an insurer, which had settled an action on behalf of an owner of a truck, to assert a claim for contractual indemnification against the renter of the truck. The court found that the insurer had breached its obligation to defend the renter, who was an additional insured under the same insurance policy as the owner's.
Pennsylvania General involved one automobile policy insuring the owner and renter of a single vehicle. When confronted with similar issues of vicarious owner liability in situations involving two insurance policies, lower courts have extended the rationale of Pennsylvania General to bar subrogated claims for indemnification.
Proponents argued for this result under the doctrine of "preindemnification" -- i.e., that the obligation to procure insurance effectively waived a party's right to common-law indemnification. In North Star Reinsurance Corp. v. Continental Ins. Co., 82 N.Y.2d 281, 287, 604 N.Y.S.2d 510, 512, 624 N.E.2d 647 (1993), the New York Court of Appeals expressly rejected the "preindemnification" doctrine "in favor of common-law indemnification principles" and adopted "the independent, narrower, antisubrogation rule."
The Court found that "preindemnification" represented a departure from both established equitable principles of indemnification and the concept that the "wrongdoer ought to bear responsibility for the loss." Id. at 291, 604 N.Y.S.2d at 514. However, it acknowledged that the rule of antisubrogation is a necessary exception to general principles of indemnification because of the policy concerns expressed in Pennsylvania General. Id. at 295, 604 N.Y.S.2d at 517. The Court was particularly troubled with the situations that arose in each of the three First Department cases leading to North Star. In those cases an insurer, as subrogee of a vicariously liable owner under a policy obtained by a contractor, asserted indemnification claims against the contractor, who was also covered by the same insurer under a separate policy. As the Court noted, an insurer could manipulate the litigation to minimize liability under its own policy so as to reach the contractor's other policies such as a workers' compensation or excess liability policy. Id. at 295-96, 604 N.Y.S.2d at 517.
The applicability of the antisubrogation rule depends on the existence of two factors: (1) whether there is essentially one policy in effect purchased from a single insurer (2) which covers the same risk for two or more insureds. Id. at 295-96, 604 N.Y.S.2d at 517, nn. 4 & 5. In the trilogy of cases discussed in North Star, all three insurers had issued insurance policies covering the vicarious liability of a landowner, as well as separate policies for general contractors' liability. As the Court of Appeals recognized, it made little difference whether there is one policy or separate policies from the same insurer where "the two policies are integrally related and indistinguishable from a single policy in any relevant way." Id. at 295, 604 N.Y.S.2d at 517. In this case, the number of policies is not at issue since Thunderbird had only one policy with National Union which covered Thunderbird as subcontractor and Koch as an additional named insured.
The critical issue here is whether the National Union policy covers Thunderbird and Koch for the same risk and insures them for the specific claims raised by plaintiffs. Thunderbird asserts, without explanation, that Koch's claims against Thunderbird are risks covered by the National Union policy. Such a position is not supported by the terms of the policy and is difficult to understand in light of Thunderbird's acknowledgement that it is not covered by the policy for direct claims for employee injuries, a risk for which Thunderbird had obtained a separate workers' compensation policy.
There is no ambiguity in the National Union policy as to the coverage provided and accordingly, the policy's "unambiguous terms are to be given their 'plain and ordinary meaning.'" State of New York v. Blank, 27 F.3d 783, slip op. 4737 (2d Cir. 1994) (quoting Lavanant v. General Accident Ins. Co. of America, 79 N.Y.2d 623, 629, 584 N.Y.S.2d 744, 747, 595 N.E.2d 819 (1992)). The blanket additional insured endorsement clearly extends coverage in this case to Koch for "damage[s] arising from an occurrence,
and caused by operations performed by or on behalf of [Thunderbird]." On the other hand, although the policy extends general liability coverage for Thunderbird as the named insured, it expressly excludes damages for bodily injuries to employees in the course of employment. This Employee Bodily Injury Exclusion also specifically states that it applies "to any obligation to share damages with or repay someone else who must pay damages because of the injury." Although exclusions from insurance policy coverage must be strictly construed, Kimmins Indust. Serv. Corp. v. Reliance Ins. Co., 19 F.3d 78, 81 (2d Cir. 1994), the language of the exclusion leaves little doubt that it applies to Koch's indemnification claim against Thunderbird as well as to direct employee claims against Thunderbird.
