The Burlington Insurance Company, Appellant,v.NYC Transit Authority, et al., Respondents.BriefN.Y.April 26, 2017To 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. REPLY BRIEF FOR PLAINTIFF-APPELLANT Of Counsel: JOSEPH D’AMBROSIO JAMES M. ADRIAN JOHN A. MATTOON, JR. GREGORY R. BRUNO 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: September 2, 2016 i TABLE OF CONTENTS PRELIMINARY STATEMENT ............................................................................ 1 ARGUMENT ............................................................................................................ 9 I. NYCTA FAILS TO MEANINGFULLY RESPOND TO BURLINGTON’S CORE ARGUMENTS .......................................................... 9 A. The Decision Conflicts with the Endorsement’s Plain Meaning, Ordinary Principles of Contract Interpretation, and the Drafter’s Intent ..........................10 B. There is No Coverage for NYCTA Even under the Broader “Nexus” Test Applied to Policies Utilizing the “Arising Out Of” Language ..........................23 II. THE TRIAL COURT CORRECTLY HELD THAT THE SETTLEMENT PAYMENT WAS NOT VOLUNTARY ...............................28 A. The Payment Made By Burlington to Settle the Kenny Action Was Not A Voluntary Payment ............................................................................................28 B. Burlington Properly Disclaimed Coverage .................................................32 C. Any Alleged Breach of Contract by Breaking Solutions is Irrelevant ........35 CONCLUSION .......................................................................................................36 ii 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) ......................................................................... 16 Am. Nat'l Prop. & Cas. Co. v. Gray, 803 S.W.2d 693 (Tenn. Ct. App. 1990) .............................................................................................. 13 Am. Motorists Ins. Co. v. L-C-A Sales Co., 155 N.J. 29, 713 A.2d 1007 (1998) ....................................................................................................................... 13 Amer. Gen. v. Progressive, 110 N.M. 741, 799 P.2d 1113 (1990) .......................... 30 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) ............................................... 16 Argentina v. Energy World Wide Delivery Corp., 93 N.Y.2d 554, 693 N.Y.S.2d 493 (1999) ................................................................................................ 21 Austl. Unlimited, Inc. v. Hartford Cas. Ins. Co., 147 Wash. App. 758, 198 P.3d 514 (2008) ................................................................................................. 14 Auto-Owners Ins. Co. v. Transamerica Ins. Co., 357 N.W.2d 519 (S.D. 1984) ............................................................................................................... 13 BP A.C. Corp. v. One Beacon Ins. Group, 8 N.Y.3d 708, 840 N.Y.S.2d 302 (2007) ................................................................................................................ 29 Britez v. Madison Park Owner, LLC, 36 Misc. 3d 1233(A), 960 N.Y.S.2d 49 (Sup. Ct., N.Y. County, 2012) ........................................................................... 35 Broadway Houston Mack Dev., LLC v. Kohl, 71 A.D.3d 937, 897 N.Y.S.2d 505 (2d Dep’t 2010) ................................................................................................. 30 Chelsea Assocs., LLC v. Laquila-Pinnacle, 21 A.D.3d 739, 801 N.Y.S.2d 15 (1st Dep’t 2005) ................................................................................................. 34 iii Continental Cas. Co. v. Fifth/Third Bank, 418 F. Supp. 2d 964, 971 (N.D. Ohio 2006) ............................................................................................. 30 Continental Ins. Co. v. Tollman-Hundley Hotels Corp., 223 A.D.2d 374, 636 N.Y.S.2d 319 (1st Dep’t 1996) ....................................................................... 34 Cragg v. Allstate Indem. Corp., 17 N.Y.3d 118, 926 N.Y.S.2d 867 (2011) ........... 21 Crespo v. City of New York, 303 A.D.2d 166, 756 N.Y.S.2d 183 (1st Dep’t 2003) ...................................................................................................... 16 Dale Corp. v. Cumberland Mut. Fire Ins. Co., 2010 U.S. Dist. LEXIS 127126 (E.D. Pa. Nov. 30, 2010) ............................................................................ 19 Engasser Constr. Corp. v. Dryden Mut. Ins. Co., 134 A.D.3d 1516 (4th Dep’t 2015) ................................................................................................ 17, 18 Fed. Ins. Co. v. Arthur Andersen & Co., 75 N.Y.2d 366, 553 N.Y.S.2d 291 (1990) ................................................................................................................ 30 Federated Department Stores, Inc. v. Twin City Fire Insurance Company, 28 A.D.3d 32, 807 N.Y.S.2d 62 (1st Dep’t 2006) .................................................. 33 Fibreboard Corp. v. Hartford Acc. & Indem. Co., 16 Cal. App. 4th 492, 20 Cal Rptr. 2d 376 (1993) ...................................................................................... 12 Fid. & Cas. Co. v. N. Carolina Farm Bur. Mut. Ins. Co., 16 N.C. App. 194, 192 S.E.2d 113 (1972) ............................................................................................ 13 Friedland v. First Specialty Ins. Corp., 2016 N.J. Super. Unpub. LEXIS 1841 (Law Div. Aug. 3, 2016) ................................................................... 12 Gilbane Building Company v. Admiral Ins. Co., 664 F.3d 589 (5th Cir. 2011) ......................................................................................................... 14 Hargob Realty Assoc., Inc. v. Fireman’s Fund Ins. Co., 73 A.D.3d 856, 901 N.Y.S.2d 657 (2d Dep’t 2010) ................................................................... 33, 34 HBE Corp. v. Harleysville Grp., Inc., 2015 U.S. Dist. LEXIS 131972 (N.D.N.Y. Sept. 30, 2015) .......................................................................... 18, 19, 27 iv Johnston v. Hartford Ins. Co., 131 Mich. App. 349, 346 N.W.2d 549 (1984) ....................................................................................................................... 13 Jordan v. Lee, 76 Or. App. 472, 709 P.2d 752 (1985) ........................................... 13 Liberty Mut. Ins. Co. v. Zurich Am. Ins. Co., 2014 U.S. Dist. LEXIS 42471 (S.D.N.Y. Mar. 28, 2014) ................................................................................. 18, 19 Markevics v. Liberty Mutual Ins. Co., 97 N.Y.2d 646, 735 N.Y.S.2d 865 (2001) ...................................................................................................................... 34 Maroney v. New York Cent. Mut. Fire Ins. Co., 5 N.Y.3d 467, 805 N.Y.S.2d 533 (2005) .......................................................................................................... 25, 27 Matter of Viking Pump, Inc., 27 N.Y.3d 244 (2016) ............................................... 10 McPherson by & ex rel. McPherson v. Mich. Mut. Ins. Co., 306 S.C. 456, 412 S.E.2d 445 (Ct. App. 1991) ............................................................................... 13 Meadowbrook, Inc. v. Tower Ins. Co., Inc., 559 N.W.2d 411 (Minn. 1997) .......... 13 Mfrs. Cas. Ins. Co. v. Goodville Mut. Cas. Co., 403 Pa. 603, 170 A.2d 571 (1961) ...................................................................................................................... 