate causation was still required. Rodrigues v. N&S Building Contractors, Inc., 5 N.Y.3d 427, 805 N.Y.S.2d 427 (2005); see also Schwartz v. Merola Bros. Construction Corp., 290 N.Y. 145, 153 (1943). The “but for” causation test adopted by the First Department panel poses practical consequences because it provides no actual limitation on additional insured coverage. There will never be a situation in which an “act” of the named insured would not satisfy the “but for” causation test adopted by the First Department panel. 7 The Decision also conflicts with, and is intellectually irreconcilable with this Court’s decisions in Worth Construction and Regal Construction. In those cases, both involving the broader “arising out of” endorsements, this Court placed certain limitations on the scope of additional insured coverage. Yet here, under plainly narrower language, the First Department panel created coverage without any practical limitation. The end result is that there is arguably broader coverage under the First Department panel’s “but for” test interpreting narrower endorsement language than under the nexus test adopted by this Court for interpreting earlier and much broader endorsement language. Despite the First Department panel’s recognition that the drafters amended the endorsement in order to narrow the scope of coverage, it nonetheless construed the amended endorsement to provide coverage for the one limited situation (named insured’s sole negligence) that the drafters intended not to cover. Although not binding on this Court, every court, whether state and federal, which has had the opportunity to analyze this same endorsement, has interpreted it in the manner advanced by Burlington. In doing so, these other courts each adopted the same interpretive arguments advanced by Burlington in this case. This serves to demonstrate that Burlington’s interpretation is the correct one. It is also telling that NYCTA did not advance the policy interpretation argument adopted by the First Department panel. Instead, NYCTA advanced the 8 completely contradictory argument that Burlington did not owe coverage to the City (or NYCTA), and therefore Burlington’s settlement payment on behalf of the City was a voluntary one that could not be recovered in subrogation. That argument has no merit on its face, and was rejected, explicitly and tacitly, by the courts below. Another argument raised by NYCTA below was anti-subrogation, which is also a red herring. Anti-subrogation bars one insured from suing another insured for a risk covered by the same policy. That rule simply does not apply here if Burlington does not owe coverage to NYCTA.2 Finally, NYCTA has never offered any reason that it would not owe contractual indemnity to the City for the Kenny Action. Thus, if Burlington does not owe additional insured coverage to NYCTA, then, as the trial court correctly ruled, it is permitted to subrogate so as to stand in the City’s shoes in order to recoup payments it made in the Kenny Action based on the indemnification agreement between the City and NYCTA. For all of these reasons, Burlington submits that the Decision should be reversed, that the trial court’s orders should be reinstated, and that the matter be remanded to the trial court for further proceedings. 2 Burlington has conceded that anti-subrogation would apply if it owes coverage to NYCTA. 9 STATEMENT OF PROCEDURAL HISTORY The Decision reversed two Decisions and Orders of the New York County Supreme Court, dated December 20, 2012 (hereinafter “Trial Court Order I”) and December 17, 2013 (hereinafter “Trial Court Order II”) respectively (R. 8, 42), which had granted Burlington partial summary judgment on the declaratory judgment cause of action, leave to amend its complaint to add a subrogation claim, and summary judgment on its amended cause of action in subrogation for contractual indemnity against NYCTA. The Appellate Division, First Department denied Burlington leave to appeal in a decision dated October 27, 2015. Thereafter, Burlington moved this Court for leave to appeal from the Decision (hereinafter “First Motion for Leave”). Burlington’s first motion for leave to appeal was timely as it was made within 35 days from NYCTA’s mail service of Notice of Entry. CPLR 5513(b); 2103(b)(2). NYCTA opposed the first motion for leave on the grounds that the Order was not “final” as an issue relating to NYCTA’s claim for of attorneys’ fees remained open in the trial court. Subsequently, a final Judgment was entered in the trial court on January 8, 2016. (R. 1563). NYCTA served Notice of Entry of the Judgment on Burlington by mail on January 8, 2016. (Id.). Thereafter, Burlington timely filed a motion for leave to appeal from the Judgment (hereinafter “Second Motion for Leave”). This 10 Court denied Burlington’s First Motion for Leave by Order dated May 5, 2016 on the grounds that the Decision was not final. This Court, however, granted Burlington’s Second Motion for Leave to appeal from the Judgment, by Order dated May 5, 2016. (R. 1540). Factual Background The underlying action giving rise to this dispute is Kenny v. City of New York, Docket No. 09-cv-1422 (United States District Court for the Eastern District of New York) (hereinafter “Kenny Action”). (R. 322-50). The Kenny Action arose out of a subway construction project (the “Project”) which included the excavation of a subway tunnel near Nostrand Avenue Station, Brooklyn. (R. 184-321). NYCTA was in possession of the premises as a lessee of the City of New York (the “City”) pursuant to a 1953 lease agreement (the “1953 Lease”). (R. 1131-66). On or around October 23, 2008, Breaking Solutions and NYCTA entered into a contract (the “Contract”), pursuant to which Breaking Solutions would lease equipment and an operating engineer to NYCTA. (R. 184-321). On the day of the underlying accident, Breaking Solutions served as a hired vendor, providing a concrete breaker known as a “Brokk” machine, which was used to chip concrete pursuant to instructions from NYCTA employees. (R. 301-03). 11 The Contract contained insurance procurement requirements whereby Breaking Solutions was obligated to obtain liability insurance. (Id).3 In satisfaction of the Contract’s requirements, Breaking Solutions obtained the Burlington Policy, policy no. HGL0019305, which was effective July 17, 2008 to July 17, 2009 from Burlington. (R. 362-445). The Burlington Policy contains an endorsement that includes both NYCTA and MTA as additional insureds for liability “caused, in whole or in part, by: 1. Your acts or omissions; or 2. The acts or omissions of those acting on your behalf; in the performance of your ongoing operations…” (R. 432). The facts of the underlying action are generally not disputed. Thomas Kenny (“Kenny”), a NYCTA employee, sought recovery for injuries allegedly sustained when he fell from an elevated work platform. (R. 323-36). Kenny allegedly tripped on platform debris and fell to the ground below while trying to flee the subway tunnel after an explosion. (R. 325-27). The explosion occurred when excavation equipment came into contact with a live electrical cable buried below the concrete, which cable was neither properly identified and marked nor de-energized by NYCTA. (R. 608). Kenny brought suit against the City and Breaking Solutions (R. 323-36), alleging causes of action under New York Labor Law §§ 240(1), 241 (6) and 200. 3 The Contract also contained an indemnification provision in favor of NYCTA, which expressly excluded indemnity for injury or damage “to the extent caused by the negligence of [NYCTA].” (R. 281). 12 (R. 323-36). Burlington agreed to provide a defense to both Breaking Solutions and the City subject to a reservation of rights. (R. 450-51). Following Burlington’s reservation of rights with respect to the City, NYCTA sent a December 3, 2009 letter to Breaking Solutions, stating that $153,000 in payments would be withheld unless Burlington agreed to defend and indemnify the City without reservation. Burlington agreed to withdraw its reservation of rights as to the City after NYCTA threatened financial penalties against its policyholder. (R. 1168). During the Kenny Action, the City, through its own attorneys, commenced a third-party action against NYCTA for contractual indemnification.4 (R. 140-49). After NYCTA was impleaded, it tendered the third-party claims to Burlington as an alleged additional insured under the Burlington Policy. (R. 462-63). In April 2010, Burlington accepted the defense of NYCTA in the third-party action subject to a reservation of rights, specifying that NYCTA’s liability had to be caused by Breaking Solutions’ “acts or omissions” for NYCTA to be additional insureds under the Burlington Policy. (R. 530-34). As it did with the City, Burlington reserved its rights to disclaim coverage on this basis. (Id.). As it did with the City, Burlington gave NYCTA the option of retaining its own defense counsel or having Burlington assign defense counsel. (R. 533). NYCTA did not 4 NYCTA could not be sued directly because as Kenny’s employer, such claims are barred by New York State Workers’ Compensation law. 13 respond and Burlington assigned defense counsel to defend it in the underlying action. (R. 1171). Discovery in the Kenny Action continued for several more months. After the close of fact discovery, it was confirmed that the accident was not caused by any negligence on the part of Breaking Solutions. (R. 605-11). Specifically, it was undisputed that the accident was caused solely by the negligence of NYCTA in failing to shut down power to the cable wires prior to the commencement of the excavation work. (R. 605-11). NYCTA witnesses had contemporaneously admitted that the Breaking Solutions equipment and operators performed their functions properly. (R. 611).5 The proximate cause of the incident was not the leased equipment or how it was operated, but the failure of NYCTA to de-energize the area where the concrete breaking was taking place causing an “electrical short” to occur, which in turn “startled” Kenny, who in turn stumbled over debris in the work area for which NYCTA was also responsible, which caused his fall from an elevated work platform leading to his injuries. As a result of these revelations, Burlington disclaimed indemnity coverage to NYCTA on December 10, 2010 and informed NYCTA that it would no longer be providing a defense for the Kenny Action. (R. 457-59). At this point, NYCTA 5 According to NYCTA’s own report: “the Brokk Operators were operating the equipment properly and had no way of knowing that the cables were submerged in the invert.” (R. 611) (emphasis added). 