Because the policy clearly requires National Union to defend Koch, but not Thunderbird, with respect to the plaintiffs' claims, the policy does not cover the same risks as to both. Thus, the antisubrogation rule does not apply and National Union can assert its claims for indemnification against Thunderbird.
This result is consistent with the treatment of the three cases discussed in North Star. In affirming the three First Department decisions, the Court of Appeals applied the antisubrogation rule in two cases to bar the insurers' subrogation claims, but did not apply the rule in the third case because of certain exclusions in the pertinent insurance policy. North Star, 82 N.Y.2d at 296, 604 N.Y.S.2d at 517. The exclusion in the policy in the third case (North Star) is strikingly similar to the exclusion in the National Union policy in this case. Both exclusions pertain to bodily injuries arising from employment sustained by employees of the named insured contractor.
In this case, as in North Star, the antisubrogation rule does not apply because the exclusion for bodily injury rendered the policy inapplicable to the loss at issue. North Star, 82 N.Y.2d at 296, 604 N.Y.S.2d at 517. Contrast Prince v. City of New York, 189 A.D.2d 33, 36, 594 N.Y.S.2d 235, 237 (1st Dep't 1993) (another of the cases discussed in North Star), where the Appellate Division noted that no exclusion exempted coverage under the policy.
Courts applying North Star have similarly examined the policies and found determination of coverage of the insured to be dispositive of the applicability of the antisubrogation rule. In Larson v. City of New York, N.Y.L.J., Jan. 25, 1994, at 21 (Sup. Ct. N.Y. Co.), the court found that the rule is not implicated where the insurance policy (also with National Union) contained an employee bodily exclusion similar to the clause in this case. The court in Pierce v. City of New York, 160 Misc. 2d 600, 610 N.Y.S.2d 731 (Sup. Ct. Queens Co. 1994), applied the rule because the only arguably relevant policy exclusion pertained to intentional torts and had no bearing on the liability issues in that case. The policy considered in Boyd v. LaGuardia Corporate Center Associates, N.Y.L.J., June 2, 1994, at 28 (Sup. Ct. N.Y. Co.) included a comparable employee bodily injury exclusion, which the court recognized would have precluded application of the antisubrogation rule had the policy not also contained a separate indemnification clause covering the insured contractor for the claims involved.
No public policies are violated if National Union is permitted to sue Thunderbird in this case. Since the National Union policy never covered Thunderbird for claims arising from injuries sustained by Thunderbird's employees, National Union is not attempting to "avoid the coverage which its insured purchased." Pennsylvania General, 68 N.Y.2d at 471, 510 N.Y.S.2d at 70 (quoting Home Ins. Co. v. Pinski Bros., 160 Mont. 219, 226, 500 P.2d 945, 949 (1972)). More importantly, since National Union is not obligated under the policy to defend Thunderbird with respect to plaintiff's claims, there is no potential for conflict of interest in National Union's defense of Koch.
Thunderbird mistakenly extrapolates from the fact that National Union may be obligated under its policy to defend Thunderbird in certain circumstances to argue that National Union is now, in fact, suing Thunderbird as its insured.
For these reasons Thunderbird's motion for summary judgment to dismiss the third party complaint is denied. Thunderbird's alternative motion to dismiss the second and third causes of action in the third party complaint is also denied. Koch's second claim for relief is a very general claim that Thunderbird breached the terms of the Subcontract. See Third-Party Complaint, PP Eleventh Fourteenth. Koch's third cause of action deals specifically with Thunderbird's obligation to indemnify under the Subcontract.
Thunderbird incorrectly argues that it has fulfilled the terms of the Subcontract simply by obtaining insurance. However, Thunderbird overlooks the fact that Section 7 of the Subcontract requires Thunderbird to indemnify Koch for all injuries as well as to procure insurance. This section also provides for payment of the costs of litigation.
In addition, the Subcontract imposes additional duties upon Thunderbird which it may have breached. Whether Thunderbird in fact breached those contractual obligations, as Koch alleges, can be determined after discovery.
Thus, Thunderbird's motion to dismiss the two claims fails as well.
For the foregoing reasons, Thunderbird's motions are denied.
Dated: Brooklyn, New York
July 20, 1994
MARILYN DOLAN GO
U.S. MAGISTRATE JUDGE