13 Natl. Farmers Union Prop. & Cas. Co. v. W. Cas. & Sur. Co., 577 P.2d 961 (Utah Sup. Ct. 1978) ................................................................................................ 13 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) .............................................. 19 Nomura Holding Am., Inc. v. Fed. Ins. Co., 45 F. Supp.3d 354 (S.D.N.Y. 2014) ........................................................................................................................ 21 NYP Holdings v. McClier Corp., 65 A.D.3d 186, 881 N.Y.S.2d 407 (1st Dep’t 2009) ...................................................................................................... 30 O’Dowd v. American Surety Company of New York, 3 N.Y.2d 347, 165 N.Y.S.2d 458 (1957) ......................................................................................... 32 Olin Corp. v. Am. Home Assur. Co., 704 F.3d 89 (2d Cir. 2012) ........................... 21 v Olsen v. Oklahoma Gas & Elec. Co., 288 P.3d 940 (2012) ................................... 13 Pac. Ins. Co. v. Liberty Mut. Ins. Co., 956 A.2d 1246 (Del. 2008) ......................... 12 Pearson Capital Partners LLC v. James Riv. Ins. Co., 151 F. Supp. 3d 392 (S.D.N.Y. 2015) ...................................................................................................... 18 Preserver Ins. Co. v. Ryba, 10 N.Y.3d 635, 642, 862 N.Y.S.2d 820 (2008) .......... 35 Pro Con, Inc. v. Interstate Fire & Cas. Co., 794 F. Supp. 2d 242 (D. Me. 2011) ........................................................................................................... 12 Red Ball Motor Freight, Inc., 189 F.2d 374 (5th Cir. 1951) ................................. 14 Regal Constr. Corp. v. National Union Fire Ins. Co. of Pittsburgh, PA, 15 N.Y.3d 34, 904 N.Y.S.2d 338 (2010) ....................................................... 4, 24, 25 Rivera v. Nevada Med. Liab. Ins. Co., 107 Nev. 450, 814 P.2d 71 (1991) ............. 13 Robert E. Lee & Assocs. v. Peters, 206 Wis. 2d 509, 557 N.W.2d 457 (Ct. App. 1996) ........................................................................................................ 14 Rodrigues v. N&S Building Contractors, Inc., 5 N.Y.3d 427, 805 N.Y.S.2d 427 (2005) ............................................................................................................ 3, 11 Schwartz v. Merola Bros. Construction Corp., 290 N.Y. 145 (1943) ....................... 3 Shannon v. B.L. Eng. Generating Sta., 2013 U.S. Dist. LEXIS 168715 (D.N.J. Nov. 27, 2013) ............................................................................................. 13 Springer v. Erie Ins. Exch., 439 Md. 142, 94 A3d 75 (2014) .................................. 12 State Farm Fire & Cas. Co. v. Erwin, 393 So. 2d 996 (Ala. 1981) ........................ 12 Stephan & Sons v. Anchorage, 629 P.2d 71 (Alaska 1981) .................................... 12 Suburban Serv. Bus Co. v. Natl. Mut. Cas. Co., 237 Mo. App. 1128, 183 S.W.2d 376 (1944) .................................................................................................. 13 vi Sumner Builders Corp. v. Rutgers Cas. Ins. Co., 101 A.D.3d 417, 955 N.Y.S.2d 568 (1st Dep’t 2012) ......................................................................... 32 Taurus Holdings, Inc. v. United States Fid. & Guar. Co., 913 So. 2d 528 (Fla. 2005) ................................................................................................................ 12 The United Pacific Ins. Co. v. Schetky Equip. Co., 217 Ore. 422, 342 P.2d 766 (1959) ....................................................................................................... 31 Trex Co. v. Exxonmobil Oil Corp., 234 F. Supp. 2d 572 (E.D. Va. 2002) ............. 13 Tucker v. State Farm Mut. Auto. Ins. Co., 154 So. 2d 226 (La. Ct. App. 1963) .............................................................................................................. 12 Union Carbide Corp. v. Affiliated FM Ins. Co., 68 A.D.3d 534, 891 N.Y.S.3d 347, 350 (1st Dep’t 2009) ................................................................ 21 United Servs. Auto. Ass’n v. Morgan, 23 Kan. App. 2d 987, 939 P.2d 959 (1997) ....................................................................................................................... 12 United Nat'l Ins. Co. v. David Parish, 48 Mass. App. Ct. 67, 717 N.E.2d 1016 (1999) .............................................................................................................. 12 Utica Nat'l Ins. Co. v. Am. Indem. Co., 141 S.W.3d 198 (Tex. 2004) .................... 13 Utica Nat’l Ins. Co. of Texas v. Am. Indem. Co., 141 S.W.3d 198 (Tex. 2004) .............................................................................................................. 14 Westview Assocs. v. Guar. Nat’l Ins. Co., 95 N.Y.2d 334, 339 (2000) ................... 21 Worth Constr. Co., Inc. v. Admiral Ins. Co, 10 N.Y.3d 411, 859 N.Y.S.2d 101 (2008) ..................................................................................................... 4, 24, 25 Zurich Am. Ins. Co. v. Harleysville Ins. Co., 2016 U.S. Dist. LEXIS 87980 (S.D.N.Y. July 7, 2016) .......................................................................................... 18 Zurich Ins. Co. v. Texasgulf, Inc., 233 A.D.2d 180, 181, 649 N.Y.S.2d 153 (1st Dep’t 1996) ....................................................................................................... 34 vii Other Authorities 16 Couch, Insurance 2d § 61:55 [rev ed] ................................................................. 31 N.Y. PJI § 2.70 ......................................................................................................... 21 N.Y. Ins. Law § 3420(d) .......................................................................................... 33 1 PRELIMINARY STATEMENT Appellant The Burlington Insurance Company (“Burlington”) submits this Reply Memorandum of Law in further support of its appeal from the Decision and Order of the Appellate Division, First Department, dated August 11, 2015 (the “Decision”), which reversed two Orders of the trial court, and held that Burlington owes coverage to Respondents NYC Transit Authority and MTA New York City Transit (hereinafter, collectively “NYCTA”) as an additional insured under an insurance policy issued to Burlington’s named insured, Breaking Solutions, Inc. (“Breaking Solutions”), in connection with an underlying personal injury action. Tellingly, NYCTA largely steers clear of the substantive arguments raised by Burlington as to the core issue at the heart of this appeal. Instead, NYCTA, as it did below, focuses on secondary arguments that were correctly rejected by the trial and appellate courts.1 The core issue is whether the Appellate Division’s interpretation of a standard additional insured endorsement is correct. The additional insured endorsement at issue 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 1 NYCTA submitted a two-sentence ambiguous reference in its Appellate Division brief to support the claim that it properly preserved the core issue below. (Resp. Brief, at 9, n.3). 