14 did not honor its contractual obligations and refused to indemnify the City, as required by the 1953 Lease, but rather, despite its admissions, continued to argue that coverage existed for NYCTA under the Burlington Policy. By Order dated September 26, 2011, U.S. District Court Judge Rosalyn Mauskopf dismissed all claims against Breaking Solutions with prejudice, noting that “Plaintiffs concede that the action against Breaking Solutions is meritless.” (R. 576). Pursuant to the 1953 Lease, the ultimate responsibility for indemnifying the City lies with NYCTA. After NYCTA shirked its obligation to indemnify the City, Burlington paid Nine Hundred and Fifty Thousand Dollars ($950,000) (“the Settlement Payment”) to settle the Kenny Action on behalf of the City, the only remaining defendant, on the eve of trial. Burlington also paid substantial defense costs on behalf of the City in the Kenny Action.6 Proceedings Below Burlington initially brought this action against NYCTA in order to obtain a declaration that it did not owe coverage to NYCTA with respect to the Kenny Action. (R. 109-17). After paying the Settlement Payment on behalf of the City, Burlington sought leave to amend its complaint in order to recover this payment from NYCTA as a subrogee of the City. (R. 100-01). Burlington also moved for summary judgment seeking a declaration of no coverage. (R. 1283-84). By Order 6 The total amount of defense costs is disputed by Defendants-Respondents. 15 dated December 20, 2012, the Supreme Court (Stallman, J.) held that Burlington does not owe coverage to NYCTA and granted Burlington leave to amend its complaint to add a subrogation claim based on the City’s rights to seek reimbursement for these payments. (R. 1-4). Thereafter, by Order dated December 17, 2013, the trial court granted Burlington summary judgment on its amended cause of action for contractual indemnity against NYCTA pursuant to the City’s rights under the 1953 Lease. (R. 8-32). The trial court ruled that Burlington is subrogated to the City’s rights to reimbursement for these payments, and is entitled to contractual indemnity from NYCTA pursuant to the 1953 Lease. (Id.). NYCTA appealed each of the lower court’s Orders. (R. 5-7, 38-41). By Decision and Order dated August 11, 2015, the First Department reversed the orders of the trial court, holding that NYCTA was entitled to additional insured coverage, which rendered all other issues moot. (R. 1541). This Court granted Burlington’s motion for leave to appeal from the Judgment. (R. 1539). 16 STANDARD OF REVIEW Interpretation of an insurance policy, and whether a policy affords coverage in a particular case are questions of law subject to de novo review. N.Y. Const. Art. 6 § 3(a); N.Y. C.P.L.R. § 5501(b). Insurance agreements are to be interpreted under the same general principles applicable to contracts generally. Universal Am. Corp. v. National Union Fire Ins. Co. of Pittsburgh, Pa., 25 N.Y.3d 675, 680, 16 N.Y.S.3d 21 (2015). In construing policy provisions defining the scope of coverage pursuant to a policy of insurance, courts “first look to the language of the policy.” Consolidated Edison Co. of N.Y. v. Allstate Ins. Co., 98 N.Y.2d 208, 221, 746 N.Y.S.2d 622, 628 (2002). The extent of an insurer’s liability is governed by the plain language of the policy “in light of common speech and the reasonable expectations of a businessperson.” Belt Painting Corp. v. TIG Ins. Co., 100 N.Y.2d 377, 383, 763 N.Y.S.2d 790, 792 (2003). The court’s objective in interpreting an insurance policy is to ascertain and give effect to the intentions of the parties as reflected in the terms in a manner that “leaves no provision without force and effect.” Consolidated Edison, 98 N.Y.2d at 222. “Where the provisions of a policy are clear and unambiguous, the courts should not strain to superimpose an unnatural or unreasonable construction.” Goldman & Sons v. Hanover Ins. Co., 80 N.Y.2d 986, 987, 592 N.Y.S.2d 645 (1992). Further, courts do not adopt a construction of policy language that leads to 17 a harsh or absurd result. Lipper Holdings, LLC v. Trident Holdings, LLC, 1 A.D.3d 170, 171, 766 N.Y.S.2d 561 (1st Dep’t 2003). It is well established that the burden of proof rests on the party claiming coverage. National Abatement Corp. v. National Union Fire Ins. Co. of Pittsburgh, Pa., 33 A.D.3d 570, 824 N.Y.S.2d 230 (1st Dep’t 2006). Accordingly, it is the purported insured’s burden to establish a prima facie case of coverage. Id. 18 ARGUMENT I. THE DECISION CONFLICTS WITH THE ENDORSEMENT’S PLAIN MEANING, ORDINARY PRINCIPLES OF CONTRACT INTERPRETATION, AND THE DRAFTERS’ INTENT In its Decision, the Appellate Division determined that Burlington owed additional insured coverage to NYCTA under a policy that extended such coverage only for liability “caused in whole or in part by” the “acts or omissions” of the named insured. (R. 1541). The Decision held that coverage was owed despite the fact that Burlington’s named insured, Breaking Solutions, did not commit a negligent act that caused, in whole or in part, the underlying injury to the NYCTA employee. In particular, the First Department ruled that the “act” by Breaking Solutions did not have to be a negligent one, that any causal “act” on the part of Breaking Solutions was sufficient to trigger coverage under the policy. (R. 1553). The result is a “but for” causation test. We respectfully submit that the Appellate Division’s interpretation of this additional insured endorsement conflicts with its plain language, ordinary principles of contract interpretation, and the drafters’ intent. A. “Caused By” and “Arising Out of” Do Not Have the Same Plain Meaning The Appellate Division’s interpretation of this additional insured endorsement is inconsistent with its plain language, which is standard form 19 language drafted by the Insurance Services Office, Inc. (“ISO”) and contained in most commercial general liability policies.7 The First Department panel’s interpretation of this more recent endorsement admittedly renders it the functional equivalent of the earlier-used “arising out of” endorsements.8 Functionally and practically, the First Department’s ruling equates the two clauses inasmuch as any non-negligent “act” that causes an injury would also be an injury that “arises out of” the “work,” “operations,” “act,” “omission,” etc. of the named insured. In this case, the First Department panel concluded that the non-negligent “act” by Breaking Solutions of chopping concrete “caused” the underlying injury to the NYCTA employee even though the employee’s injuries were not the result of electrocution, but were the result of falling from an elevated work platform because of debris on the worksite and the lack of adequate safety equipment. In sum, if negligence or proximate cause on the part of Breaking Solutions is not required under this endorsement, then the “caused . . . by the acts or omissions” standard is no different from the earlier endorsements that provided coverage for liability “arising out of” the named insured’s operations. Such an interpretation is 7 See Appellate Division decision at 18 (R. 1559) (citing William Cary Wright and Clifford Shapiro, Construction Contract Indemnities, the “Insured Contract,” and Additional Insured Coverage, in Construction Insurance: A Guide for Attorneys and Other Professionals, at 162-63, 175 n.94 [2011]). 8 W & W Glass Sys., Inc. v. Admiral Ins. Co., 91 A.D.3d 530, 530, 937 N.Y.S.2d 28, 29 (1st Dep’t 2013)(holding that the phrase “caused by your ongoing operations performed for that insured,” does not materially differ from “arising out of”). 