Erie Insurance Exchange, Appellant,v.J.M. Pereira & Sons, Inc., et al., Respondents.BriefN.Y.March 20, 2018CORPORATE DISCLOSURE STATEMENT I, the undersigned, counsel of record for Erie Insurance Exchange, certify that to the best of my knowledge and belief, Erie Insurance Exchange has no parent companies. December 14, 2017 Respectfully submitted; -5ÿ Dan D, Kohane, Esq. Hurwitz & Fine, P.C. Attorney for Appellant 1300 Liberty Building Buffalo, N.Y. 14202 (716) 849-8900 ddk@hurwitzfme.com 1 HURWITZ&FINE,P.C. 1 ATTORNEYS AT LAW| Dan D. Kohane ddk@hurwitzfine.com December 14, 2017 State of New York Court of Appeals Clerk’s Office 20 Eagle Street Albany, New York 12207-1095 Attn: John P. Asiello, Chief Clerk and Legal Counsel to the Court Re: Erie Insurance Exchange v. J. M. Pereira & Sons APL- 2017-0021 Dear Mr. Asiello: Our office represents the Appellant, ERIE INSURANCE EXCHANGE (“ERIE”), in the above matter. We submit this letter in response to the Court’s letter of November 21, 2017 advising that the Court, on its own motion, may consider the merits of this appeal pursuant to section 500.11 of the Court of Appeals Rules of Practice (the “Rules”). This letter, together with the attached Appellate Division briefs of all parties and the Appellate Division record, constitutes our submission, as directed by the Court. We also enclose the fee required by section 500.3(a) of the Rules, a corporate disclosure statement pursuant HEADQUARTERS: 1300 LIBERTY BUILDING, BUFFALO, NEW YORK 14202 ▼ P: 716-849-8900 ▼ F: 716-855-0874 ▼ WWW.HURWTTZFINE.COM OFFICES IN ▼ BUFFALO, NEW YORK ▼ ALBANY, NEW YORK ▼ ALBION, NEW YORK ▼ AMHERST, NEW YORK ▼ MELVILLE, NEW YORK LAKE PLACID, NEW YORK ▼ NIAGARA FALLS, NEW YORK ▼ PALM BEACH GARDENS, FLORIDA ▼ TORONTO, ONTARIO ▼ FAX/E-MAIL NOT FOR SERVICE HURWITZ & FINE, P.C. State of New York Court of Appeals Clerk’s Office December 14, 2017 Page 2 to Rule 500.1(f), and proof of service of this argument pursuant to Rule 500.11(c)(4). PRELIMINARY STATEMENT This appeal presents the issue of the scope of coverage of an umbrella liability policy where the underlying insurance is geographically limited and the subject loss falls outside the territorial limits of that coverage. As the dissenting opinion at the Appellate Division correctly concluded, on these facts, there is no underlying coverage and thus the umbrella policy is not implicated. On June 6, 2006, three employees of Defendant J.M. PEREIRA & SONS, INC. (“PEREIRA”) were injured, and two died as a result of their injuries, when a flash fire and explosion occurred at premises located at 1166 East 31 Street, Brooklyn, New York, while they were using rubber polymer, manufactured by Defendant RPC, INC. a/k/a RUBBER POLYMER CORPORATION (“RPC”) for waterproofing. Lawsuits were commenced by the estates of the deceased employees and by the surviving employee, and third-party actions were brought against PEREIRA, the employer, a Pennsylvania corporation. HURWITZ& FINE, P.C. State of New York Court of Appeals Clerk’s Office December 14, 2017 Page 3 The State Workers’ Insurance Fund of Pennsylvania (“SWIF”) had issued a policy covering employer’s liability to PEREIRA (the “SWIF Policy”). However, that policy limited its coverage “to work in the State of Pennsylvania” or employment that is “necessary or incidental to [PEREIRA’s] work in Pennsylvania”. Based on that geographical limitation on its coverage, SWIF denied coverage to PEREIRA. ERIE had issued a Business Catastrophe Policy (the “BCL Policy”) providing umbrella coverage to PEREIRA. That policy excluded coverage for employer’s liability. ERIE disclaimed coverage to PEREIRA citing the exclusion and commenced this declaratory judgment action seeking a declaration that it is under no obligation to defend or indemnify PEREIRA in the underlying actions. Supreme Court denied ERIE’S motion for summary judgment declaring that there was a question of fact as to whether the employers’ liability exclusion applied because ERIE failed to establish that an exception to the exclusion for liability assumed by the insured under an “insured contract” was not implicated. The Fourth Department affirmed, but on different grounds. It found that ERIE had established, as a matter of law that the first exception to the employer’s HURWITZ & FINE, P.C. State of New York Court of Appeals Clerk’s Office December 14, 2017 Page 4 liability exclusion did not apply because PEREIRA did not assume the tort liability