December 20, 2024
The Expert:
Tom Moroney
Partner, Clyde & Co.
Q: What should claims departments know about risk transfer in New York Labor Law/construction matters?
A: Additional insured coverage and contractual indemnity are two separate avenues of risk transfer available to insurers and their insureds. There are two requirements to trigger additional insured coverage specified in most additional insured endorsements: 1. It must be agreed upon in the written contract; 2. “Triggering language” (wherein the policy will require that the alleged claim/incident “arose out of the work of” or was “caused in whole or in part by” the named insured’s work).
Contractual indemnification is a risk transfer mechanism guided by the contract between two parties. In New York, a party can be indemnified for their own negligence absent a statutory provision. New York General Obligations Law § 5-322.1 impacts construction contracts and renders “void and unenforceable” indemnity agreements where the prospective indemnitee is negligent to any degree. In practice, this requires a party to obtain a decision on summary judgment or at trial eliminating all New York Labor Law § 200 and common law negligence claims to obtain contractual indemnity from a downstream party.
Q: What are some top trends we are seeing in construction legal defense as it pertains to risk transfer?
A: Since Burlington Insurance v. NYC Transit Authority, 29 N.Y.3d 313, 79 N.E.3d 477 (N.Y. 2017), we have seen insurers issuing more reservation of rights with regard to indemnity to prospective additional insureds rather than acceptances. While the New York Court of Appeals indicated that 04 13 additional insured endorsement language (“caused in whole or in part by”) is a narrower trigger than the “arising out of the work” language of prior additional insured endorsements, neither the Burlington court nor the progeny require a showing of negligence to trigger additional insured coverage. The Burlington court found that the 04 13 endorsement requires a prospective additional insured to prove that the named insured was at least a “partial proximate cause” to trigger coverage. The ramifications of this trend are that insurers for named insureds are forced to incur legal fees for both counsel for named insureds and conflict counsel for the additional insureds who are offered a defense. In situations where it is clear that a named insured was a proximate cause, insurers may be best suited accepting and controlling the defense of the claims against the additional insured(s).