20 illogical and contrary to long-standing precedent in this Court. Schwartz v. Merola Bros. Construction Corp., 290 N.Y. 145, 153 (1943) (provision which provides indemnity for liability “due to any act or omission of the Contractor” does not cover the indemnitee for its own negligence). Other courts have acknowledged that the term “arising out of” cannot be equated with “caused by.” the words “arising out of . . .” are not words of narrow and specific limitation, but are broad, general and comprehensive terms effecting broad coverage and that they are intended to, and do afford protection to the insured against liability imposed upon him for all damages caused by acts, of his employee in charge of the operation or use of the truck, done in connection with or arising out of such use. “Arising out of” are words of much broader significance than “caused by.” They are ordinarily understood to mean “originating from” “having its origin in,” “growing out of,” or “flowing from,” or in short, “incident to, or having connection with,” . . . . Red Ball Motor Freight, Inc. v. Employers Mut. Liability Ins. Co., 189 F.2d 374, 378 (5th Cir. 1951); Shannon v. B.L. England Generating Station, 2013 U.S. Dist. LEXIS 168715 (D.N.J. Nov. 27, 2013)(“policy involved in this case covers injuries ‘caused by acts or omissions of’ [subcontractor], and not merely injuries ‘arising out of’ the work of [subcontractor], which is clearly a different standard”) (emphasis added). As such, “caused by” should be interpreted to require proximate causation. Utica Nat’l Ins. Co. of Texas v. Am. Indem. Co., 141 S.W.3d 198, 203 (Tex. 2004) (“caused by” means “proximate” cause); Gilbane Building Company 21 v. Admiral Ins. Co., 664 F.3d 589 (5th Cir. 2011) (coverage owed only if named insured “proximately caused” the injuries). B. Ordinary Contract Principles Support a Proximate Cause Trigger In addition to conflicting with the plain language of the endorsement, we respectfully submit that the Appellate Division’s interpretation violates several well-settled canons of contract interpretation. First, one such canon requires that courts give effect to each word in a contract. Cragg v. Allstate Indem. Corp., 17 N.Y.3d 118, 122, 926 N.Y.S.2d 867, 869 (2011)(“[i]n light of our obligation to interpret the exclusion in a manner that gives full force and effect to the policy language and does not render a portion of the provision meaningless, we find plaintiff’s interpretation of the clause to be more in keeping with these well-settled principles of contract interpretation”); Westview Assocs. v. Guar. Nat’l Ins. Co., 95 N.Y.2d 334, 339 (2000)(“Defendant’s interpretation would render the umbrella policy’s specific exclusions mere surplusage, a result to be avoided”); Olin Corp. v. Am. Home Assur. Co., 704 F.3d 89, 98 (2d Cir. 2012)(noting that “[u]nder New York law, insurance policies are interpreted according to general rules of contract interpretation,” including the rule that “[a]ny interpretation of a contract that has 22 the effect of rendering at least one clause superfluous or meaningless . . . is not preferred and will be avoided if possible”).9 The First Department panel’s ruling that “caused” does not require negligence or “proximate” cause renders superfluous other critical language in the same sentence, namely: “in whole or in part by.” If “caused by” does not require “proximate” or “legal” cause-and “but for” causation of the “act” or “omission” is sufficient-then the “whole or in part” language has no real meaning or purpose. Obviously, if an “act” is a “but for” cause, it does not matter whether that “act” is a whole or partial “but for” cause. There are no partial “but for” causes. An “act” is either a “but for” cause or it is not. Only a proximate cause may be whole or partial. The First Department panel’s interpretation reads that clause out of the endorsement. Thus, the only reasonable interpretation of the endorsement which gives effect to each word is that the “whole or in part by” language clearly refers to “proximate” or “legal cause,” or as more currently referred to, a “substantial factor.” This Court has confirmed that there may be more than one proximate or legal cause of an accident. Argentina v. Energy World Wide Delivery Corp., 93 9 See also Union Carbide Corp. v. Affiliated FM Ins. Co., 68 A.D.3d 534, 535-36, 891 N.Y.S.3d 347, 350 (1st Dep’t 2009)(noting that an interpretation of a policy that renders language therein superfluous is unsupportable); Nomura Holding Am., Inc. v. Fed. Ins. Co., 45 F. Supp.3d 354, 367 (S.D.N.Y. 2014)(rejecting an interpretation of a policy exclusion that rendered a portion of the language therein superfluous). 23 N.Y.2d 554, 561, 693 N.Y.S.2d 493, 496 n.2 (1999) (“[s]ince there may be more than one proximate cause of an injury, we consider the question to ask whether the vehicle was ‘a’ proximate cause of the injury”). New York’s Pattern Jury Instructions also make clear that there can be more than one proximate cause of an accident: An act or omission is regarded as a cause of an injury if it was a substantial factor in bringing about the injury, that is, if it had such an effect in producing the injury that reasonable people would regard it as a cause of the injury. There may be more than one cause of an injury, but to be substantial, it cannot be slight or trivial. You may, however, decide that a cause is substantial even if you assign a relatively small percentage to it. PJI § 2.70 (emphasis added).10 In fact, this Court has already interpreted this same “caused in whole or in part by” language in the context of an indemnity contract that did not specify that the “act or omission” must be a negligent one. This Court held that proximate causation was required. In Rodrigues v. N&S Building Contractors, Inc., 5 N.Y.3d 427, 805 N.Y.S.2d 299 (2005), this Court was asked to interpret an indemnity agreement containing the following language: [t]o the fullest extent permitted by law, Subcontractor shall indemnify and hold harmless [general contractor] and Owner against any claims, damages. . . arising out of or resulting from 10 “One of the definitions of a tort is ‘an act or omission causing harm which the person so acting or omitting did not intend to cause, but might and should with due diligence have foreseen and prevented.’” Bigby v. U.S., 188 U.S. 400 (1903) (emphasis added). 24 performance of the subcontracted work to the extent caused in whole or in part by the Subcontractor or anyone directly or indirectly employed by the Subcontractor. Id. at 430 (emphasis added). In ruling that the indemnification provision would be enforceable, this Court, in an opinion by Chief Judge Kaye, concluded by holding that the general contractor “is entitled to indemnification from [the subcontractor] for any judgment obtained by plaintiff against [general contractor] in the main action, to the extent that such judgment is not the result of [general contractor’s] own wrongdoing.” Id. at 433 (emphasis added); see also Raven v. Universal Strapping Corp., 131 A.D.3d 595, 15 N.Y.S.3d 203 (2d Dep’t 2015) (holding that an agreement providing indemnity for claims “arising out of or in connection with any act or omission” of the indemnitor required a showing of fault by the putative indemnitor). Thus, this Court has interpreted virtually identical contract language as only providing indemnity if the purported indemnitee is not solely at fault. The fact that the contract in Rodrigues involved an indemnity contract rather than an insurance policy does not change the outcome, especially because insurance policies are contracts of indemnity. See Couch on Insurance § 1:7 (3d ed.) (“a policy of insurance . . . is essentially a contract of indemnity”). Rodrigues supports Burlington’s contention that the endorsement provides additional insured coverage so long as NYCTA is not the sole proximate cause of the claimant’s injuries. But 25 here, NYCTA admittedly was the sole proximate cause of the injury to its own employee. For these reasons, the “caused in whole or in part by” language can only be reasonably interpreted to mean that so long as the named insured’s “acts or omissions” are at least “a” proximate cause, there is additional insured coverage even if there are other proximate causes, and even if the additional insured’s own negligence is greater than the named insured’s negligence. In other words, so long as the additional insured is not the sole proximate cause of the accident and the named insured’s acts or omissions are a proximate cause, even a minor one, there is additional insured coverage. See Pro Con Inc. v. Interstate Fire & Cas. Co., 794 F. Supp. 2d 242 (D. Me. 2011). The “acts or omissions” and “only with respect to” language also plainly supports the “proximate” cause interpretation. As one federal court noted forty years ago interpreting nearly identical language: The effect of the words “acts or omissions” and the accompanying language of the cases was to qualify the extent of the coverage provided. Similarly, the use of the words “but only” with respect, etc., in the endorsement in this case appears to be an attempt by the defendant to qualify the extent to which the plaintiff is an additional insured under the policy . . . . It is reasonable to conclude that the most appropriate construction of the subject phrase is that [purported additional insured] was to be an additional insured under the defendant’s policy only when negligent acts or omissions of [named insured] directly caused [purported additional insured’s] loss . . . 