of RPC under any contract or agreement between PEREIRA and RPC. The majority of the Court found, however, that ERIE failed to establish that a different exception to the employer’s liability exclusion was inapplicable. That exception provides that “[tjhis exclusion does not apply to the extent that valid ‘underlying insurance’ for the employer’s liability risks described above exists or would have existed but for the exhaustion of underlying limits for ‘bodily injury.’” The Court reasoned that “valid,” as used in the provision, does not mean “applicable.” It contended that while coverage under the employer’s liability policy issued to PEREIRA by SWIF was denied due to its geographical limitation, that policy was still “valid” underlying insurance. And, since that policy was “valid” underlying insurance, the BCL, by its terms, follows the “provisions, exclusions and limitations” of that policy “unless otherwise directed by this insurance.” While not disputing the inapplicability of the SWIF Policy due to the geographical limits of its coverage, the Court concluded that the BCL Policy, in fact, directed otherwise, citing to language stating that the BCL Policy applied “anywhere in the world,” subject only to areas under trade or economic sanction or embargos. HURWITZ & FINE, P.C. State of New York Court of Appeals Clerk’s Office December 14, 2017 Page 5 In her dissent, Hon. Erin M. Peradotto, J.P., argued that the BCL Policy would provide employer’s liability coverage to PEREIRA (i.e., the exclusion of coverage for employer’s liability would not apply) only to the extent that such coverage existed under the SWIF Policy. In that the SWIF Policy does not provide employer’s liability coverage for PEREIRA’s work outside of Pennsylvania, there is no valid underlying insurance for PEREIRA for employer’s liability in the BCL policy. It is respectfully submitted, as is further detailed below, that applying the majority’s view of the term “valid” would result in the term being rendered superfluous. Moreover, the reading of the BCL Policy adopted by majority would disregard the general structure of every insurance policy, which is to define the general risk and then dictate through the exclusions what portion of the general risk is removed. ERIE respectfully submits that the position expressed by Justice Peradotto in her dissent is the correct interpretation of the BCL Policy, and that, as she concluded, there is no valid underlying insurance and, thus, the exception to the employer’s liability exclusion on which the majority relied is not invoked. HURWITZ& FINE, P.C. State of New York Court of Appeals Clerk’s Office December 14, 2017 Page 6 Accordingly, in that the BCL Policy issued by ERIE excludes coverage for the subject loss, judgment should be entered in favor of ERIE. STATEMENT OF FACTS PEREIRA was retained to perform waterproofing of an indoor pool/mikvah in the basement of a premises located in Brooklyn, New York. [R. at 118, 138]. On June 6, 2006, three employees of PEREIRA were working as waterproofers/laborers [R. at 118-125, 138-160], using rubber polymer, manufactured by RPC when a flash fire and explosion occurred. [R. at 118-125, 138-160]. The three workers were injured, and two died of their injuries. [R. at 118-125, 138-160], In two separate actions commenced in 2008, the injured worker and the estates of the deceased workers brought claims against RPC and others (collectively “the Underlying Actions”). [R. at 118-125, 138-160]. In 2009, RPC filed third-party complaints against PEREIRA in the Underlying Actions alleging that the injuries sustained by PEREIRA’s employees resulted from PEREIRA’s negligence and failure to adequately warn, train and supervise its employees and its failure to provide a reasonably safe working environment. [R. at 161-169]. HURWITZ&FINE, P.C. State of New York Court of Appeals Clerk’s Office December 14, 2017 Page 7 I. Insurance Policies A. Ultraflex Policy ERIE issued an Ultraflex primary policy of insurance to PEREIRA, which was in effect on the date of the accident, with a policy limit of $1 million per occurrence (“the Ultraflex Policy”). [R. at 187]. The Ultraflex Policy excluded employer’s liability. ERIE exhausted the $1 million per occurrence policy limit in payment of direct claims against PEREIRA for property damage arising out of the fire and explosion. [See R. at 216-219]. B. The SWIF Policy The SWIF issued a Workers Compensation and Employers