2 for the additional insured if the liability is “caused, in whole or in part, by [the named insured’s] acts or omissions.” (R. 432). In the underlying action, it was judicially determined that the named insured, Breaking Solutions, did not cause, in the proximate, legal sense of the term, the underlying accident in any way. Rather, NYCTA’s own actions were the sole proximate cause of the accident. Burlington submitted arguments in its opening brief explaining why the Appellate Division’s interpretation of this endorsement is incorrect and cannot be reconciled with (i) the endorsement’s plain meaning, (ii) this Court’s precedent, (iii) the admitted intent of the drafters, (iv) decisions of courts in other jurisdictions interpreting this same exact endorsement, and (v) the reasonable expectations of the parties. First, Burlington submits that the Appellate Division’s interpretation of the endorsement is contrary to its plain meaning. The language refers to providing additional insured coverage only for liability “caused, in whole or in part, by [the named insured’s] acts or omissions.” When read in its entirety, the endorsement plainly provides additional insured so long as the named insured’s acts or omissions are at least a proximate cause, even if only a minor one. An ordinary person reading this endorsement would interpret it to mean that so long as the policyholder is even partially at fault, the insurance policy provides coverage to the 3 additional insured. Not only is that the common sense interpretation of this endorsement, it is the correct one. Indeed, this Court already interpreted this same “caused in whole or in part by” language in the context of an indemnity contract, and held that proximate causation is 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). NYCTA basically ignored this precedent in its brief. The First Department panel’s strained attempt to equate two plainly different endorsements (“caused by . . . acts or omissions” and “arising out of”) forced it to ignore certain important words in the endorsement. For example, the “whole or in part” language 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 otherwise. Further, the First Department’s pronouncement that “caused by” does not materially differ from “arising out of” is a complete departure from well-settled law to the contrary. For the past century, courts in this state and throughout the 4 country have consistently held that the words “arising out of” have much broader significance than “caused by,” and thus clearly are not synonymous. In its strained effort to broaden the scope of additional insured coverage, the Appellate Division essentially adopted a “but for” causation test. Applying “but for” causation here, since Breaking Solutions was working on the job on the day of the accident and committed an admittedly “non-negligent” act (excavating concrete), the injury to NYCTA’s employee (a height-related Labor Law § 240(1) hazard 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 for an injury to NYCTA’s own employee involving an accident in which NYCTA’s negligence was the sole proximate cause. Based on the plain meaning arguments alone, Burlington submits that the “but for” causation test adopted by the First Department is simply incorrect. Second, besides being contrary to the endorsement’s plain meaning, Burlington submits that the First Department’s “but for” causation test runs afoul of the limitations set by this Court’s decisions 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) in terms of the scope of additional insured coverage. Rather 5 than limitless “but for” causation, this Court adopted an intermediate standard, the causal nexus test, when faced with the much broader “arising out of” language. This Court recognized that “but for” causation could not work even under the much broader “arising out of” endorsements. The reason is simple. As courts have noted for decades, “but for” causation is limitless and unworkable. But the practical impact of the First Department’s Decision is adoption of “but for” causation. 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. Neither NYCTA nor the Appellate Division offered any suggestion as to when a “non-negligent act or omission” would not be sufficient to be a “non-proximate” cause of an accident. For a subcontractor working on a construction site, any “act or omission” is enough to “cause” an accident if the causation does not have to be “proximate” and the “act or omission” does not have to be “negligent.” Yet, under the Appellate Division’s interpretation of this plainly narrower “caused by” language, there are no practical limits to coverage. To the extent that the First Department’s ruling is interpreted to apply this Court’s Worth/Regal causal nexus test to “caused by acts or omissions” endorsements, we respectfully submit that to do so is plainly wrong. As this Court has consistently noted when interpreting contracts generally, and insurance 6 contracts in particular, the actual words matter. Here, the First Department largely ignores the actual words of the amended endorsement. But even if we were to pretend that this amended endorsement contained the older “arising out of” language interpreted by this Court in Worth and Regal, and applied this Court’s causal nexus test to the facts here, we submit that there would still be no coverage. This Court held that there is a causal nexus (even in the absence of negligence) when the underlying injury is to an employee of the named insured. In those routine circumstances, the purpose behind the transfer of risk is satisfied. But, the injury here was not to a Breaking Solutions employee. Rather, the injury was to NYCTA’s own worker who was not provided with adequate fall protection when he tripped over debris and fell from an unsecured elevated work platform. That is not the type of risk for which coverage was intended. The third reason supporting Burlington’s arguments with respect to the core issue is that, even though not binding on this Court, every court, whether state or federal, which has had the opportunity to analyze this same endorsement, has interpreted it in the manner advanced by Burlington. Other than stating the obvious (that cases from other jurisdictions are not binding on this Court), and the self- evident (that the facts of each case are different), NYCTA offered nothing substantive on this important and persuasive point. 7 Fourth, there is also no dispute that the drafter’s intent was not to provide coverage in these non-negligent situations. Burlington did not offer these arguments to eliminate an ambiguity, but to demonstrate that Burlington’s interpretation is the only reasonable one. The industry drafters did not change the wording of the endorsement after decades of employing the “arising out of” language for window dressing purposes. The words are different because the intent was to change the meaning, not to keep it the same. Fifth, the reasonable expectations of the parties weigh against the Appellate Division’s broad, limitless interpretation. None of the parties reasonably expected that Breaking Solution’s policy would be triggered to cover NYCTA’s liability incurred in connection with a height-related Labor Law § 240(1) accident involving one of its own employees caused solely by its own negligence. Instead of trying to harmonize the Appellate Division’s interpretation of the endorsement against Burlington’s substantive arguments, NYCTA reverts back to its “Burlington is bad” narrative and related equitable defenses, which were unsuccessful at both the trial court and Appellate Division. Strangely, NYCTA frames this as an anti-subrogation case, perhaps in an effort to avoid discussing the core issue. Anti-subrogation is simply a non-issue, as Burlington has argued from the very beginning and both the trial court and appellate court recognized. The reason is simple. If it owes coverage to NYCTA, Burlington concedes that anti- 8 subrogation applies because it also provided coverage to the