The results of two underlying personal injury cases effected coverage to a potential additional insured in its declaratory judgment action.

Leading ins. Group Ins. Co., ltd. V. Argonaut Great Cent. Ins. Co., was a declaratory judgment action stemming from two underlying trip and fall actions. In the first, plaintiff sued the building tenant, a drycleaners. The court granted summary judgment to the drycleaners on the basis that the sidewalk defect was trivial. The pedestrian then commenced a second action against the landlord. Two years after the second suit was initiated, the landlord tendered its defense and indemnification to the tenant’s insurer. The insurer rejected the tender as untimely, and claimed prejudice since had the tender been made timely, the insurer could have used the court’s decision in the first suit as collateral estoppel to immediately have the landlord’s suit dismissed.

The landlord commenced a declaratory judgment action against the drycleaner’s insurer seeking coverage as an additional insured. The drycleaner’s insurer moved to dismiss on the basis of late notice, and on the basis that the indemnification provision in the lease only applied to liability arising out of the maintenance, repair, and use of the premises leased. Since the pedestrian fell in front of the drycleaners – not as she was entering or exiting it, the fall had nothing to do with the use of the leased premises. In addition, the lease only required the drycleaners to maintain the interior of the premises, not the sidewalk. The court agreed with the drycleaner’s insurer on both issues, and dismissed the declaratory judgment action against it.

This case illustrates the importance of timely notice. If is often difficult for a carrier to establish prejudice, but when it does, coverage may not be available. In addition, when dealing with leases, it is important to carefully analyze lease terms to ascertain whether the loss location is considered part of the leased premises.

Thanks to Moya O’Connor for her contribution to this post.