26 [T] he court concludes that the endorsement does not provide coverage to the plaintiff under the facts of this case. Primarily, the court is moved to this conclusion by the interpretation given the words “acts or omissions” . . . . To interpret the endorsement in the manner proposed by plaintiff would require the court to ignore the “but only” phrase and treat the endorsement as falling within the “arising out of” language . . . . This would be an inappropriate construction. Consolidated Coal Co., Inc. v. Liberty Mut. Ins. Co., 406 F. Supp. 1292, 1300-01 (W.D. Pa. 1976). The same rationale applies to the endorsement at issue here. As such, the plain and ordinary meaning of the amended endorsement is to require some level of negligence, no matter how much, on the part of the named insured in order to trigger coverage. Moreover, as discussed more fully below, the plain purpose of the amended language was to narrow coverage, not to broaden it or leave it unchanged. There will never be a situation in which an “act” of the named insured would not satisfy the “but for” causation test adopted by the Appellate Division. There will always be a “but for” connection between a subcontractor’s “act” and a construction accident involving that contractor’s work. Thus, the First Department’s “but for” test has no real limitations. “But for” causation is limitless. In this case, “but for” signing the contract, the accident would not have happened in the precise manner that it did; “but for” the leased equipment being brought to the area (by NYCTA personnel), the accident would not have occurred. “But for” causation is simply not 27 a workable test. As the Connecticut Supreme Court observed in criticizing the use of “but for” causation: Philosophically, cause in fact is limitless; “but for” the creation of the world, no crime or injury would ever have occurred. . . . Therefore, as a practical matter, limits must be established. Lines must be drawn determining how far down the causal continuum individuals will be held liable for the consequences of their actions. This line is termed “proximate cause.” Stewart v. Federated Dep’t Stores, 662 A.2d 753 (Conn. 1995) (citing W. Prosser & W. Keeton, Torts [5th Ed. 1984] § 41). In sum, “causation involves two separate and distinct concepts, cause in fact and legal (or proximate) cause.” E.J. Stewart, Inc. v. Aitken Products, Inc., 607 F. Supp. 883, 888 (E.D. Pa. 1985). Either the endorsement requires “but for” causation or it requires “proximate” causation. Here, it is respectfully submitted that the only way to reasonably interpret the endorsement to give effect to each word is to require a finding of at least some proximate causation or negligence on the part of the named insured in order to trigger additional insured coverage for NYCTA. C. The Drafters’ Intent, As Recognized by the Appellate Division, Was to Narrow the Scope of Additional Insured Coverage Besides the plain meaning and ordinary contract principles favoring a proximate cause interpretation, the Decision is inconsistent with the intent of the “Insurance Services Office” (ISO), the insurance trade organization that drafted the 28 policy language in question.11 The additional insured endorsement at issue in this case is an ISO document, numbered CG 20 33 07 04 and copyrighted in 2004.12 As effectively conceded by the First Department, the drafters of this endorsement intended the language to restrict coverage to liability arising from the fault of the named insured. (R. 1559).13 ISO introduced this revised version of its widely used additional insured endorsements as a response to courts’ interpretations of its prior version.14 In the 2004 version at issue here, ISO amended the language to require that the liability be “caused in whole or in part” by the named insured’s acts or omissions rather than simply “arising out of” the named insured’s “operations,” in order to eliminate coverage for the additional insured’s own sole negligence, the very outcome here.15 11 ISO is an association of approximately 1,400 domestic property and casualty insurer. It is almost the exclusive source of support services in this country for commercial general liability (CGL) insurance. Most CGL insurance written in the United States is written on ISO forms. See Hartford Fire Ins. Co. v. California, 509 U.S. 764, 772 (1993). 12 NYCTA only contractually required Breaking Solutions to obtain the “latest I.S.O. Form CG 20 10 or equivalent,” which contains the narrower “caused by” language rather than the earlier and broader “arising out of” language. (R. 302) 13 See Appellate Division decision at 18 (R. 1559) (citing William Cary Wright and Clifford Shapiro, Construction Contract Indemnities, the “Insured Contract,” and Additional Insured Coverage, in Construction Insurance: A Guide for Attorneys and Other Professionals, at 162-63, 175 n.94 [2011]). 14 Phillip L. Bruner & Patrick J. O’Connor, Jr., Bruner and O’Connor on Construction Law §11:167 (2010). 15 First Mercury Ins. Co. v. Shawmut Wood-Working & Supply, Inc., 48 F. Supp. 3d 158 (D. Conn. 2014). 29 Various commenters and observers have noted that the intent of the change in the ISO language was to narrow coverage to ensure that additional insured coverage is granted only when the named insured’s negligent acts or omissions were a cause of the claim. “The ISO 07/04 Endorsements… have a narrowing effect on coverage by deleting the ‘liability arising out of’ standard and introducing the ‘caused, in whole or in part, by your acts or omissions’ standard.”16 ISO recommended the revisions because courts were interpreting the “arising out of language” to include protection for an additional insured’s “sole negligence” contrary to the original intent of the endorsement.17 The change in the ISO language was made to reflect the original intent of the affected CGL policies.18 Reviews of the changed language of CG 20 10 07 04 reveal “an important fact about the protection extended to the additional insured: the named 16 Robert Marshburn, ISO Endorsements and CGL Policy - 10 01 Edition, http://certifiedriskmanagers.com/NewISOforms.htm; see also Christopher J. Boggs, The Progressively Narrowing Coverage of CG 20 10: Contractors and Additional Insured Endorsements, http://www.mynewmarkets.com/articles/95530/the-progressively-narrowing- coverage-of-cg-20-10-contractors-and-additional-insured-endorsements. 17 Business Insurance.com, ISO Seeking to Narrow CGL Cover for Additional Insureds, http://www.businessinsurance.com/apps/pbcs.dll/article?AID=9999100014005. 18 Stacy A. Broman and Jenny L. Sautter, Additional Insured Endorsements: Recent Efforts to Limit Coverage to the Additional Insured, www.thefederation.org/documents/V57N1- Broman.pdf. 30 insured must in some way be negligent in causing the injury or damage for the additional insured to be protected by the policy.”19 One court recently addressed the drafting history of the older ISO forms adopting the “arising out of” trigger and the 2004 amendment (at issue here) which modified that language: In the 2004 version of the ISO’s additional insured endorsement, used by [insurer] here, the ISO amended this language to require that liability be “caused in whole or in part” by the named insured rather than simply “arising out of” the named insured’s acts or omissions, as stated in the 1986 version, in order to eliminate coverage for the additional insured’s sole negligence, . . . The word “liability” appeared in both versions of the ISO forms and the progression from “arising out of” to “caused, in whole or in part, by” shows that the “liability” refers in both instances to causation and the amendment was intended to require proximate causation by the insured rather than simply but-for causation. First Mercury Insurance Co. v. Shawmut Wood-Working & Supply, Inc., 48 F. Supp. 3d 158, 173-74 (D. Conn. 2014) (citing Stewart v. Federated)(emphasis added).20 Although the Appellate Division acknowledged the obvious intent of the endorsement, it found that “no words referring to negligence or fault of the named 19 Christopher J. Boggs, Contractual Risk Transfer and Endorsements to the CG, http://www.mynewmarkets.com/articles/101742/contractual-risk-transfer-and-endorsements-to- the-cgl. 20 See also O’Dwyer v. Manchester Ins. Co., 303 So.2d 347, 348 (Fla. Dist. Ct. App. 1974) (“arising out of is not synonymous with the words ‘caused by,’ but is given a broader meaning in determining whether coverage applies”). 31 insured were included in the endorsement itself.” (R. 1559). We submit that the Appellate Division’s interpretation is erroneous inasmuch as the terms “caused by” in connection with “acts or omissions” clearly refer to negligence. D. The Decision is Inconsistent with the Parties’ Reasonable Expectations The First Department’s interpretation of the endorsement is also inconsistent with the parties’ reasonable expectations, and results in inequities under the facts of this case. Basic contract law requires that contracts, including insurance policies, be interpreted in a manner consistent with the reasonable expectations of the parties. Cragg, 17 N.Y.3d at 122, 926 N.Y.S.2d at 869 (“Insurance contracts must be interpreted according to common speech and consistent with the reasonable expectations of the average insured”). Here, the reasonable expectation of the parties is that Burlington would provide insurance to NYCTA for injuries on the project that resulted at least in part on the wrongdoing of Breaking Solutions, even if only slightly. As confirmation of the parties’ intent, counsel for NYCTA did not even argue below or on appeal for a “but for” causation trigger. Beyond this case, the First Department’s interpretation will trigger additional insured coverage in even more attenuated situations. For example, if Burlington’s named insured’s employee had merely turned on a light switch while entering a room, and that “act” triggered an electrical short-circuit caused by faulty wiring created by NYCTA, which then caused a blackout resulting in a NYCTA 32 employee losing his balance and falling off an unsecured scaffold, Burlington would nonetheless owe coverage to NYCTA under the First Department’s interpretation of the endorsement. That outcome could obviously not be considered the “reasonable expectation” of the parties when contracting. Rather, the reasonable expectation was that Burlington agreed to pay for any injuries in which Burlington’s named insured was even partially negligent, no matter how slightly, and even if the named insured was also negligent. That is the logical and plain reading of the language. See Maroney v. New York Cent. Mut. Fire Ins. Co., 5 N.Y.3d 467, 472, 805 N.Y.S.2d 533 (2005) (quoting with approval the Fourth Department’s determination that “[t]he words ‘arising out of’ have ‘broader significance [than the words “caused by”] and are ordinarily understood to mean originating from, incident to, or having connection with’”). Finally, the underlying case did not involve the typical contractor/subcontractor relationship common to most construction accident cases. Here, Burlington’s insured, Breaking Solutions, leased excavation equipment21 to NYCTA pursuant to contract. The mere “act” of lending equipment (non- negligent) would qualify as a “but for” cause of the underlying incident under the First Department’s interpretation of the endorsement. If the lessor of equipment can be held liable even where the equipment performed as intended, the scope of 21 Although Breaking Solutions also leased equipment operators, those operators were directed by NYCTA personnel, not Breaking Solutions. (R. 189). 