Liability Insurance Policy to PEREIRA, which was in effect on the date of the accident (“the SWIF Policy”). [R. at 263], Part One of the SWIF Policy provides coverage for workers compensation benefits required by law in the event of bodily injury by accident or disease, including resulting death. [R. at 267]. Part Two of the SWIF Policy is Employers Liability Insurance. [R. at 268]. The Employers Liability Insurance portion of the SWIF Policy provides coverage as follows: HURWITZ & FINE, P.C. State of New York Court of Appeals Clerk’s Office December 14, 2017 Page 8 B. We Will Pay We will pay all sums you legally must pay as damages because of bodily injury to your employees, provided the bodily injury is covered by this Employers Liability Insurance. The damages we will pay, where recovery is permitted by law, include damages: for which you are liable to a third party by reason of a claim or suit against you by that third party to recover the damages claimed against such third party as a result of injury to your employee; *** 1. [R. at 268]. The Employers Liability Insurance provided by the SWIF Policy is, however, geographically limited. “Item 3B” of the Information Page, relates to “Employer’s Liability Insurance,” which is Part Two of the SWIF Policy. It states: B. Employers Liability Insurance: Part Two of the Policy applies to work in the State of Pennsylvania. [R. at 263]. The SWIF Policy also provides: How This Insurance AppliesA. *** The bodily injury must arise out of and in the course of the injured employee’s employment by you. The employment must be necessary or incidental to your work in a state or territory listed in Item 3A. of the Information Page. [R. at 268]. 1. 2. HURWITZ & FINE, P.C. State of New York Court of Appeals Clerk’s Office December 14, 2017 Page 9 The only state identified in “Item 3A” of the Information Page of the SWIF Policy is Pennsylvania. [R. at 263]. Thus, for this employer’s liability coverage to apply, the employment must be necessary and incidental to the insured’s work in Pennsylvania and the work must be performed in Pennsylvania. SWIF disclaimed coverage on these grounds. [See R. at 298, 300-302, 317318]. C. Business Catastrophe Policy ERIE also issued an umbrella Business Catastrophe Liability Policy to PEREIRA, which was also in effect on the date of the accident, with a policy limit of $5 million per occurrence (the “BCL Policy”). [See R. at 219]. This is the policy at issue in this declaratory judgment action. The Declarations page attached to the BCL Policy sets forth the Schedule of Underlying Insurance, which includes both the Ultraflex Policy and the SWIF Policy. [R. at 221]. The BCL Policy sets forth the following grant of coverage: SECTION I-COVERAGES COVERAGE A - BODILY INJURY AND PROPERTY DAMAGE LIABILITY HURWITZ& FINE, P.C. State of New York Court of Appeals Clerk’s Office December 14, 2017 Page 10 Insuring Agreement1. We will pay on behalf of the insured the “ultimate net loss” in excess of the “retained limit” because of “bodily injury” or “property damage” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages when the “underlying insurance” does not provide coverage or the limits of “underlying insurance” have been exhausted. When we have no duty to defend, we will have the right to defend, or to participate in the defense of, the insured against any other “suit” seeking damages to which this insurance may apply. However, we will have no duty to defend the insured against suit seeking damages for “bodily injury” or “property damage” to which this insurance does not apply. At our discretion, we may investigate any “occurrence” that may involve this insurance and settle any resultant claim or “suit”, for which we have the duty to defend. . . a. This insurance applies to “bodily injury” and “property damage” only if: b. 1) The “bodily injury” or “property damage” is caused by an “occurrence” that takes place in the “coverage territory”; The “bodily injury” or “property damage” occurs during the policy period.. . [R. at 244]. 2) The BCL Policy contains the following exclusion from coverage: Exclusions This insurance does not apply to: 2. HURWITZ & FINE, P.C. State of New York Court of Appeals Clerk’s Office December 14, 2017 Page 11 Employer’s Liabilityg- “Bodily injury” to: An “employee” of the insured arising out of and in the course of: Employment by the insured; or Performing duties related to the conduct of the insured’s business; This exclusion applies whether the insured may be liable as an employer or in any other capacity, and to any obligation to share damages with or repay someone else who must pay damages because of the injury. 