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Sport Rock International, Inc. v. American Casualty Company of Reading

May 12, 2009

SPORT ROCK INTERNATIONAL, INC., ET AL., PLAINTIFFS-APPELLANTS,
v.
AMERICAN CASUALTY COMPANY OF READING, PA, DEFENDANT-RESPONDENT.



Plaintiffs appeal from an order of Supreme Court, New York County (Debra A. James, J.), entered August 27, 2007, which granted their motion for summary judgment to the extent of declaring that defendant American is obligated to defend plaintiff Sport Rock in the Anaya action, and otherwise denied the motion.

The opinion of the court was delivered by: Friedman, J.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

Peter Tom, J.P., David B. Saxe, David Friedman, John T. Buckley, James M. Catterson, JJ.

Ind 603080/05

The main question presented on this appeal is whether the costs of defending an insured in an underlying personal injury action should be allocated between two primary liability insurers or, pursuant to the policies' respective "other insurance" clauses, imposed on only one of the two insurers on a primary basis. Consistent with longstanding precedent, we hold that the carrier whose coverage is rendered excess by reason of the competing "other insurance" clauses will not become obligated to defend the insured until the other carrier's coverage has been exhausted. This result is not affected by the fact that certain allegations against the insured in the underlying action, while within the scope of the excess carrier's coverage, were outside the scope of the other carrier's duty to indemnify the insured.

This declaratory judgment action arises from an underlying personal injury action captioned Joseph Anaya v Town Sports International, Inc., et al. (Supreme Court, New York County, Index No. 101027/2003) (the Anaya action). Joseph Anaya was severely injured on January 14, 2003, when he fell while using an artificial rock-climbing wall at a fitness club. The indoor wall-climbing system had been sold to the club by Sport Rock International, Inc. (Sport Rock), a plaintiff in this action. The wall-climbing equipment that the club purchased from Sport Rock included a safety harness manufactured by Petzl America, Inc. (Petzl). It has been established in the Anaya action that "[t]he accident occurred because an employee of [the club] tied the safety line [Anaya] was using to a non-weight-bearing gear loop on the [Petzl] harness," rather than to the harness's "anchor point" (Anaya v Town Sports Intl., Inc., 44 AD3d 485, 485 [2007]). The club having settled with Anaya (see id. at 486 n*), the Anaya action proceeds against Sport Rock and Petzl on two theories, namely, that Petzl's design for the harness was defective and that Petzl failed to include warning labels on the harness necessary to render it safe (id. at 486-488).

At the time of Joseph Anaya's accident, Sport Rock was covered as a named insured under a commercial general liability (CGL) policy issued by Evanston Insurance Company (Evanston), Sport Rock's co-plaintiff in this action. The Evanston policy provides that the insurer "will pay those sums that the insured becomes legally obligated to pay as damages because of bodily injury' or property damage' to which this insurance applies," and further provides that the insurer "will have the right and duty to defend the insured against any suit' seeking those damages." The insurance provided by the Evanston policy applies to, inter alia, "bodily injury" that "occurs during the policy period."

In addition, Sport Rock was covered at the time of the Anaya accident as an additional insured under the CGL policy issued to Petzl by American Casualty Company of Reading, Pa. (American), the defendant in this action. The American policy (like the Evanston policy) provides that the insurer "will pay those sums that the insured becomes legally obligated to pay as damages because of bodily injury' or property damage' to which this insurance applies," and further provides that the insurer "will have the right and duty to defend the insured against any suit' seeking those damages." The insurance provided by the American policy applies to, inter alia, "bodily injury" that occurs, and for which a claim against the insured is first made, during the policy period. Sport Rock is afforded additional insured coverage under the American policy pursuant to an endorsement entitled "Additional Insured - Vendors" (the vendor's endorsement), which provides in pertinent part:

"WHO IS AN INSURED (Section II) is amended to include as an insured any person or organization (referred to below as vendor) shown in the Schedule [including Sport Rock], but only with respect to bodily injury' or property damage' arising out of your [i.e., Petzl's] products' shown in the Schedule which are distributed or sold in the regular course of the vendor's business, subject to the following additional exclusions [omitted here]."*fn1

The relevant "other insurance" clause of Sport Rock's policy from Evanston states:

"When you are added to a manufacturer's or distributor's policy as an additional insured because you are a vendor for such manufacture[r]'s or distributor's products, . . . [the] Other Insurance [clause of this policy] is amended by the addition of the following:

"The coverage afforded the insured under this Coverage Part [i.e., the policy's CGL Form] will be excess over any valid and collectible insurance available to the insured as an additional insured under a policy issued to a manufacturer or distributor for products manufactured, sold, handled or distributed."

The "other insurance" clause of Petzl's policy from American states that the policy provides primary coverage (except under specified circumstances, none of which applies here), and that, if other primary insurance is available, "we will share with all that other insurance by the method" provided elsewhere in the policy (either by equal shares or in proportion to policy limits, depending on what the other insurance permits).*fn2

After the Anaya action was commenced, Evanston tendered Sport Rock's defense to American. American acknowledged that the policy it issued to Petzl affords Sport Rock coverage for the Anaya action as an additional insured pursuant to the policy's vendor's endorsement. Nonetheless, American ultimately refused to bear the entire cost of Sport Rock's defense. In support of this position, American pointed out that the claims and theories of liability asserted against Sport Rock in the Anaya action were not limited to the Petzl harness's allegedly defective design and lack of adequate warning labels. For example, the Anaya complaint alleged that Sport Rock had negligently installed the wall-climbing system and that features of the wall-climbing system other than the Petzl harness (such as the landing mats) were also defective. Based on its assessment of the proportion of the claims in the Anaya action that were related to the Petzl harness, American offered to cover only 10% of the cost of Sport Rock's defense.

In response to American's refusal to take over Sport Rock's defense, Sport Rock and Evanston commenced this action seeking damages for breach of contract and a declaration that American is obligated to provide primary coverage for both defense and indemnification in the Anaya action and that, pursuant to the "other insurance" clause of the Evanston policy, Evanston's coverage of Sport Rock in the Anaya action "is in the nature of excess coverage only over and above the limits" of the American policy. After joinder of issue, Sport Rock and Evanston moved for summary judgment. The motion court granted the motion only to the extent of declaring that American has an obligation to defend Sport Rock in the Anaya action, refusing to declare that Evanston's coverage is excess to American's coverage for purposes of either defense or indemnification. In particular, the motion court was persuaded by American's argument that "the Evanston policy remained primary for those claims not within the vendor's endorsement" to the American policy. On Sport Rock's and Evanston's appeal, we modify to declare that, for purposes of the Anaya action, Sport Rock's coverage from Evanston is excess to Sport Rock's primary coverage from American under the vendor's endorsement to Petzl's American policy.

Duty to Defend

The motion court recognized that Sport Rock, as an additional insured under the policy American issued to Petzl, is entitled to a complete defense from American in the Anaya action. "[T]he well-understood meaning of the term [additional insured] is an entity enjoying the same protection as the named insured" (BP A.C. Corp. v One Beacon Ins. Group, 8 NY3d 708, 714-715 [2007] [internal quotation marks and citation omitted]). "Thus, the standard for determining whether an additional named insured is entitled to a defense is the same standard that is used to determine if a named insured is entitled to a defense" (id. at 715). An insurer's "duty to defend is broader than its duty to indemnify" and arises "whenever the allegations of the complaint suggest . . . a reasonable possibility of coverage" (Automobile Ins. Co. of Hartford v Cook, 7 ...


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