33 coverage would potentially be limitless and the endorsement’s wording would have no meaning. II. THE FIRST DEPARTMENT’S INTERPRETATION OF THIS NARROWLY-WORDED ENDORSEMENT PROVIDES MORE EXTENSIVE COVERAGE THAN THIS COURT FOUND UNDER THE BROADER ENDORSEMENTS INTERPRETED IN WORTH CONSTRUCTION AND REGAL CONSTRUCTION Because the Appellate Division’s interpretation clashes with the plain language and intent of the endorsement, it is no surprise that the Decision creates a conflict with this Court’s precedent. Specifically, the First Department’s interpretation of this narrowly-worded endorsement results in broader coverage than this Court has previously afforded under the more broadly worded “arising out of” endorsements. This Court has held that there must be a nexus between the injury and the risk for which insurance was intended, even in those situations where coverage is triggered by the much broader “arising out of” language. In several cases in recent years, this Court has narrowed the scope of additional insured coverage even in those cases where the “arising out of” language could arguably be used to extend coverage without limitations. Worth Construction, 10 N.Y.3d 411, 859 N.Y.S.2d 101; Regal Construction, 15 N.Y.3d 34, 904 N.Y.S.2d 338 (2010); see also Maroney, 5 N.Y.3d at 472, 805 N.Y.S.2d at 533 (quoting with approval the Fourth 34 Department’s determination that “[t]he words ‘arising out of’ have ‘broader significance [than the words “caused by”] and are ordinarily understood to mean originating from, incident to, or having connection with’”). Basically, this Court has adopted a nexus test for the “arising out of” language, and held that there must be a sufficient nexus between the injury and the reason for which insurance was intended to be provided. Here, we submit that there is no sufficient nexus between the Breaking Solutions non-negligent “act” of excavating a concrete wall as instructed by NYCTA, and the Labor Law §§ 240(1) and 241(6) violations underlying the injury to an NYCTA employee who tripped and fell from an elevated work platform lacking adequate fall protection. (R. 576). As such, Burlington submits that the First Department’s “but for” cause test conflicts with this Court’s decisions in Worth Construction and Regal Construction which held that there must be a sufficient nexus between the accident and the named insured’s actions. In Worth Construction, this Court addressed whether an insurer owed additional insured coverage to the owner and general contractor when a non- insured’s employee slipped on fireproofing applied to a staircase. The only connection between the named insured and the staircase accident is that the named insured installed the staircase. This Court, interpreting the broader “arising out of” policy language, concluded that there was no additional insured coverage under 35 those facts. The Court noted that once the owner admitted that the negligence claims against the named insured were without merit, it conceded that the staircase was not the “proximate cause” of the injury but was merely the situs of the accident, and therefore no sufficient nexus existed to extend additional insured coverage to the owner and general contractor. Worth Construction, 10 N.Y.3d at 416. In so ruling, this Court established the test for determining whether additional insured coverage exists. The test, even under the broader “arising out of” language, is that there must be a nexus between the accident and the risk being insured. The facts in Worth Construction are very similar to this case. The negligence claims against Burlington’s named insured, Breaking Solutions, were dismissed with prejudice. (R. 576). And as in Worth Construction, the subway tunnel in which Burlington’s named insured was working happened to be the situs of the underlying accident. Although the First Department suggested that there was a connection between the Breaking Solutions “act” of chopping the concrete and the injury to the NYCTA employee, that connection is nothing more than “but for” causation. “But for” the Breaking Solutions’ leased equipment and operating engineers showing up at the construction site that day, the accident would not have occurred. Kenny was not hit on the head with a piece of falling concrete. There must be a stronger nexus between the injuries (tripping over debris and falling from an inadequate safety device) and the risk for which the Burlington policy was 36 issued. As set forth supra, the problem with the First Department’s interpretation is that there can never be any practical limitation on the scope of additional insured coverage if the test for whether the named insured’s “act” triggers coverage is simply “but for” causation. This Court’s decision in Regal Construction is also irreconcilable with the First Department’s interpretation here, even though the triggering language is distinct. In Regal Construction, this Court explained the legal nexus test in the context of a claim involving an injury to the named insured’s own employee. Under those circumstances, this Court noted that there is always a nexus when the injury is to the named insured’s own employee, even if the named insured itself is not negligent in causing the injury. The Decision goes well beyond Regal Construction. This Court has never found additional insured coverage in the absence of either (i) negligence on the part of the named insured or (ii) injury to the named insured’s own employee. As for the first circumstance, if a non-negligent “act” may trigger coverage, then even more extreme outcomes than this case could result. A simple example illustrates the point. Let us assume that the named insured is a carpentry firm hired to renovate the interior of a building. One of the named insured’s employees shows up for work one morning and turns on the lights to a room in the building. Unbeknownst to that carpenter, the building’s electrical wiring was negligently 37 installed by the electrical contractor months earlier. Turning on the light switch leads to an electrical short which causes a blackout in the building. On the other end of the building, the general contractor’s employee is standing on a scaffold that is missing guardrails. The general contractor’s employee loses his balance on the scaffold, trips over a bucket and falls off the side. The general contractor’s employee sues the owner, claiming violations of Labor Law §§ 240 (1) and 241(6). In this hypothetical, would there be additional insured coverage under the carpentry subcontractor’s policy applying the holding from the Appellate Division’s decision in this case? Most observers would say yes. But, is such an outcome consistent with the limitations set forth in Worth Construction? We contend that the outcome under such a scenario is not consistent with Worth Construction, and even less so given the more restrictive policy language at issue here. As for the second circumstance, neither Worth Construction nor Regal Construction supports the imposition of additional insured coverage under the circumstances of this case, even under the broader “arising out of” language. The injury here was not to an employee of Burlington’s named insured. Rather, it was an injury to NYCTA’s own employee admittedly caused by NYCTA’s sole negligence. And the mechanism of the injury, an elevation risk (Labor Law § 240[1]]) to NYCTA’s own employee, was not a risk that Burlington agreed to 38 insure on behalf of Breaking Solutions. NYCTA is responsible for providing a safe place to work for its own employees and to provide adequate safety devices for those employees working from a height. That is not the responsibility of Breaking Solutions and therefore should not be a risk that is passed down to Burlington. The end result of the Decision is that there is now arguably broader additional insured coverage afforded under narrower contract language (“caused by . . . acts or omissions”) than there was under the broader contract language (“arising out of . . . operations”). III. THE FIRST DEPARTMENT’S INTERPRETATION OF THIS ENDORSEMENT IS CONTRARY TO THE INTERPRETATION OF VIRTUALLY ALL OTHER COURTS Since the introduction of this endorsement in 2004, courts nationwide have almost universally interpreted it to require some minimal negligence or proximate causation on the part of the named insured in order to trigger additional insured coverage, even if the negligence of the named insured is slight, and even if the purported additional insured is also negligent (or even more negligent). Yet, at least in the First Department, under its most recent decisions, the 2004 ISO amendment at issue has not been interpreted to limit the scope of additional insured coverage from the earlier “arising out of” trigger. The result is that an insurer who issues a policy in New York faces much greater exposure than an insurer who 39 issues the same exact policy in almost every other state. We submit that this Court should interpret the endorsement in line with virtually every other court that has addressed it. For example, in Dale Corp. v. Cumberland Mut. Fire Ins. Co., 2010 U.S. Dist. LEXIS 127126 (E.D. Pa. Nov. 30, 2010), the federal district court interpreted the same exact additional insured endorsement. In doing so, the court analyzed how other courts have addressed this same language and looked at the drafting history. The court then concluded that: This case law and the drafter’s history supports my conclusion that the additional insured provision requires a showing that [subcontractor’s] acts or omissions were a proximate cause of [plaintiff’s] injuries in order to trigger policy coverage. Id., *22. Similarly, in Am. Empire Surplus Lines Ins. Co. v. Crum & Forster Specialty Ins. Co., the United States District Court for the Southern District of Texas interpreted the same additional insured endorsement at issue here. 2006 U.S. Dist. LEXIS 33556 (S.D. Tex. May 23, 2006). The underlying complaint alleged negligence on the part of the named insured, which the court concluded triggered a duty to defend. That is exactly what Burlington did here, it defended NYCTA under a reservation of rights and only disclaimed when discovery established that there was no viable claim against Breaking Solutions. 