1) a) b) This exclusion does not apply to liability assumed by the insured under an “insured contract”. This exclusion does not apply to the extent that valid “underlying insurance” for the employer’s liability risks described above exists or would have existed but for the exhaustion of underlying limits for “bodily injury”. Coverage provided will follow the provisions, exclusions and limitations of the “underlying insurance” unless otherwise directed by this insurance. [R. at 245]. HURWITZ & FINE, P.C. State of New York Court of Appeals Clerk’s Office December 14, 2017 Page 12 PROCEDURAL HISTORY ERIE moved for Summary Judgment against PEREIRA seeking a declaration that it was under no obligation to defend or indemnify PEREIRA in the Underlying Actions. RPC and PEREIRA opposed the motion. The Hon. Renee Forgensi Minarik, Acting Justice of the Supreme Court, in an Order dated October 22, 2015, denied ERIE’S motion on the grounds that triable questions of fact exist concerning whether there exists an insured contract between PEREIRA and RPC, and if so, its scope and content. R. at 7-8. ERIE filed a Notice of Appeal, dated November 30, 2015. R. at 2-3. On appeal to the Appellate Division, Fourth Department, the Court, with one justice dissenting, affirmed on different grounds, finding the while ERIE had established that there was no insured contract entered into by PEREIRA and RPC, such that the first exception to the employer’s liability exclusion did not apply, ERIE had not established as a matter of law that the second exception to the employer’s liability exclusion, the exception related to underlying insurance, did not apply. The majority rejected the interpretation of the dissent, and concluded HURWITZ& FINE, P.C. State of New York Court of Appeals Clerk’s Office December 14, 2017 Page 13 that, at a minimum, the fact that the majority and dissent interpreted the policy differently renders the policy ambiguous. ERIE sought to reargue or alternatively for leave to appeal to the Court of Appeals. The Appellate Division, Fourth Department, denied the motion insofar as it sought reargument, but granted the motion insofar as it sought leave to appeal to the Court of Appeals. The Court concluded that a question of law had arisen that ought to be reviewed by the Court of Appeals, and the following question was certified: “Was the order of this Court entered June 30, 2017, properly made?” EMPLOYER’S LIABILTY COVERAGE IS INCLUDED IN THE BCL POLICY ONLY IN THE EVENT AND TO THE EXTENT THAT THERE IS “VALID ‘UNDERLYING INSURANCE’”. THERE IS NO “VALID ‘UNDERLYING INSURANCE’” WHERE THE UNDERLYING COVERAGE IS INAPPLICABLE DUE TO A GEOGRAPHICAL LIMITATION ON ITS SCOPE. The BCL Policy excludes coverage for employer’s liability. It states that no coverage will be afforded for “bodily injury” to an “employee” of the insured arising out of and in the course of employment by the insured or performing duties related to the conduct of the insured’s business. It further states that this exclusion applies whether the insured may be liable as an employer or in any other capacity, HURWITZ & FINE, P.C. State of New York Court of Appeals Clerk’s Office December 14, 2017 Page 14 and to any obligation to share damages with or repay someone else who must pay damages because of the injury. There is no dispute that the underlying plaintiffs were employed by PEREIRA and working in the course of their employment for the company at the time of the incident. The sole dispute in this case is whether any of the exceptions to the exclusion are applicable. The first exception states that this exclusion does not apply to liability assumed by the insured under an “insured contract.” The Appellate Division, contrary to the Supreme Court, held that there was no insured contract in place between PERIERA and RPC. ERIE concurs with this finding, and no party sought to reargue or sought leave to appeal this ruling to the Court of Appeals. Thus, the determination of the Appellate Division that ERIE established as a matter of law that the exception to the employer’s liability exclusion for an insured contract does not apply is not at issue on this appeal. The second exception states that this exclusion does not apply “to the extent that