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Regal Construction Corp. v. National Union Fire Insurance Co.

July 14, 2009

REGAL CONSTRUCTION CORPORATION, ET AL., PLAINTIFFS-APPELLANTS,
v.
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, DEFENDANT-RESPONDENT, URS CORPORATION, DEFENDANT.



Order, Supreme Court, New York County (Debra A. James, J.), entered April 4, 2008, which, inter alia, denied plaintiffs' motion for summary judgment, granted defendant National Union Fire Insurance Co.'s cross motion for summary judgment, and declared that plaintiff The Insurance Corporation of New York (INSCORP) is obligated to defend and indemnify defendant URS Corporation (URS) in the underlying personal injury action, affirmed, with costs.

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.

Tom, J.P., Nardelli, McGuire, Acosta, DeGrasse, JJ.

601155/07

The City of New York engaged URS as the construction manager for the Rikers Island Renovation Project. By written agreement dated March 22, 1999, URS hired plaintiff Regal Construction Corporation (Regal) to serve as the prime contractor for general construction and to perform construction services, including demolition and renovation, at the project. INSCORP issued to Regal a commercial general liability policy that provided additional insured coverage. This appeal involves the interpretation of the additional insured clause.

Regal's duties as prime contractor included the demolition and rebuilding of a modular building at Rikers Island. The task required Regal to engage subcontractors and oversee their work. Ronald LeClair was Regal's project manager for the Rikers Island Renovation Project. His duties included the coordination of the subcontractors' work.

In March 2001, Regal was supervising the demolition of the building's bath and shower area as well as the replacement of flooring in the main area. On March 6, 2001, LeClair was walking through the facility with his superintendent and an employee of Regal's demolition subcontractor. As the area was under demolition, the flooring consisted of temporary sheets of plywood spread over steel floor joists. LeClair stepped from the plywood onto a joist in order to point to a wall that was to be demolished. Unbeknownst to LeClair, the joist had been freshly painted and its slipperiness caused him to fall and sustain injury. At a deposition, LeClair testified that he had heard that a URS employee painted the joist.

In January 2003, LeClair brought the underlying action against the City and URS in the Supreme Court, Bronx County. By letter dated February 19, 2003, URS demanded a defense and indemnification by Regal and/or INSCORP and enclosed a copy of LeClair's verified complaint. URS based the demand on its claimed status as an additional insured under the policy issued by INSCORP to Regal. In April 2003, INSCORP responded to URS by letter indicating that the matter was being reviewed. By the same letter, INSCORP also reserved its right to disclaim coverage at a later date should it be determined that URS was not entitled to the benefits of the policy. Because its tender had not been accepted, URS brought a third-party action against Regal in February 2004. By another letter dated March 11, 2004, INSCORP did accept URS's tender, and URS's third-party action against Regal was discontinued.

Nevertheless, on April 9, 2007, Regal and INSCORP commenced this action against URS and its insurer, National Union, for a declaratory judgment. In denying plaintiffs' motion for summary judgment and granting defendants' cross motion for the same relief, Supreme Court declared that INSCORP is obligated to defend and indemnify URS in the LeClair action. As this appeal has been withdrawn with respect to plaintiffs' claims against URS, the pivotal issue, as framed by the complaint, is whether URS is an additional insured under Regal's policy with INSCORP.

INSCORP's policy provided for additional insured coverage "only with respect to liability arising out of [Regal's] ongoing operations performed for that [additional] insured." As explained by the Court of Appeals in Worth Constr. Co., Inc. v Admiral Ins. Co. (10 NY3d 411 [2008]), which involved a similarly worded additional insured provision, the phrase "arising out of" means "originating from, incident to, or having connection with" (id. at 415 [internal quotation marks omitted]). The policy in Worth was issued to Pacific Steel, Inc., a subcontractor that had been engaged for the fabrication and installation of a staircase consisting of steel pan stairs and hand railings. After Pacific installed the stairs but before it installed the hand railings, the job was temporarily turned over to a concrete subcontractor for the purpose of filling the pans. The plaintiff was injured when he slipped on fireproofing that had been applied to the stairs by a subcontractor other than Pacific. After noting that the focus of the clause "is not on the precise cause of the accident but the general nature of the operation in the course of which the injury was sustained" (id. [internal quotations marks omitted]), and that Pacific was not on the job site at the time of the accident and had nothing to do with the application of the fireproofing, the Court characterized the staircase installed by Pacific as "merely the situs of the accident," and ruled that there was no connection between the accident itself and Pacific's work, the risk for which coverage was intended (id. at 416).

The facts of the instant case are not analogous because Regal, the prime contractor at the Rikers Island project, had responsibilities that encompassed all of the demolition and construction work to be done. As such, Regal's tasks cannot be viewed in isolation as were those of Pacific, the staircase subcontractor in Worth. LeClair even testified that it would have been Regal's responsibility to paint the floor joists if instructed to do so by URS. Hence, there was a causal connection between LeClair's injury and Regal's work as a prime contractor, the risk for which coverage was provided. The dissent places unwarranted emphasis on the fact that the LeClair complaint does not set forth allegations of negligence on part of Regal. "Generally, the absence of negligence, by itself, is insufficient to establish that an accident did not arise out of' an insured's operations" (id.). "The focus of a clause such as the additional insured clause here is not on the precise cause of the accident but the general nature of the operation in the course of which the injury was sustained" (id. [internal quotation marks omitted]).

Accordingly, Supreme Court correctly found that INSCORP is obligated to defend and indemnify URS in the LeClair action. We reject, however, National Union's argument that INSCORP should be estopped from denying coverage because it accepted URS's defense without a reservation of rights and controlled that defense until its denial of coverage in 2007. On the contrary, as noted above, 11 months before accepting URS's defense INSCORP reserved its right to disclaim coverage at a later date. All concur except Nardelli and McGuire, JJ. who dissent in a memorandum by McGuire, J.

as follows: McGUIRE, J. (dissenting)

Ronald LeClair, the plaintiff in the underlying action, was injured during the course of his employment with plaintiff-appellant Regal Construction Corp., the primary general contractor for a construction project at Rikers Island. Specifically, he was injured when he slipped and fell on a steel floor joist during a "walk-through" of the job site during which he was pointing out required demolition work to Regal's demolition subcontractor. The joist had just been painted by defendant URS Corp., the construction manager, after it removed plywood covering. URS is an additional insured under the policy Regal obtained from plaintiff-appellant The Insurance Corporation of New York (INSCORP) "only with respect to liability arising out of [Regal's] ongoing operations performed for [URS]." LeClair's complaint in the underlying action alleges only that he was injured as a result of the negligence of URS and its co-defendant, the City of New York, which engaged URS as the construction manager. The complaint is bereft of allegations that Regal was ...


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