City. Anti-subrogation would bar Burlington’s attempt to stand in the City’s shoes to recoup the underlying settlement and defense costs from NYCTA. Practically speaking, it makes no sense for Burlington to seek to recoup from NYCTA if Burlington owes coverage to NYCTA. But, if Burlington does not owe coverage to NYCTA, then anti-subrogation does not apply because only one party (City) would be covered by the Burlington policy, not the other (NYCTA). NYCTA’s other main equitable defense is the voluntary payment doctrine. The entire premise of the voluntary payment argument is that Burlington clearly did not owe coverage. That premise, that Burlington clearly did not owe coverage, is directly contrary to NYCTA’s core argument on this appeal, which is that Burlington clearly does owe coverage. The voluntary payment argument simply makes no sense under the circumstances of this case. Also missing from NYCTA’s “equitable” narrative is the reason why Burlington agreed to withdraw its reservation of rights, and provide additional insured coverage to the City. The reason is obvious. It negates the whole charade that NYCTA has clean hands with respect to Burlington’s handling of this claim. NYCTA threatened to withhold Burlington’s insured’s contract monies unless Burlington withdrew its reservation of rights as to the City. This threat is in writing and made in no uncertain terms. (R. 1168). In an effort to wash this away, NYCTA 9 pleads in its brief that this letter should be read “in context,” which is just another way of saying that this Court should ignore it. 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. ARGUMENT I. NYCTA FAILS TO MEANINGFULLY RESPOND TO BURLINGTON’S CORE ARGUMENTS In its opening brief, Burlington articulated at length the numerous reasons why the First Department’s interpretation of the additional insured endorsement language at issue in this matter cannot withstand careful scrutiny. Burlington demonstrated that the First Department’s interpretation (1) conflicts with the endorsement’s plain meaning, ordinary principles of contract interpretation, and 10 the drafter’s intent; (2) conflicts with this Court’s precedent in Worth Construction and Regal Construction; and (3) conflicts with the interpretation of this language by virtually every other court nationwide. Tellingly, NYCTA provides just surface- level, passing opposition to these core issues. NYCTA’s lip-service treatment of the core issue and reliance on secondary arguments demonstrates lack of faith in the Appellate Division’s interpretation of the endorsement. A. The Decision Conflicts with the Endorsement’s Plain Meaning, Ordinary Principles of Contract Interpretation, and the Drafter’s Intent 1. “Caused By” and “Arising Out of” Do Not Have The Same Meaning This Court has long held and recently reiterated that “[i]n determining a dispute over insurance coverage, [courts] first look to the language of the policy.” Matter of Viking Pump, Inc., 27 N.Y.3d 244 (2016). The basis of the First Department’s holding is its interpretation that the phrase “caused, in whole or in part, by” has the same meaning as “arising out of.” In conflating these phrases, the Appellate Division turned this maxim on its head by ignoring the actual words. In its opening brief, Burlington cited a host of authority from both New York and across the country to demonstrate that all courts outside of New York’s First Department—as well as prior First Department panels—universally recognize the basic and obvious proposition that these terms do not mean the same thing. (App. Br. § III). While the First Department alone interprets “caused by” as being synonymous with “arising out of,” each of the countless other jurisdictions that has 11 opined on this question has held that “arising out of” and “caused by” are not synonymous, with “arising out of” affording much broader coverage. While the phrase “arising out of” has been held to mean “originating from” or “incident to,” this Court has held that “caused by” requires proximate causation. Specifically, this Court 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 indeed 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 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). 12 Because “arising out of” and “caused by” (or “caused in whole or in part by”) are the most common phrases used for triggering additional insured coverage in insurance contracts, more than half of the states have interpreted and compared these phrases. Other than in the First Department, the unanimous interpretation is that these phrases should of course be interpreted differently, with “arising out of” being much broader. See Friedland v. First Specialty Ins. Corp., 2016 N.J. Super. Unpub. LEXIS 1841, *17 (Law Div. Aug. 3, 2016) (surveying case law nationwide before concluding that “the overwhelming and indeed uniform interpretation of the ‘caused, in whole or in part, by’ language holds that coverage is triggered where the allegations of the complaint allege negligence on the part of both the named and additional insureds”). In fact, of the twenty-eight jurisdictions that have opined on this issue other than the First Department, every single one has held that “arising out of” should be interpreted more broadly than “caused by” or “caused in whole or in part by.” See, e.g., State Farm Fire & Cas. Co. v. Erwin, 393 So. 2d 996 (Ala. 1981); Stephan & Sons v. Anchorage, 629 P.2d 71, 72 (Alaska 1981); Fibreboard Corp. v. Hartford Acc. & Indem. Co., 16 Cal. App. 4th 492, 20 Cal Rptr. 2d 376 (1993); Pac. Ins. Co. v. Liberty Mut. Ins. Co., 956 A.2d 1246 (Del. 2008); Taurus Holdings, Inc. v. United States Fid. & Guar. Co., 913 So. 2d 528 (Fla. 2005); United Servs. Auto. Ass’n v. Morgan, 23 Kan. App. 2d 987, 939 P.2d 959 (1997); Tucker v. State Farm 13 Mut. Auto. Ins. Co., 154 So. 2d 226 (La. Ct. App. 1963); Pro Con, Inc. v. Interstate Fire & Cas. Co., 794 F. Supp. 2d 242 (D. Me. 2011) (applying Maine law); Springer v. Erie Ins. Exch., 439 Md. 142, 94 A3d 75 (2014); United Nat'l Ins. Co. v. David Parish, 48 Mass. App. Ct. 67, 717 N.E.2d 1016 (1999); Johnston v. Hartford Ins. Co., 131 Mich. App. 349, 346 N.W.2d 549 (1984); Meadowbrook, Inc. v. Tower Ins. Co., Inc., 559 N.W.2d 411 (Minn. 1997); Suburban Serv. Bus Co. v. Natl. Mut. Cas. Co., 237 Mo. App. 1128, 183 S.W.2d 376 (1944); Rivera v. Nevada Med. Liab. Ins. Co., 107 Nev. 450, 814 P.2d 71 (1991); Am. Motorists Ins. Co. v. L-C-A Sales Co., 155 N.J. 29, 713 A.2d 1007 (1998); Shannon v. B.L. Eng. Generating Sta., 2013 U.S. Dist. LEXIS 168715 (D.N.J. Nov. 27, 2013) (applying New Jersey law); Fid. & Cas. Co. v. N. Carolina Farm Bur. Mut. Ins. Co., 16 N.C. App. 194, 192 S.E.2d 113 (1972); Olsen v. Oklahoma Gas & Elec. Co., 288 P.3d 940 (2012); Jordan v. Lee, 76 Or. App. 472, 709 P.2d 752 (1985); Mfrs. Cas. Ins. Co. v. Goodville Mut. Cas. Co., 403 Pa. 603, 170 A.2d 571 (1961); McPherson by & ex rel. McPherson v. Mich. Mut. Ins. Co., 306 S.C. 456, 412 S.E.2d 445 (Ct. App. 1991); Auto-Owners Ins. Co. v. Transamerica Ins. Co., 357 N.W.2d 519 (S.D. 1984); Am. Nat'l Prop. & Cas. Co. v. Gray, 803 S.W.2d 693 (Tenn. Ct. App. 1990); Utica Nat'l Ins. Co. v. Am. Indem. Co., 141 S.W.3d 198 (Tex. 2004); Natl. Farmers Union Prop. & Cas. Co. v. W. Cas. & Sur. Co., 577 P.2d 961 (Utah Sup. Ct. 1978); Trex Co. v. Exxonmobil Oil Corp., 234 F. Supp. 2d 572 (E.D. Va. 2002) 14 (applying Virginia law); Austl. Unlimited, Inc. v. Hartford Cas. Ins. Co., 147 Wash. App. 758, 198 P.3d 514 (2008); Robert E. Lee & Assocs. v. Peters, 206 Wis. 2d 509, 557 N.W.2d 457 (Ct. App. 1996). In