valid ‘underlying insurance’ for the employer’s liability risks described above exists or would have existed but for the exhaustion of underlying limits for ‘bodily HURWITZ& FINE, P.C. State of New York Court of Appeals Clerk’s Office December 14, 2017 Page 15 injury.’” (emphasis supplied). It then states that “[cjoverage provided will follow the provisions, exclusions and limitations of the ‘underlying insurance’ unless otherwise directed by this insurance.” The majority at the Appellate Division effectively found that for a policy to qualify as “valid ‘underlying insurance,”’ it did not have to be applicable to the loss for which coverage was sought. The Court determined that the geographic limitation contained in the SWIF Policy did not affect the policy’s validity but, rather, its applicability. And although the SWIF Policy was admittedly inapplicable, the majority reasoned that it nonetheless constituted “valid ‘underlying insurance,”’ contending that to hold otherwise would mean that there would never be a situation where the “unless otherwise directed language” set forth in the second sentence of the exception would have meaning. The dissent argued that there was no “valid ‘underlying insurance’” because no coverage existed for the subject loss under the SWIF Policy, in that its employer’s liability coverage applies only to work in the State of Pennsylvania or employment that is necessary or incidental to PEREIRA’s work in Pennsylvania. Thus, the second sentence of the exception to the exclusion, which directs that the HURWITZ& FINE, P.C. State of New York Court of Appeals Clerk’s Office December 14, 2017 Page 16 coverage under the BCL policy would conform to the terms of the SWIF Policy, unless the BCL Policy “otherwise directed,” is not relevant. That analysis does exactly what the majority indicated it must do — “construe[s] the policy in a way that affords a fair meaning to all of the language employed by the parties in the contract and leave[s] no provision without force and effect” (Consolidated Edison Co. of N.Y. v Allstate Ins. Co., 98 NY2d 208, 221-222 [internal quotation marks omitted]). The reading of the policy adopted by the majority would require the mere existence of an underlying insurance policy, regardless of whether or not the policy covered the loss, in order to invoke the exception to the exclusion. It is respectfully submitted that if the term “valid” requires nothing more than mere maintenance of an underlying policy, the word is superfluous and its inclusion is rendered unnecessary. The interpretation adopted by the majority violates the very principle of contract interpretation the Court relied on in rejecting the approach taken by the dissent, that it “must construe the policy in a way that affords a fair meaning to all of the language employed by the parties in the contract, [leaving] no provision HURWITZ&FINE, P.C. State of New York Court of Appeals Clerk’s Office December 14, 2017 Page 17 without force and effect.” The reason for this oft-cited principle is that “[a] court’s fundamental objective in interpreting a contract is to determine the parties’ intent from the language employed and to fulfill their reasonable expectations (see St. John's Univ., N.Y. v. Butler Rogers Baskett Architects, P.C., 92 AD3d 761 [2nd Dept 2012], 764; Heartland Blvd. Corp. v. C.J. Jon Corp., 82 AD3d 1188, 1189 [2nd Dept 2011]). Courts have cautioned that “[i]n so doing, a court should not read a contract so as to render any term, phrase, or provision meaningless or superfluous” (Givati v. Air Techniques, Inc., 104 AD3d 644 [2nd Dept 2013]). “Valid” must mean more than maintenance of underlying insurance, else it be rendered meaningless or superfluous to the interpretation of the policy. A review of the BCL Policy as a whole reveals that when the carrier required nothing more than mere maintenance of underlying insurance, it said so directly. For example, in Condition 13. Maintenance of Underlying Insurance, it states that “[t]he ‘underlying insurance’ listed in the schedule of ‘underlying insurance’ in the declarations shall remain in full effect...Failure to maintain ‘underlying insurance’ will not invalidate this insurance...” [R. 253], And, HURWITZ & FINE, P.C. State of New York Court of Appeals Clerk’s Office December 14, 2017 Page 18 Condition 14. Expanded Coverage Territory, states “[failure to maintain such coverage required by law, regulation or other governmental