40 That court held that the “whole or in part” clause of the endorsement focused on whether the named insured was partially or wholly responsible for the injuries and the additional insured’s liability for same. That interpretation is consistent with Burlington’s position that there is additional insured coverage except when the additional insured is the sole proximate cause of the injuries, as is the case here. Consistent with the interpretation of “caused, in whole or in part by” as requiring at least some negligence by the named insured, courts have interpreted other endorsements containing the language “caused by” (without “in whole or in part”) as providing additional insured coverage only for the putative insured’s vicarious liability for the acts or omissions of the named insured, and not for the putative insured’s own fault. This interpretation of these similar endorsements is the only way to give effect to the “in whole or in part by” language. For example, the Minnesota Supreme Court rejected the First Department’s reasoning while interpreting “caused by” in a nearly identical case. Engineering & Construction Innovations, Inc. v. L.H. Bolduc Co., 825 N.W.2d 695 (Minn. 2013). In L.H. Bolduc, Engineering & Construction Innovations (ECI) entered into a contract with L.H. Bolduc Co. (Bolduc) in which Bolduc would remove six sheeting cofferdams over a sewage pipeline at six locations. ECI was responsible for identifying the locations. There was no dispute that Bolduc “was not responsible for determining where to drive the cofferdams.” Id. at 699. During the 41 removal process, Bolduc damaged a sewer pipe. ECI sought coverage from Bolduc’s insurer as an additional insured. The endorsement in L.H. Bolduc provided that ECI is an additional insured with respect to bodily injury that “is caused by acts or omissions of [Bolduc] in the performance of [it’s] work . . . .” Id. at 706 (emphasis added). The Minnesota Supreme Court rejected the same argument that the Appellate Division adopted below: ECI’s argument concerning the scope of coverage provided by the additional insured provision focuses primarily on the meaning of “acts or omissions.” But we do not construe individual words or phrases in insurance policies in isolation. Rather, . . . we read the policy as a whole. [internal citations omitted] . . . Based on the language of the additional insured endorsement, interpreted as a whole in light of its place within a liability insurance policy, we conclude that the language “caused by the acts or omissions of [Bolduc] provides coverage to ECI as an additional insured only in instances of ECI’s vicarious liability for Bolduc’s negligent acts or omissions. Id. at 706-07 (emphasis added). In reaching this result, the Minnesota Supreme Court acknowledged that interpreting the provision broadly as the Appellate Division did would result in the broader “arising out of” endorsements being interpreted exactly the same as the more narrowly-worded endorsement at issue there, and here. The reading of the additional insured endorsement urged by ECI would require us to interpret “arising out of” and “caused by acts or omissions” of the named insured identically. But 42 these phrases do not have identical meanings, because “arising out of” is much broader than additional insured language that limits recovery for liabilities with respect to “acts or omissions” of the named insured. Id. at 707 n.9. The Florida Supreme Court has gone even further, finding a negligence trigger for an additional insured provision even where there is “acts or omissions” language without a “caused by” trigger. In Garcia v. Federal Ins. Co., 969 So.2d 288 (Fla. 2007), the “caused by” trigger was replaced by “because of.” The precise policy language at issue in Garcia was “with respect to liability because of acts or omissions” of the named insured. Despite this arguably broader language, the Florida Supreme Court nonetheless held that: When considered in context, these words clearly indicate that an additional insured is only entitled to coverage concerning liability that is caused by or occurs by reason of acts or omissions of the named insured. An additional insured’s liability, thus must be caused by the acts or omissions--that is, the negligence--of the named insured. The policy does not cover an additional insured’s liability arising from her own negligent acts. Id. at 292 (emphasis in original). Other courts have also joined the consensus. In Smith v. Toys “R” Us, Inc., 2012 N.J. Super. Unpub. LEXIS 2080 (Sept. 5, 2012), a New Jersey court interpreted same language and held that the insurer did not agree to provide additional insured coverage for the additional insured’s own negligence. A 43 Michigan appellate court reached the same conclusion in Hobbs v. Shingobee Builders, Inc., 2013 Mich. App. LEXIS 1792 (Nov. 7, 2013). In Hobbs, the court interpreted the same language and found coverage only because the underlying plaintiff’s [employee of named insured] “comparative fault triggered the language of the policy because his acts or omissions caused, at least in part, liability for bodily injury that resulted in this litigation”)(emphasis added).22 Federal District Courts sitting in New York also disagree with the legal analysis of the First Department and have suggested that more guidance is needed from this Court. See, e.g., Nat’l Union Fire Ins. Co. v. XL Ins. Am., Inc., 2013 U.S. Dist. LEXIS 68467, 2013 WL 1944468 (S.D.N.Y. May 6, 2013) (Rakoff, J.) (although applying California law, the Court declined to adopt the approach taken by the First Department, and instead adopted “the reasoning of Dale, and [held] that ‘caused by’ requires a showing that Securitas’s operations proximately caused the bodily injury for which National Union seeks indemnity”). In Liberty Mut. Ins. Co. v. Zurich Am. Ins. Co., the court criticized the “absence of significant legal analysis” in the First Department’s interpretation of the phrase “caused by” in the Decision, but nonetheless adopted that interpretation 22 Nor-Son, Inc. v. Western National Mut. Ins. Co., 2012 Minn. App. Unpub. LEXIS 411 (Minn. App. May 14, 2012)(“acts or omissions” in same endorsement must be negligent ones); Underwriters at Lloyd’s of London v. Cordova Airlines, Inc., 283 F.2d 659, 664 (9th Cir. 1960) (applying Alaska law and noting that the Fifth Circuit has held that “‘arising out of’ are words of much broader significance than ‘caused by.’ They are ordinarily understood to mean ‘originating from,’ ‘having its origin in,’ ‘growing out of’ or ‘flowing from’ or in short, ‘incident to, or having connection with’”). 44 “[i]n the absence of clear guidance that the Court of Appeals would reach a different conclusion.” 2014 U.S. Dist. LEXIS 42471 (S.D.N.Y. Mar. 28, 2014). In HBE Corp. v. Harleysville Grp., Inc., 2015 U.S. Dist. LEXIS 131972 (N.D.N.Y Sept. 30, 2015), the court noted that “[i]f presented with the question [of the interpretation of “caused by”] in a vacuum, the Court might well agree with the well-reasoned decisions of Judge Rakoff [National Union] and Judge O’Neill [Dale],” but nonetheless concluded it was bound by the First Department decisions on the issue in “the absence of authority from New York’s highest court.” In Wausau Underwriters Ins. Co. v. Old Republic Gen. Ins. Co., 2015 U.S. Dist. LEXIS 103954 (S.D.N.Y. Aug. 7, 2015), the court surveyed New York case law to conclude that “whether an injury was legally caused by a party’s actions is a much more demanding question than whether the injury arose out of those actions.” The First Department panel’s interpretation of this standard policy language is not only inconsistent with Court of Appeals’ precedent and decisions from virtually every other jurisdiction, it is also irreconcilable with its own (earlier) decisions which interpreted comparable “acts or omissions” language to require a finding of negligence against the named insured, see, e.g., American Guarantee and Liability Ins. Co. v. CNA Reinsurance Co., 16 A.D.3d 154, 791 N.Y.S.2d 525 (1st Dep’t 2005); Crespo v. City of New York, 303 A.D.2d 166, 756 N.Y.S.2d 183 45 (1st Dep’t 2003), as well as Fourth Department precedent. See Aetna Cas. & Surety Co. v. Liberty Mut. Ins. Co., 91 A.D.2d 317, 459 N.Y.S.2d 158 (4th Dep’t 1983). Neither American Guarantee nor Crespo involved a policy provision that required the “acts or omissions” to be negligent ones. Yet, different panels of the First Department held that negligence was required to trigger coverage. There is even more reason to apply the negligence requirement with respect to the endorsement at issue in this case than in Crespo and American Guarantee because this endorsement, unlike those endorsements, includes