Indemnification Provision of Second Circuit Rules in Construction Contract Trumps ‘Other Insurance’ Clause in Determining Priority of Coverage | Hinshaw & Culbertson – Perspectives for Insurers

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A recent decision by a United States District Court of Appeals panel for the Second Circuit is a reminder that sometimes insurers and policyholders have to look outside of insurance policies to determine priority of coverage among contracts. ‘assurance.

We have already discussed how, in some cases, legal doctrines or precedents may replace “other insurance” clauses in determining the priority of coverage among insurance policies. The most notable example is Illinois’ “targeted tendering” or “selective tendering” doctrine. See Seaman SM & JR Schulze, Allocation of Losses in Complex Insurance Coverage Claims (Thomson Reuters 9th edition 2020-21) in Chapter 16. Another case may be where the parties have allocated the risk in underlying contracts by means of “additional insurance” and “indemnity” provisions. Like the doctrine of targeted tendering, this often occurs in the context of construction agreements. In some cases the indemnity provision and the “other insurance” clause are in the same direction, but in others they are in conflict.

Earlier this month, the Second Circuit weighed in on the issue by Hundred. On. Co. v. Metro. Transit Auth., No. 20-1474-CV, 2021 WL 4538633, at * 1 (2d Cir. 5 Oct. 2021) (applying New York law). In this case, the Second Circuit determined that the underlying construction contract, rather than an “other insurance” excess provision was controlling. Specifically, the committee ruled that an indemnity agreement in a contract between a contractor and a subcontractor determined the priority of coverage for the contractor as an additional insured under the Commercial General Liability policy of the subcontractor, rather than the “other insurance” provision of the policy. The underlying claim was a negligence claim filed by an employee of the subcontractor who was injured during the construction project.

The Second Circuit observed that the New York Court of Appeals had not ruled on the matter and noted that there were conflicts between the lower court authorities. In determining that the indemnification provision prevailed over the “other insurance” clause, the court relied on Compensation Ins. Co. of N. America v. St. Paul Mercury Ins. Co., 74 AD3d 21 (1st Dep’t 2010) and Arch Ins. Co. v. Nationwide Prop. & Case. Ins. Co., 175 AD3d 437 (1st Dep’t 2019). He acknowledged the existence of a conflict of laws on the matter. See Bovis Lend Lease LMB, Inc. v. Great American Insurance Co.., 53 AD3d 140 (1st Dep’t 2008) and Tishman Construction Corp. of New York v. Great American Insurance Co., 53 AD3d 416 (1st Dep’t 2008). The court predicted that the New York High Court would follow the most recent decisions of the New York Court of Appeals. The court also cited the decisions of the Fourth, Fifth and Eighth Circuits of the United States Court of Appeals in support of its decision. St. Paul Fire & Marine Ins. Co. v. Am. Int’l Specialty Lines Ins. Co., 365 F.3d 263, 272, 277 (4th Cir. 2004) (applying Virginia law “); A m. Lloyds indemnity v. Travelers Prop. & Case. Ins. Co., 335 F.3d 429, 436 (5th Cir. 2003) (applying Texas law); and Wal-Mart Stores, Inc. v. RLI Ins. Co., 292 F.3d 583, 587 (8th Cir. 2002) (prediction of Arkansas law). Chapter 16 of the Dispatch Book contains a more detailed discussion of this issue.


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