Everything Flows Downhill: New York AD Rules That Sub’s Insurers Must Fund Entire Settlement

New York construction litigation is like a multi-headed dragon: cut off one head (issue) and another one quickly emerges. In analyzing its ultimate exposure in this context, an insurer must consider both the underlying liability of all its insureds as well as how the coverage disputes amongst the various insurers will play out at the end of the case.

In Indemnity Ins. v. St Paul Mercury, the Appellate Division, First Department grappled with a mind numbing fact pattern after a general contractor’s employee was injured due to the negligence of a subcontractor. The case discusses the interplay between New York’s Labor Law, contractual indemnity and additional insurance requirements, the hierarchy of coverage and New York’s anti subrogation doctrine.

At the end of the day, the subcontractor’s insurers wind up footing the entire bill for the $3,000,000 settlement with no contribution from the owner or the general contractor. The First Department discusses the distinction between liability and coverage as well as the anti subrogation doctrine, which prevents the subcontractor’s insurer from seeking contribution from its additional insureds in an indirect effort to pick the pockets of the policies of the owner and general contractor.

Who says insurance coverage litigation can’t be fun?

If you have any questions or comments on this post, please email Paul at pclark@wcmlaw.com

http://www.courts.state.ny.us/reporter/3dseries/2010/2010_03254.htm