response, NYCTA spills much ink criticizing and attempting to distinguish the vast authority to which Burlington cites. However, NYCTA’s purported distinctions either are not actually distinctions at all, or prove to be distinctions without a difference. For example, NYCTA attempts to distinguish Red Ball Motor Freight, Inc., 189 F.2d 374 (5th Cir. 1951), on the grounds that “[t]herein, coverage was held to exist under an ‘arising out of use’ trigger, not the ‘caused, in whole or part’ language at issue in the instant appeal.” (Resp. Br. at 41). However, as argued in its opening brief, it is precisely this “distinction” upon which Burlington relies to prove its point. In noting the differences between these two phrases, the Fifth Circuit specifically acknowledged that “‘[a]rising out of’ are words of much broader significance than ‘caused by.’” Red Ball Motor Freight, Inc., 189 F.2d at 378. Thus, not only is the alleged distinction unhelpful to NYCTA, it indeed demonstrates Burlington’s point that “arising out of” and “caused by” do not have the same meaning. The remainder of NYCTA’s alleged distinctions suffers from the same or similar infirmities. By way of further example, Burlington cites to Utica Nat’l Ins. Co. of Texas v. Am. Indem. Co., 141 S.W.3d 198, 203 (Tex. 2004), and Gilbane 15 Building Company v. Admiral Ins. Co., 664 F.3d 589 (5th Cir. 2011) for the proposition that that the plain meaning of the phrase “caused by” in this context must require proximate causation. NYCTA distinguishes these cases on the grounds that both cases are decided under Texas law, which requires fair notice of intent to indemnify for the indemnitee’s negligence, whereas New York law, under which the instant matter is governed, excludes insurance policies from the ambit of GOL § 5-322.1. It is respectfully submitted that this purported distinction is without a difference: whether or not the governing law under which a case is decided permits indemnification for the indemnitee’s own negligence does not affect the plain meaning interpretation of the phrase “caused by.”2 In addition to conflicting with case law from other jurisdictions, Burlington demonstrated in its opening brief that the First Department’s interpretation is also irreconcilable with its own (earlier) decisions which interpreted comparable “acts 2 In the interest of brevity, Burlington simply notes that for the vast majority of NYCTA’s purported “distinctions” of Burlington’s cited authority from around the country, NYCTA merely points to irrelevant factual differences having no real bearing on this issue (see, e.g., Resp. Br. at 59-60) (noting that “at least some of the cases decided under Sister State law had additional insured endorsements that expressly excluded coverage for the negligent acts or omissions of the additional insureds” but failing to explain the import of such distinction), or else simply note that “[t]he Courts of New York are under no obligation to seek uniformity with other jurisdictions.” (id. at 60-61). While obviously the manner in which courts in other jurisdictions interpret this language is not binding on this Court, certainly the uniformity of interpretation in other jurisdictions carries considerable persuasive weight. Moreover, it is respectfully submitted that cross-border uniformity in interpretation of the same language in this context has significant value, and is a goal that should be championed rather than spurned for no reasoned purpose. 16 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 (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). With respect to the former, NYCTA relies entirely on the First Department decision below to draw distinctions from its own prior decisions in American Guarantee and Crespo, and thereby align its apparently conflicting Decision with them. NYCTA offers no new argument in its opposition brief. Burlington’s opening brief thoroughly discusses the irreconcilability of American Guarantee and Crespo with the First Department’s Decision below. In the interest of avoiding repetitiveness, Burlington simply emphasizes that the First Department itself does not even appear to be fully convinced of its own distinctions, acknowledging that “to the extent Crespo conflicts with this Court’s more recent authority, we are obliged to follow the latter.” (R. 1558). With respect to prior Fourth Department precedent, NYCTA’s attempt to distinguish Aetna, is similarly unconvincing. While acknowledging, as they must, that the Fourth Department therein interpreted the words “caused by” as being narrower than “arising out of,” NYCTA asserts that the Fourth Department did not 17 go the further step of “address[ing] whether ‘caused by’ requires proof of negligence or other actionable conduct, or whether ‘caused by’ requires proof of proximate causation.” (Resp. Br. at 59). It is respectfully submitted that even without going this further step, the Fourth Department’s interpretation that “arising out of” is of broader significance than “caused by” clearly conflicts with the First Department’s interpretation of those terms as having the same meaning. Moreover, NYCTA’s citation to Engasser Constr. Corp. v. Dryden Mut. Ins. Co., 134 A.D.3d 1516 (4th Dep’t 2015), as supportive of the First Department interpretation is at best wholly misleading and at worst patently disingenuous. Critically, the court did not even address a “caused by” endorsement. Rather, it addressed an endorsement triggering coverage for “activities of the named insured.” In Engasser, the plaintiff construction company hired a contractor to install ice blocks on the roof of its commercial building. An employee of the contractor fell from the roof while installing the ice blocks. The employee and his spouse sued plaintiff asserting violations of Labor Law §§ 200, 240(1) and 241(6). The plaintiff brought a coverage action against the contractor’s insurer seeking additional insured coverage. The policy had an additional insured endorsement that amended the definition of “insured” under the policy “to include as an insured the [plaintiff] BUT only with respect to . . . its liability for activities of the named 18 insured or activities performed by [the plaintiff] on behalf of the named insured.” Id. at 1517. The Fourth Department affirmed the trial court’s grant of summary judgment in favor of the plaintiff construction company, holding that the “[p]laintiff reasonably expected coverage under the endorsement, inasmuch as it was subject to liability for the activities of the named insured, i.e., the injured worker’s employer, under the Labor Law.” Id. The Fourth Department then cited the First Department’s decision below for the general proposition that where coverage is owed under an additional insured endorsement, it is proper for a court to award summary judgment to the additional insured declaring that it is entitled to a defense and indemnification under the policy. As the Fourth Department was interpreting a completely different endorsement that did not contain the “caused, in whole or in part, by” language at issue in the instant matter, Engasser provides no support that the Fourth Department endorses the First Department’s interpretation of that language. Similarly, NYCTA’s further contention that the First Department’s interpretation has been followed in Pearson Capital Partners LLC v. James Riv. Ins. Co., 151 F. Supp. 3d 392 (S.D.N.Y. 2015); Zurich Am. Ins. Co. v. Harleysville Ins. Co., 2016 U.S. Dist. LEXIS 87980 (S.D.N.Y. July 7, 2016); Liberty Mut. Ins. Co. v. Zurich Am. Ins. Co., 2014 U.S. Dist. LEXIS 