authority will not invalidate this insurance.” [R. 253], This language is in stark contrast to a requirement that the coverage available from the underlying insurance be “valid.” In the words of Justice Peradotto’s dissent: The only reasonable interpretation of the plain and unambiguous language is that the BCL policy would provide [PEREIRA] with employer’s liability coverage (i.e., the exclusion would not apply) only to the extent that such coverage existed under the SWIF policy. Inasmuch as the SWIF does not provide employer’s liability coverage for [PEREIRA’s] work outside of Pennsylvania, I agree with plaintiff that no “valid ‘underlying insurance’ for [PEREIRA’s] liability risks” exists for bodily injury to its employees insofar as such injuries arise out of or in the course of their employment by [PEREIRA] or their performance of duties related to the conduct of [PEREIRA’s] business. Memorandum and Order at p. 6. Additionally, while the Fourth Department suggested that the BCL Policy is, at the very least, ambiguous because the majority and the dissent interpreted the policy language differently, mere disagreement does not automatically result in such a finding. The majority concluded that its interpretation of the second exception would afford coverage, but did not identify any further basis for concluding that the policy language was ambiguous aside from a disagreement HURWITZ& FINE, P.C. State of New York Court of Appeals Clerk’s Office December 14, 2017 Page 19 with Justice Peradotto. Respectfully, the Fourth Department’s determination that the policy language was ambiguous because the panel could not unanimously agree on the appropriate interpretation does not create an ambiguity. In fact, differing constructions of policy language by various courts does not mandate a finding of ambiguity or substitute for a complete analysis of the policy and the provisions at issue (see Madison Constr. Co. v. Harleysville Mut. Ins. Co., 678 A2d 802, 807 n.6 [Pa Super Ct. 1996], aff d, 735 A2d 100 [Pa 1999]). At least one other court has considered the precise language in question and concluded, without the need for significant analysis, that the plain language supported the interpretation advocated by ERIE (see United Fire & Cas. Co. v. Advantage Workers Comp. Ins. Co., 16-0466, 2017 U.S. Dist. LEXIS 167472 *4 W.D. Mo. June 26, 2017] [“United will provide excess coverage for an employee’s bodily injury if that injury is first covered by the Advantage Policy”]). HURWITZ & FINE, P.C. State of New York Court of Appeals Clerk’s Office December 14, 2017 Page 20 THE BCL POLICY DOES NOT “OTHERWISE DIRECT” THAT THE GEOGRAPHICAL LIMITATION ON THE COVERAGE PROVIDED BY THE SWIF POLICY BE IGNORED. It is important to focus on the language of the exception at issue. While the BCL Policy excludes coverage for employer’s liability, the exclusion “does not apply to the extent that valid ‘underlying insurance’ for the employer’s liability risks described above exists... Coverage provided will follow the provisions, exclusions and limitations of the ‘underlying insurance’ unless otherwise directed by this insurance.” [R. at 245], Even if the SWIF Policy constituted valid underlying insurance, its provisions limit its coverage to “work in the State of Pennsylvania.” [R. at 263], That limitation is imported into the BCL Policy by the “follow-form” language of the exception to the exclusion, unless displaced by direction in the BCL Policy. The finding by the Court that the BCL Policy had directed that its own territorial limitation (or coverage territory) would apply to return coverage through an exception to a policy exclusion misconstrues the very structure of insurance policies. HURWITZ& FINE, P.C. State of New York Court of Appeals Clerk’s Office December 14, 2017 Page 21 The BCL Policy is standalone coverage with an isolated pocket of follow- form coverage provided via an exception to an exclusion. Based upon a review of the Memorandum and Order, it appears that the Fourth Department did not dispute the unavailability of coverage for the Underlying Actions under the SWIF Policy or that if pure follow-form coverage was provided by the BCL Policy, that it would similarly adopt the geographical limitation contained in the SWIF Policy. Nevertheless, in finding that ERIE did not establish as a matter of law that the exception to the exclusion did not apply, the Court, entirely focusing on the “unless otherwise directed by