the term “caused by.” Nevertheless, the Appellate Division held that: This Court’s most recent precedents have construed additional insured endorsements containing substantially the same “acts or omissions” language as do the endorsements at issue here as providing additional insured coverage where there is a causal link between the named insured’s conduct and the injury, regardless of whether the named insured was negligent or otherwise at fault for causing the accident. (R. 1544). The Appellate Division relied on its earlier decision in Strauss Painting, Inc. v. Mt. Hawley Ins. Co., 105 A.D.3d 512, 963 N.Y.S.2d 197 (1st Dep’t 2013), mod on other grounds, 24 N.Y.3d 578, 2 N.Y.S.3d 390 (2014), in which it held that: [t]he additional insured endorsement speaks in terms of “acts or omissions,” not negligence. Thus, in the unlikely event that it would be found that some nonnegligent act by plaintiff [the named insured] caused the accident, the Met [additional 46 insured] would still be entitled to coverage under the additional insured endorsement. Id. at 513. Interestingly, the earliest decision relied on by the First Department in support of its interpretation of this additional insured endorsement is W&W Glass Systems, Inc. v. Admiral Ins. Co., 91 A.D.3d 530, 937 N.Y.S.2d 28 (1st Dep’t 2012). But notably, W&W Glass did not involve the “acts or omissions” language contained in the endorsement here. Rather, the endorsement in W&W Glass extended coverage “caused by your ongoing operations performed for that insured.” The First Department held that “caused by your ongoing operations” did not materially differ from “arising out of” those “ongoing operations.” There is a significant difference between liability caused by “operations” versus “acts or omissions.” The Decision is also in conflict with precedent from the Appellate Division, Fourth Department. For example, in Aetna Cas. & Surety Co. v. Liberty Mut. Ins. Co., the Fourth Department concluded that “[t]he words ‘arising out of’ have ‘broader significance than the words ‘caused by,’ and are ordinarily understood to mean originating from, incident to, or having connection with.” 91 A.D.2d 317, 320-21, 459 N.Y.S.2d 158 (4th Dep’t 1983) (citing 6B Appleman, Insurance Law & Practice [rev ed], § 4317, and Couch, Cyclopedia of Insurance Law [2d ed], § 47 45:61). Accordingly, by now conflating “caused by” with “arising out of,” the First Department panel has taken a position directly in conflict with the prior-reached interpretation of the Fourth Department in Aetna. Moreover, in a clear demonstration that it agreed with the Fourth Department’s interpretation, this Court quoted Aetna with approval in Maroney v. New York Central Mutual Fire Insurance Company. 5 N.Y.3d 467, 472, 805 N.Y.S.2d 533 (2005). Indeed, but for the fact that this Court limited its holding in Maroney to “the uninsured premises realm,” this interpretation would now be law in New York State in the context of additional insured endorsements. See HBE Corp. v. Harleysville Grp., Inc., 2015 U.S. Dist. LEXIS 131972, at 16-17 (N.D.N.Y Sept. 30, 2015) (“while Maroney provides some evidence that the Court of Appeals may interpret the phrase ‘caused by’ as more narrow than ‘arising out of,’ the Court of Appeals’ explicit limitation of its holding to ‘the uninsured premises realm’ limits Maroney’s persuasive value on the issue of how the Court of Appeals would interpret the phrases in the context of an additional insured endorsement”). This Court should expand its already-reached conclusion in Maroney to the context of additional insured endorsements, thereby giving effect to the clear drafting intent and reasonable expectations of the parties, and bring New York State in line with virtually every other jurisdiction to decide this issue. 48 IV. THE TRIAL COURT PROPERLY REJECTED THE PRIMARY ARGUMENTS RAISED BY NYCTA BELOW, WHICH ARGUMENTS WERE NOT ADDRESSED BY THE APPELLATE DIVISION NYCTA’s primary arguments below were not directed at the scope of the additional insured endorsement. Rather, NYCTA made a number of other legal arguments against Burlington’s recovery, none of which have any application and were properly rejected by the trial court. A. The Payment Made By Burlington to Settle the Kenny Action Was Not a “Voluntary Payment” NYCTA’s primary argument below was that the underlying settlement payment made by Burlington on behalf of the City was a “voluntary” payment which is not subject to recoupment through subrogation. NYCTA’s “volunteer” argument is internally inconsistent with the additional insured endorsement argument at the center of this appeal and is plainly wrong on its own merits. This “volunteer” argument was rendered moot when the Appellate Division decided that Burlington owed additional insured coverage pursuant to the endorsement at issue. There is no dispute that Burlington owed a duty to defend the City based on a comparison of the Burlington Policy with the allegations in the underlying complaint. BP A.C. Corp. v. One Beacon Ins. Group, 8 N.Y.3d 708, 715, 840 N.Y.S.2d 302 (2007). Burlington fulfilled this legal obligation by agreeing to 49 defend the City under a reservation of rights. (R. 530-34). Burlington only agreed to withdraw its reservation of rights as to the City after NYCTA threatened financial penalties against its policyholder, Breaking Solutions, by withholding more than $153,000 in contract installment payments unless Burlington agreed to provide unconditional coverage to the City. (R. 1168). The body of NYCTA’s letter to Breaking Solutions, in its entirety, provides as follows: In response to your phone calls to me, I wish to explain New York City Transit Authority’s (NYCTA) concerns and position. As you know, in connection with the referenced Contract and lawsuit, the City of New York (NYC), along with Breaking Solutions, has been sued. Breaking Solutions’ insurer, Burlington Insurance Co., has agreed to defend NYC. However, Breaking Solutions is also required, under Article 219.B and Schedule A of its Contract with NYCTA, to indemnify NYC (as an additional insured), but your insurer has so far not agreed to do so. Accordingly, Breaking Solutions is in breach of our Contract, and NYCTA is entitled to withhold payment from seven pending invoices (#s 27538A, -47, -48, -50, -51, -52, -53) (otherwise scheduled for payment in late December 2009), potentially up to the total invoice amount of approximately $153,000, until Breaking Solutions satisfies its contractual obligation to both defend and indemnify NYC. NYCTA also expressly confirms its right, if necessary, to withhold additional future payments from Breaking Solutions if it continues to refuse to indemnify NYC as required by the Contract. Please have your insurer contact MTA Risk and Insurance Management (Robin Cooper, 212-878-4793) to provide the required indemnification. 50 (R. 1168) (emphasis added). This was not some veiled threat based on a telephone call that could be subject to differing interpretations. Rather, NYCTA’s threat is in writing, and made in no uncertain terms. Despite its bully tactics, NYCTA argued below that the withdrawal of Burlington’s reservation of rights as to the City, which NYCTA effectively coerced, was “voluntary,” and therefore Burlington should not be entitled to stand in the City’s shoes to enforce its subrogation rights against NYCTA. (R. 1259). Again, this argument presupposes that Burlington’s policy does not owe additional insured coverage to NYCTA (or the City), which is contrary to the very premise upon which the Appellate Division ruled. New York courts have long held that a settlement is not voluntary where it is made in order to protect a party’s legal or economic interests. Broadway Houston Mack Dev., LLC v. Kohl, 71 A.D.3d 937, 897 N.Y.S.2d 505 (2d Dep’t 2010). Moreover, courts have held that equitable subrogation will not be denied, if doing so would lead to unjust enrichment. NYP Holdings v. McClier Corp., 65 A.D.3d 186, 881 N.Y.S.2d 407 (1st Dep’t 2009)(rejecting a voluntariness argument that would lead to “unjust[] enrichment”). This Court has held that the principle of “subrogation ought to be liberally applied to the protection of those who are its natural beneficiaries.” Fed. Ins. Co. v. 51 Arthur Andersen & Co., 75 N.Y.2d 366, 373, 553 N.Y.S.2d 291, 294 (1990); see also 16 G. Couch, R. Anderson & M. Rhodes, Cyclopedia of Insurance Law § 61:57, at 140 [rev. 2d ed. 1983] (“[a]ny doubt as to the applicability of this principle of no subrogation for voluntary payment by the insurer is construed in favor of the insurer and the nonexistence of a volunteer status”). Courts have also held that the equitable subrogation doctrine “is broad enough to include every instance in which one party pays a debt for which another is primarily answerable and which in equity and good conscience should have been discharged by the latter, so long as the payment was made either under compulsion or for the protection of some interest of the party making the payment, and in discharge of an existing liability.” Hamlet at Willow Cr. Dev. Co., LLC v. Northeast Land Dev. Corp., 64 A.D.3d 85, 105-07, 878 N.Y.S.2d 97, 112 (2d Dep’t 2009) (internal citations omitted.23 23 Courts throughout the country have similarly recognized that “[e]ven if the decision to pay a claim is legally or economically questionable, the ‘desire to preserve customer relations and avoid a complex and costly coverage litigation is still sufficient to prevent the [insurer] from being considered a mere volunteer.’” Continental Cas. Co. v. Fifth/Third Bank, 418 F. Supp. 2d 964, 971 (N.D. Ohio 2006) (quoting Jorge v. Travelers Indem. Co., 947 F. Supp. 150, 155 n. 7 [D.N.J. 1996]). In so holding, courts have