42471 (S.D.N.Y. Mar. 28, 19 2014); and HBE Corp. v. Harleysville Grp., Inc., 2015 U.S. Dist. LEXIS 131972 (N.D.N.Y. Sept. 30, 2015) is similarly misleading. The Pearson court specifically noted that the First Department’s interpretation of the “caused, in whole or in part, by” language “has not been ruled upon by the New York Court of Appeals,” but that it nonetheless felt compelled to follow it. Similarly, the Zurich court perfunctorily followed the First Department precedent, providing no independent analysis of the language at issue. Indeed, as Burlington discussed in detail in its opening brief (Appellant’s Br. at 43-44), the two courts cited by NYCTA that actually provided any analysis of the First Department interpretation, the Liberty Mutual and HBE Corp. courts, were both critical of it. In Liberty Mutual, Judge Carter noted “the absence of significant legal analysis” in the First Department’s opinions. Liberty Mutual, 2014 U.S. Dist. LEXIS 42471, at *13-14. In HBE Corp., Judge D’Agostino specifically noted that “[i]f presented with the question in a vacuum, the Court might well agree with the well-reasoned decisions of Judge Rakoff and Judge O’Neill. However, as the Second Circuit has stated, ‘the absence of authority from New York’s highest court does not provide [the Court] license to disregard lower court rulings nor to analyze the question as though we were presented with a blank slate.’” HBE Corp., 2015 U.S. Dist. LEXIS 131972, at *13. The referenced decisions of Judge Rakoff and 20 Judge O’Neill are to 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.) and Dale Corp. v. Cumberland Mut. Fire Ins. Co., 2010 U.S. Dist. LEXIS 127126 (E.D. Pa. Nov. 30, 2010) (O’Neill, J.). In both of those cases, the respective courts, after a thorough, detailed analysis of the language at issue, agreed with the interpretation advanced by Burlington on this appeal. Beyond these inapposite case distinctions, NYCTA’s entire argument on this issue is that: The contention by Burlington that the Decision of the Appellate Division, First Department, is inconsistent with the plain language of the endorsement is inaccurate. The endorsement does not condition coverage upon a finding that the named insured’s acts or omissions were negligent or otherwise actionable, or that such negligent or otherwise actionable acts or omissions of the named insured have been either the only proximate cause or a proximate cause of the injury. (Resp. Br. at 40). It is respectfully submitted that NYCTA’s argument is merely ipse dixit and should be rejected for the myriad of reasons set forth above, in Burlington’s opening brief, and in the numerous cases to which Burlington cites. 2. The Appellate Division’s Interpretation Violates Several Long-Standing Canons of Contract Interpretation Burlington’s opening brief demonstrated that the First Department’s interpretation of the relevant policy language, in addition to conflicting with the 21 endorsement’s plain meaning, violates well-settled canons of contract interpretation. By way of brief summary, Burlington demonstrated if, as the First Department held, “caused by” does not require “proximate” or “legal” cause—and “but for” causation of the “act” or “omission” is sufficient—then the clause’s “in whole or in part” language has no real meaning or purpose. At the risk of stating the obvious, 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. See Argentina v. Energy World Wide Delivery Corp., 93 N.Y.2d 554, 561, 693 N.Y.S.2d 493, 496 n.2 (1999); N.Y. PJI § 2.70.3 Similar to its approach with respect to Burlington’s plain meaning argument, NYCTA attempts to distinguish Burlington’s cited authority, even when those distinctions serve no purpose. For example, Burlington cited five cases for nothing more than the general proposition that as an insurance policy is a contract, to be interpreted according to ordinary canons of contract interpretation (including the specific canon that contracts must be read so as to avoid surplusage): Cragg v. Allstate Indem. Corp., 17 N.Y.3d 118, 122, 926 N.Y.S.2d 867, 869 (2011); Westview Assocs. v. Guar. Nat’l Ins. Co., 95 N.Y.2d 334, 339 (2000); Olin Corp. v. 3 Although suggesting that Burlington’s misplaces its reliance on the NY PJI and Argentina for the proposition that only a proximate cause can be whole or partial, NYCTA then immediately concedes the point. (Resp. Br. at 46-47). 22 Am. Home Assur. Co., 704 F.3d 89, 98 (2d Cir. 2012); 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); and Nomura Holding Am., Inc. v. Fed. Ins. Co., 45 F. Supp.3d 354, 367 (S.D.N.Y. 2014). Although NYCTA painstakingly distinguishes the facts of each of these cases, NYCTA’s factual distinctions are simply inapposite. None of the distinctions detract from the general principle that the endorsement at issue should be read so as to avoid rendering the clause “in whole or in part by” superfluous. In any event, in apparent recognition that ordinary contract interpretation principles apply to insurance policies, NYCTA does attempt to argue that the First Department’s interpretation would not render the clause “in whole or in part by” superfluous. NYCTA’s argument, elucidated at page 40-41 of their brief but repeated elsewhere, is in essence that: Without the phrase “in whole or in part”, the endorsement would, arguably, provide an additional insured coverage, only if the named insured’s acts or omissions were the only, or sole, cause of the loss; without that phrase, coverage would arguably, exist sufficient to trigger the duty to defend, but would provide only an illusion of indemnity; accordingly, the phrase “in whole or in part” is necessary to avoid an illogical result. (Resp. Br. at 40-41). Although unclear, it appears NYCTA is arguing that a hypothetical endorsement that provides coverage for liability “caused by the named insured’s act’s or omissions” (i.e., the endorsement at issue here, without 23 the phrase “in whole or in part by”) would only provide indemnity “where the named insured’s acts or omissions were the only, or sole cause of the loss.” However, not only is this argument self-evidently illogical from a plain meaning/textual analysis standpoint,4 it is also internally inconsistent with NYCTA’s own position on this appeal (as well as the First Department’s Decision). The First Department specifically held below, and NYCTA herein argues, that there is effectively no difference between the phrases “caused by” and “arising out of.” Thus, by extension, to accept NYCTA’s argument now raised in its opposition, is to accept that in order to trigger coverage under an “arising out of” endorsement, the “named insured’s loss must have been the only, or sole cause of the loss.” No court, not even the First Department, has interpreted “arising out of” to be so limited. Quite to the contrary, courts uniformly recognize that “arising out of” is exceedingly broad. Clearly then, this tortured reading of the language does not withstand scrutiny. Not surprisingly, NYCTA fails to cite a single case to support this reading and makes no other attempt to engage Burlington’s substantive analysis of the language at issue. B. There is No Coverage for NYCTA Even under the Broader “Nexus” Test Applied to Policies Utilizing the “Arising Out Of” Language 4 To accept NYCTA’s argument is to accept that “caused by” necessarily means “solely caused by,” which is self-evidently fallacious. NYCTA apparently does not even fully believe its own argument, as evidenced by the fact that it repeatedly qualifies it with “arguably.” 