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Insurer wins coverage fight in New York construction case

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A surplus lines insurer does not have to cover New York transit organizations named as additional insureds on a contractor’s policy when the contractor was not at fault when an employee was injured in a tunnel explosion, New York’s highest court ruled on Tuesday.

In a 4-2 ruling in The Burlington Insurance Co. v. NYC Transit Authority et al., New York’s Court of Appeals overturned a lower appeals court ruling that Burlington, a unit of IFG Cos. in Burlington, North Carolina, should cover the New York City Transit Authority, which was named as an additional insured on Burlington policyholder Breaking Solutions Inc.’s policy along with the Metropolitan Transit Authority.

According to the ruling, the New York City Transit Authority contracted with Breaking Solutions to perform tunnel excavation work on a New York City subway construction project. To comply with the transit authority’s insurance requirements, Breaking Solutions bought commercial general liability coverage from Burlington that named the transit authorities as additional insureds.

In 2009, a transit authority employee fell off an elevated platform as he tried to avoid an explosion after a Breaking Solutions machine touched a live electrical cable buried in concrete. The employee later sued New York City alleging negligence. Burlington defended the suit, subject to a reservation of rights, and settled for $950,000 but later sought a declaration that it did not owe coverage to the transit authorities, which the city had brought into the action.

Discovery in the employee’s suit showed that the New York City Transit Authority “failed to identify, mark, or protect the electric cable, and that it also failed to turn off the cable power. Documents further established that the (Breaking Solutions) machine operator could not have known about the location of the cable or the fact that it was electrified,” court records say.

Internal transit authority memos show that it accepted sole responsibility for the accident, court documents say.

A trial court ruled in favor of Burlington in the coverage dispute but the ruling was overturned on appeal.

According to Tuesday’s ruling by New York’s highest court, “Burlington maintains that the coverage does not apply where, as here, the additional insured was the sole proximate cause of the injury.”

According to the ruling, the policy states “that an entity is ‘an additional insured’ only with respect to liability for bodily injury caused, in whole or in part, by (Breaking Solution’s) acts or omissions.”

The transit authorities argued that the policy endorsement applies to any act or omission by Breaking Solutions, regardless of an additional insured’s negligence.

“Burlington has the better argument. Applying the relevant legal principles to the policy language, we conclude that there is no coverage because, by its terms, the policy endorsement is limited to those injuries proximately caused by (Breaking Solutions),” the Court of Appeals ruled.