recognized that public policy dictates that insurers should be encouraged (and not punished) to settle claims against putative insureds. Id. For example, in Amer. Gen. v. Progressive, 110 N.M. 741, 799 P.2d 1113 (1990), the New Mexico Supreme Court held that “even if [the insurer] had developed a belief that the injury was beyond the scope of its coverage, its duty to [the putative insured] and its status as already having begun representation precludes classification of the insurer as a volunteer.” The court held that the defendant could not “hide behind its own misdeeds to force [the insurer] to bear the burden of the defense.” Id.; see also The United Pacific Ins. Co. v. Schetky Equip. Co., 217 Ore. 422, 342 P.2d 766 (1959) (“it is most anomalous, to say the least, that defendant can now 52 Moreover, Burlington’s payment to settle the Kenny Action on behalf of the City was not “voluntary” because it was expressly conditioned upon the City’s agreement to transfer its indemnification rights as against NYCTA. (R. 1173-74). Prior to the settlement, the City expressly agreed to cooperate with Burlington in pursuing the City’s contractual indemnification rights against NYCTA. (Id).24 As recognized by Justice Stallman below, it would be an unjust windfall if NYCTA was able to prevail after forcing Burlington to accept coverage for the City and refusing its own contractual indemnification obligations to the City, with full knowledge that the accident was caused solely by its own negligence. NYCTA cannot invoke principles of equity to evade its own legal obligations. Because subrogation arises out of principles of equity, such a result cannot stand. B. The Anti-Subrogation Rule, By Definition, is Inapplicable if NYCTA is Not Entitled to Additional Insured Coverage from Burlington Burlington concedes that if there is coverage for NYCTA under the policy, then the anti-subrogation rule prevents a subrogation claim against it. (R. 1324). Discovery in the Kenny Action confirmed that NYCTA was not entitled to contend that the payment was voluntary when it was the goading of the district by defendant which caused the district to demand payment under the contract of insurance…”). 24 Although unnecessary based on New York law, if so required, Burlington could amend its Complaint to assert a claim for conventional subrogation, based on its express agreement with the City as conventional subrogation is not subject to the defense of voluntariness. See 16 Couch, Insurance 2d § 61:55, at 137-38 [rev ed] (“Voluntariness is no defense to conventional subrogation”). See also Custom Cartage, Inc. v. Motorola, Inc., 1999 U.S. Dist. LEXIS 16462 (N.D. Ill. Oct. 14, 1999). 53 coverage as NYCTA conceded that it was solely at fault. (R. 605-11). Only upon such confirmation did Burlington withdraw from NYCTA’s defense. (R. 457-59). Nevertheless, if NYCTA were entitled to coverage under the Burlington Policy, then even without the anti-subrogation rule this lawsuit would be a waste of time because Burlington would ultimately be seeking to recover from itself. But if NYCTA is not entitled to additional insured coverage under the Burlington policy, then the anti-subrogation rule facially does not apply. North Star Reins. Corp. v. Cont’l Ins. Co., 82 N.Y.2d 281, 604 N.Y.S.2d 510 (1993). It is well-settled that a prerequisite for the application of the anti-subrogation rule is that both parties must be covered under the policy. See Pierce v. Syracuse Univ., 236 A.D.2d 870, 653 N.Y.S.2d 753 (4th Dep’t 1997). Where both sides are not covered under the policy, the anti-subrogation rule does not apply. Id.25 C. Burlington, as Equitable Subrogee of the City of New York, Is Entitled to Indemnification from NYCTA Pursuant to NYCTA’s Obligations Under the 1953 Lease with the City In Trial Court Order I, Burlington obtained a declaration that it owed no insurance coverage obligation to NYCTA. (R. 8-32). The trial court also granted Burlington leave to amend its Complaint to include a cause of action for equitable 25 It cannot be disputed that Burlington properly reserved its rights to pursue NYCTA to the extent that it was ultimately determined that Breaking had no fault. Burlington met its duty to defend, BP Air Conditioning, 8 N.Y.3d at 714-15, 840 N.Y.S.2d at 302, did so under a reservation of rights, O’Dowd v. American Surety Company of New York, 3 N.Y.2d 347, 165 N.Y.S.2d 458 (1957), and disclaimed only when discovery confirmed that NYCTA was solely at fault. Markevics v. Liberty Mutual Ins. Co., 97 N.Y.2d 646, 735 N.Y.S.2d 865 (2001). 54 subrogation on behalf of the City. (Id). Later, in Trial Court Order II, the trial court correctly held that Burlington is entitled to recover from NYCTA the amounts Burlington paid on behalf of the City in the Kenny Action, pursuant to NYCTA’s contractual indemnification obligations owed to the City under NYCTA’s lease of transit facilities. (R. 1131-66). NYCTA has never offered any explanation for why it would not owe contractual indemnity to the City, in whose shoes Burlington stands. The reason is that there is no such defense. Because the Kenny Action arises out of NYCTA’s use of the leased premises, Burlington is entitled to indemnification from NYCTA pursuant to the 1953 Lease. This is not the first dispute between the City and NYCTA regarding NYCTA’s obligations under that agreement. New York courts have long recognized that Article VI, § 6.8 of the 1953 Lease requires NYCTA to indemnify the City for “damage resulting from any accident or occurrence arising out of or in connection with NYCTA’s operations of the leased property.” Vikhor v. City of New York, 43 A.D.3d 914, 916, 842 N.Y.S.2d 456 (2d Dep’t 2007); Coleman v. City of New York, 91 N.Y.2d 821, 666 N.Y.S.2d 553 (1997); Ortiz v. New York City Tr. Auth., 30 Misc. 3d 1208A, 958 N.Y.S.2d 647 (Sup. Ct., N.Y. County, 2010) (holding, in a slip-and-fall case, that the City would be entitled to indemnification under the lease to the extent it can show it was without fault for the plaintiff’s injuries); Wozniak v. City of New York, 35 Misc. 3d 1242A, 2012 55 NY Slip Op 51108(U) (Sup. Ct., N.Y. County, 2012) (granting the City’s indemnification claim against NYCTA and holding that the City could not be found negligent as it was merely an out-of-possession landlord). In Coleman, like here, an NYCTA worker was injured while performing his duties for NYCTA, when he fell through a canopy attached to a train station owned by the City. 91 N.Y.2d at 822. As in the Kenny Action, the plaintiff in Coleman sued the City as the “owner” of the station pursuant to Labor Law § 240(1). Although the Court denied the City’s motion to dismiss in light of the City’s technical ownership of the property, this Court upheld the award of full contractual indemnification against NYCTA by recognizing that the City’s liability was purely vicarious under the Labor Law. Id. at 822-23. The complaint in the Kenny Action does not factually allege negligence by the City other than with respect to its ownership of the premises. Kenny was able to maintain that action against the City only because Labor Law § 240(1) provides for absolute liability for property owners with respect to height-related hazards. The undisputed facts make clear that the Kenny Action arises out of NYCTA’s use and possession of the leased premises. At the time of the injury, NYCTA was in possession of the subway tunnel as lessee of City. (R. 1131-66). NYCTA, not the City, had contracted with Breaking Solutions to perform demolition work. (R. 184-321). As noted by the federal court in the Kenny Action, 56 the underlying plaintiff did not allege a common law negligence claim against the City. (R. 569). The underlying plaintiff’s only claims against the City were for Labor Law §§ 240 and 241, which impose vicarious liability on owners and general contractors. (Id). The only reason that NYCTA was not a direct defendant in the Kenny Action is that Kenny was barred by New York’s Workers’ Compensation Law from bringing a direct action against NYCTA, his employer. See N.Y. Work. Comp. Law § 11. Moreover, not only does the Kenny Action arise out of NYCTA’s use and possession of the premises, NYCTA has admitted that the action arises out of NYCTA’s fault. (R. 605-10). Burlington is equitably subrogated to the City’s indemnity rights against NYCTA. (R. 1339-61). New York courts have held that this right to indemnification through subrogation also “encompasses the right to recover attorneys’ fees, costs and disbursements incurred in connection with defending the suit brought by the injured party.” Am. Ref-Fuel Co. v. Res. Recycling, Inc., 307 A.D.2d 939, 942, 763 N.Y.S.2d 657, 660 (2d Dep’t 2003) (citing Chapel v. Mitchell, 84 N.Y.2d 345, 618 N.Y.S.2d 626 [1994]). The trial court held that Burlington is entitled to recover defense costs incurred by Burlington in defending the City in the Kenny Action but left open the amount of such defense costs for future proceedings. (R. 96). CONCLUSION For the foregoing reasons, Plaintiff-Appellant Burlington respectfully requests that this Court enter an Order reversing the Appellate Division's Decision dated August 11, 20 15, which reversed Trial Court Orders I and II, so as to affirm Trial Court Orders I and II, and to remand to the trial court for further proceedings. Dated: July 5, 2016 New York, New York Respectfully submitted, FORD MARRIN ESPOSITO WITMEYER & GLESER, L.L.P. 0:ZVilJ~_ ' ... Joseph D'AmbrosiO By: Wall Street Plaza New York, New York 10005-1875 (212) 269-4900 jdambrosio@fmew.com -and- ADRIAN-CASSIDY & ASSOCIATES, LLC 200 Park Avenue, Suite 1700 New York, New York 10166 (646) 632-3705 jim@adriancassidy.com Attorneys for Plaintiff-Appellant The Burlington Insurance Company 57