this insurance” language, concluded that the BCL Policy did in fact direct otherwise. The Court referred to the portion of the grant of coverage stating that “[t]his insurance applies to ‘bodily injury’ and ‘property damage’ only if...1) The ‘bodily injury’ or ‘property damage’ is caused by an ‘occurrence’ that takes place in the ‘coverage territory.’” [R. 244]. “Coverage territory” is defined as “anywhere in the world with the exception of any country or jurisdiction which is subject to trade or other economic embargo by the United States of America.” [R. 253]. HURWITZ & FINE, P.C. State of New York Court of Appeals Clerk’s Office December 14, 2017 Page 22 It is submitted that in reaching this conclusion the Court inappropriately placed too broad a view as to how a policy can “otherwise direct[],” in that it looked to the BCL Policy’s grant of coverage as opposed to language directed in this exclusion. That the bodily injury at issue must occur in the “coverage territory” does not mean that any bodily injury caused by an occurrence in the “coverage territory” is a covered loss. Even assuming the SWIF Policy is “valid underlying insurance,” the exception at issue narrows the scope of the “coverage territory” to which the exception will apply by importing the geographical limitation of the SWIF Policy. The standard construction for every policy of liability insurance is to begin with a broad grant of coverage— the promises made by the insurer to those afforded the status of insured. The policy then sets forth a string of exclusions which substantially refine the original promise. In interpreting these types of policies, one must first determine the general scope of coverage and then determine which risks are removed (see generally Millers Cap. Ins. Co. v. Gambone Bros. Dev. Co., 941 A2d 706, 714-15 [Pa. Super. Ct. 2007]). This structure is followed HURWITZ & FINE, P.C. State of New York Court of Appeals Clerk’s Office December 14, 2017 Page 23 because if it is not, there would be internal inconsistency in every policy of insurance. For example, in the BCL Policy the grant of coverage states that “[w]e will pay on behalf of the insured the ‘ultimate net loss’ in excess of the ‘retained limit’ because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.’” [R. 244]. The policy then removes from this grant of coverage certain risks (via exclusions) including, for example, Liquor Liability and Auto Coverages. If the insured were to read the grant of coverage and these exclusions at the same time, an inconsistency would always exist because one section of the policy provides that “we pay on behalf of the insured the ‘ultimate net loss’...because of ‘bodily injury’ or ‘property damage,”’ while the other says we do not cover liquor liability or auto risks. To avoid this confusion, the grant of coverage must be read first and then the exclusions and conditions follow. When the Fourth Department found that the BCL Policy “otherwise directed” it overlooked this basic principle of policy interpretation. In other words, you cannot “jump back.” Employer’s liability is an exclusion in the BCL Policy. Thus, when interpreting whether the BCL Policy in any way directed that coverage would not HURWITZ& FINE, P.C. State of New York Court of Appeals Clerk’s Office December 14, 2017 Page 24 follow the provisions, exclusions and limitations of the underlying insurance, the Court should not have focused on the grant of coverage. Again, this is because a conflict will always result. By the same reasoning, one could also argue the BCL Policy directed otherwise because it stated that it would apply generally to “bodily injury” and “property damage” claims, and then attempted to remove certain claims (i.e., those involving employees). Thus, in order for the BCL Policy to have “directed otherwise,” such act must have been done in a separate endorsement to the policy, and targeted to that exclusion, and not through a mere passing reference to the grant of coverage which by its nature is broad and covers the majority of risks. Moreover, it is not accurate that if ERIE’S interpretation were adopted the “unless otherwise directed” language would be rendered superfluous. As demonstrated above, the purpose of this language is to reserve ERIE’S right to include additional limitations and/or exclusions in the BCL Policy, and not be completely hamstrung by the language of the underlying insurance policy which it did not issue. ERIE