24 Burlington’s opening brief further established that the First Department’s interpretation of the narrowly worded “caused, in whole or in part, by” language in the endorsement at issue in this matter illogically results in broader coverage than this Court has previously afforded under the more broadly-worded “arising out of” endorsements in Worth Construction v. Admiral Ins. Co., 10 N.Y.3d 411, 859 N.Y.S.2d 101 (2008), and Regal Construction v. National Union Fire Ins. Co. of Pittsburgh, PA, 15 N.Y.3d 34, 904 N.Y.S.2d 338 (2010). NYCTA’s attempt to harmonize Worth and Regal with the First Department Decision below falls flat. In Worth, this Court found that no coverage was owed to an additional insured under an endorsement providing coverage for liability “arising out of” the named insured’s operations unless there was a sufficient nexus between the accident and the risk being insured. NYCTA does not appear to dispute this basic proposition. Instead, they argue that Worth “did not impose a requirement that the named insured have been negligent in order to afford insurance coverage to an additional insured.” (Resp. Br. at 53). Like the instant action, Worth did not involve an injury to an employee of the named insured. In that context, this Court did in fact base its decision, at least in part, on the fact that the named insured was not the “proximate cause” of the accident. Worth Constr., 10 N.Y.3d at 416, 859 N.Y.S.2d at 104 (noting that the putative additional insured had “conceded that the stairs themselves were not a 25 proximate cause of” the accident”). To illustrate the irreconcilability of the Decision with Worth, if we were to apply the Appellate Division’s test to the facts in Worth, the non-negligent “act” of installing a staircase would be sufficient to trigger coverage for an injury on that staircase if “proximate” cause is not required. Burlington is not contending that Worth required a finding of negligence by the named insured under the “arising out of” endorsement. Burlington’s point is simply that that if Worth requires at least a sufficient nexus (i.e., something more than “but for” causation but less than proximate causation) under the broadly worded “arising out of” endorsement, it must therefore follow that the more narrowly worded “caused, in whole or in part, by” endorsement requires something more than just a nexus – i.e., proximate causation.5 Thus, the First Department’s interpretation that mere “but for” causation is sufficient to satisfy the “caused, in whole or in part, by” language directly contradicts Worth. Similarly, in Regal, this Court further explained the “nexus” test promulgated in Worth 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 5 It is universally recognized, including by this Court, that the “arising out of” language provides a broader standard than “caused, in whole or in part, by” language. See Maroney v. New York Cent. Mut. Fire Ins. Co., 5 N.Y.3d 467, 472, 805 N.Y.S.2d 533, 536 (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’”). 26 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. However, the First Department’s decision below goes well beyond even Regal. This Court has never found additional insured coverage under the “nexus” test in the absence of either (i) negligence on the part of the named insured or (ii) injury to the named insured’s own employee.6 In response, NYCTA does not dispute that the injury forming the basis for liability in Regal was to the named insured’s own employee. NYCTA further acknowledges that even under the broader “arising out of language,” some sufficient nexus is required. (Resp. Br. at 54). It is respectfully submitted that Regal and Worth make clear that this “nexus” is more than simply “but for” causation. As Burlington demonstrated in its opening brief, the facts of the instant matter would not even satisfy the “nexus” test announced in Worth and Regal for the more broadly worded “arising out of endorsement.” (See Appellants’ Br. at 33- 38). NYCTA’s attempted reconciliation of Worth and Regal with the facts of this 6 The “nexus” test as propounded in Worth and Regal can thus be distilled as followed (at least in the context of a personal injury case): in order for a sufficient nexus to exist between the accident giving rise to liability and the risk being insured, there must be either negligence on the part of the named insured, or in the absence of negligence by the named insured, injury to the named insured’s own employee. In those circumstances, there is a sufficient relationship between the accident and the risk for which coverage was intended. 27 case and the First Department’s Decision below simply does nothing to contradict this point. At bottom, this Court’s decisions in Worth and Regal, along with its decision in Maroney v. New York Cent. Mut. Fire Ins. Co., 5 N.Y.3d 467, 805 N.Y.S.2d 533 (2005), have laid the necessary groundwork for its approval of Burlington’s interpretation of “caused, in whole or in part, by” as requiring proximate causation. 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”). The time is now ripe for the Court to bless this interpretation and provide clarity on, and finality to, this important issue. 28 II. THE TRIAL COURT CORRECTLY HELD THAT THE SETTLEMENT PAYMENT WAS NOT VOLUNTARY In addition to simply quoting the First Department’s holding, NYCTA makes a number of secondary arguments as to why it should be entitled to coverage. Each of these arguments was rejected or ignored by the courts below. A. The Payment Made By Burlington to Settle the Kenny Action Was Not A Voluntary Payment The primary argument made by NYCTA below is that Burlington’s payment was “voluntary” and therefore not subject to recoupment through subrogation. The premise of the “voluntary payment” argument is that Burlington did not owe coverage, which of course is the exact opposite of the core argument on this appeal, which is that Burlington does owe coverage. That alone should nullify the “voluntary payment” argument. Putting aside for the moment the complete inconsistency between these two arguments, as Justice Stallman correctly noted, Burlington’s payment was not voluntary because Burlington had waived its reservation of rights as against the City, at NYCTA’s insistence. (R. 26). Because NYCTA insisted that Burlington waive its rights and indemnify the City, Justice Stallman held that “[NYCTA] shall not be heard to complain of the consequences of the waiver.” (Id.). 29 There is no dispute that Burlington owed a duty to defend the City, based on the four corners of the complaint. BP A.C. Corp. v. One Beacon Ins. Group, 8 N.Y.3d 708, 715, 840 N.Y.S.2d 302 (2007). In addition to a defense, NYCTA further secured indemnity coverage for the City by threatening to withhold the payment of $153,000 to Breaking Solutions unless Burlington agreed to withdraw its reservation of rights. (R. 1168-74). The body of NYCTA’s letter states 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. 30 Please have your insurer contact MTA Risk and Insurance Management (Robin Cooper, [redacted]) to provide the required indemnification. (R 1168) (emphasis added). It is odd that NYCTA now argues that Burlington should be prejudiced by the withdrawal of its reservation to the City, when this is exactly what NYCTA demanded. This was not a veiled threat based on a telephone call that could be subject to differing interpretations. Rather, NYCTA’s threat is explicit. 