must be permitted to explicitly direct that certain risks be governed by the language of ERIE’S policy as opposed to simply adopting the HURWITZ & FINE, P.C. State of New York Court of Appeals Clerk’s Office December 14, 2017 Page 25 language of the underlying insurance. This result permits a degree of control as to the scope of the risks insured. Lastly, it must be highlighted that there is nothing within the content of the BCL Policy which would lead the court to conclude that ERIE agreed to take on the risk of injury to any PEREIRA employee outside of Pennsylvania. This is confirmed by the fact that the estimated annual premium on the SWIF Policy is more than double that paid on the BCL Policy. [See R. 264, 225], If it was intended that ERIE was to take on such a broad risk, it should have been compensated for same. This is especially true considering the affidavit of Jose Carlos Pereira who attested to the company’s not infrequent work outside of Pennsylvania. See R. 300 (“[wjhile most of Pereira’s business is in Pennsylvania, the company also performs services in neighboring states, including New Jersey and New York...All companies involved in providing insurance to Pereira were thoroughly aware that the company was doing business in states other than Pennsylvania. . .” [R. at 300]. The parties clearly did not intend that the BCL Policy would fill the void left by the SWIF Policy (especially as PEREIRA likely received a reduced premium as HURWITZ& FINE, P.C. State of New York Court of Appeals Clerk’s Office December 14, 2017 Page 26 a result of the geographical limitation in that policy) and provide Employers’ Liability coverage for all workers injured outside of Pennsylvania, areas where PEREIRA acknowledges its work was not infrequent. CONCLUSION It is respectfully submitted that the Fourth Department’s decision that the term “valid underlying insurance” does not require that the underlying insurance at issue be applicable results in the term “valid” being rendered superfluous. That is a result against which the Court itself warned. Moreover, even if “valid” did mean applicable, the interpretation of the relevant exception contained in the Court’s Memorandum and Order is contrary to established rules of policy interpretation. Appellant respectfully urges that the decision of the Appellate Division be reversed and that judgment be directed to be entered in favor of appellant. Respectfully submitted, HURWITZ & FINE, P.C. j/x/ Dan D. Kohane WORD COUNT CERTIFICATION I certify this Letter Response on behalf of the Appellant, Erie Insurance Exchange, contains 4,888 words, as counted by Microsoft Word’s word-processing system, including headers, footnotes, and quotations. Buffalo, New York December 14, 2017 Dated: Respectfully submitted; Dan D. Kohane, Esq. Hurwitz & Fine, P.C. Attorney for Appellant 1300 Liberty Building Buffalo, N.Y. 14202 (716) 849-8900 ddk@hurwitzfme.com 1 STATE OF NEW YORK ) AFFIDAVIT OF SERVICE BY OVERNIGHT FEDERAL EXPRESS NEXT DAY AIR ) ss.: COUNTY OF MONROE ) I, Jeremy Slyck of Rochester, New York, being duly sworn, depose and say that deponent is not a party to the action, is over 18 years of age and resides at the address shown above. DEC 1 4 2017On deponent served the within: Letter Submission for Appellant, Erie Insurance Exchange Upon: BISOGNO & MEYERSON, LLP Anthony M. Deliso, Esq. Attorneys for Defendants-Respondents Ricardo Vega, and Robert Marchese as the Administrator of the Estates of Antonio Tapia and Gilberto Vega-Sanchez 7018 Fort Hamilton Parkway Brooklyn, New York 11228 (718) 745-0880 Fox ROTHSCHILD LLP Matthew J. Schenker, Esq. Attorneys for Defendant-Respondent RPC, Inc. a/k/a Rubber Polymer Corporation 100 Park Avenue, 15th Floor New York, New York 14614 (212) 905-2308 WOODS OVIATT GILMAN LLP Robert D. Hooks, Esq. Attorneys for Defendant-Respondent J.M. Pereira & Sons, Inc. 700 Crossroads Building 2 State Street Rochester, New York 14614 (585) 987-2800 the address(es) designated by said attomey(s) for that purpose by depositing one (1) true copy(ies) of same, enclosed in a properly addressed wrapper in an Overnight Next Day Air Federal Express Official Depository, under the exclusive custody and care of Federal Express, within the State of New York. DEC 1 4 2017Sworn to before me on % "LaVon N. Brown Notary Public in the State of New York Qualified in Monroe County Registration No. 01BR6133534 My Commission Expires September 19, 2021 Job # 506387