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. Arthur Andersen & Co., 75 N.Y.2d 366, 373, 553 N.Y.S.2d 291, 294 (1990). Other courts have 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), and 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).7 7 Courts throughout the country have 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). 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), New Mexico’s Supreme Court held that “even if [the insurer] had developed a belief 31 In any event, once Burlington withdrew its reservation of rights as to the City, any subsequent payment could not be voluntary. Furthermore, 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.).8 As recognized by Justice Stallman, it would be an unjust windfall if NYCTA were 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. Because subrogation arises out of principles of equity, such a result cannot stand. Moreover, this subrogation action is only necessary because the City’s claims against NYCTA were dismissed without prejudice from the Kenny Action for efficiency purposes. (R. 575). However, in dismissing those claims Judge 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.” See also The United Pacific Ins. Co. v. Schetky Equip. Co., 217 Ore. 422, 342 P.2d 766 (1959). 8 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”). 32 Mauskopf held that resolution of Kenny’s claims against the City should proceed, with the determination of insurance coverage and indemnity to come later, and expressly noted that “nothing is gained” by the maintenance of the City’s third- party action against NYCTA, and further that nothing is “lost by its dismissal . . .” (R. 575). By dismissing the City’s claims, without prejudice, Judge Mauskopf ensured that Burlington would be responsible for the initial funding of any settlement or judgment against the City. Nothing in Judge Mauskopf’s Order indicates this payment would be “voluntary.” Instead, she expressly stated that Burlington “subrogated to the City’s rights.” (R. 570). B. Burlington Properly Disclaimed Coverage NYCTA also attempts to raise doubts as to the propriety of Burlington’s disclaimer. However, as the trial court noted, “Burlington was not required to disclaim coverage as to [NYCTA], given that they were not additional insureds under the endorsement.” (R. 19) (citing Sumner Builders Corp. v. Rutgers Cas. Ins. Co., 101 A.D.3d 417, 955 N.Y.S.2d 568 [1st Dep’t 2012]). Where an insurer reserves its right to disclaim while concomitantly providing a defense, and no prejudice to the insured results, the insurer is not estopped from denying coverage at a later date. O’Dowd v. American Surety Company of New York, 3 N.Y.2d 347, 165 N.Y.S.2d 458 (1957). Any reservation by the insurer is sufficient to prevent reliance upon the defense provided by the insurer should the insurer decide to 33 disclaim later. Federated Department Stores, Inc. v. Twin City Fire Insurance Company, 28 A.D.3d 32, 807 N.Y.S.2d 62 (1st Dep’t 2006). When Burlington accepted NYCTA’s tender, it did so under a complete reservation of rights. (R. 530-34). Burlington specifically advised NYCTA of its position that there would be no coverage to NYCTA if the liability was not caused by Breaking Solutions’ acts or omissions. (Id.). Although NYCTA never objected to Burlington’s assignment of defense counsel, NYCTA erroneously alleges prejudice by claiming that such counsel allowed NYCTA’s claims to be dismissed. (Resp. Br. at 28). This is false. NYCTA replaced the attorneys assigned by Burlington with counsel of NYCTA’s own choosing almost one year before the dismissal of these claims. (R. 1362). Thus any claim that NYCTA was prejudiced by the dismissal of any claims in the underlying matter could have been raised by NYCTA’s own counsel at that time. Nor will estoppel be found here pursuant to N.Y. Ins. Law § 3420(d), as a denial of coverage under an additional insured endorsement constitutes a denial based upon a “lack of inclusion” rather than “by reason of exclusion.” Hargob Realty Assoc., Inc. v. Fireman’s Fund Ins. Co., 73 A.D.3d 856, 858, 901 N.Y.S.2d 657 (2d Dep’t 2010). Where a “denial of coverage was based upon lack of coverage as an additional insured pursuant to the additional insured endorsement, a 34 timely disclaimer [is] unnecessary.” Id. (citing Markevics v. Liberty Mutual Ins. Co., 97 N.Y.2d 646, 735 N.Y.S.2d 865 [2001]). Moreover, NYCTA’s arguments regarding Burlington’s claims handling are irrelevant. As the trial court observed, “[t]o recover for breach of duty of good faith and fair dealing in handling of insurance claims, the insured must prove not only that the insurer ‘materially mishandled claims, but that [the insured] incurred damages as result thereof.’” (R. 87-88) (citing Continental Ins. Co. v. Tollman- Hundley Hotels Corp., 223 A.D.2d 374, 636 N.Y.S.2d 319 [1st Dep’t 1996]). He further noted that, “a claim of bad faith must [further] be predicated on the existence of coverage of the loss in question.” (R. 88) (citing Zurich Ins. Co. v. Texasgulf, Inc., 233 A.D.2d 180, 181, 649 N.Y.S.2d 153 [1st Dep’t 1996]). Thus, as held by Justice Stallman, NYCTA’s bad faith claims handling arguments fail because NYCTA was not covered under the Burlington Policy. (R. 94). NYCTA also argues that if Burlington provided the City with coverage, then Burlington should be estopped from denying coverage to NYCTA. (Resp. Br. at 9). This proposition of law is created out of whole cloth with no support whatsoever. The only case cited in support of this argument, without any analysis, is Chelsea Assocs., LLC v. Laquila-Pinnacle, 21 A.D.3d 739, 801 N.Y.S.2d 15 (1st Dep’t 2005). However, Chelsea Assocs. does not stand for the proposition that NYCTA 35 advances, that if one party receives coverage as an accommodation, the insurer is estopped from denying coverage to all other non-insureds. C. Any Alleged Breach of Contract by Breaking Solutions is Irrelevant Finally, NYCTA argues that it may have possessed a breach of contract claim against Breaking Solutions based on Breaking Solutions’ alleged failure to obtain a policy with the required endorsement. (Resp. Br. at 65-66). This argument, even if true, is completely irrelevant to the question of coverage. Here, the Contract requires Breaking Solutions to obtain an insurance policy naming the NYCTA as an additional insured via “Form CG 20 10 or equivalent.” (R. 302). Contrary to NYCTA’s insinuations, Breaking Solutions obtained the appropriate coverage. The Policy contains specific additional insured endorsements naming NYCTA as an insured, which endorsements utilize the exact same coverage trigger as is set forth in ISO Form CG 20 10, i.e., coverage for the named insured’s “acts or omissions.” Britez v. Madison Park Owner, LLC, 36 Misc. 3d 1233(A), 960 N.Y.S.2d 49 (Sup. Ct., N.Y. County, 2012). Further, NYCTA’s argument as to the required endorsement is nothing more than a breach of contract claim, for which the Burlington Policy would not provide coverage. Preserver Ins. Co. v. Ryba, 10 N.Y.3d 635, 642, 862 N.Y.S.2d 820, 824 (2008) (“since the policy explicitly excludes coverage for any liability assumed under a contract, [the insurer] must neither defend nor indemnify [its insured] for the contractual indemnification or breach of contract causes of action"). 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, 2015, 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: September 2, 2016 New York, New York Respectfully submitted, FORD MARRIN ESPOSITO WITMEYER & GLESER, L.L.P. By: Jo&?n~ John A. Mattoon, Jr. Gregory R. Bruno Wall Street Plaza New York, New York 10005-1875 (212) 269-4900 jdambros io@fmew .com 36 37 -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