The Southern District of New York recently struck another blow against insurers seeking to disclaim coverage to an additional insured for their vicarious liability based upon a strict reading of the complaint.

In JD2 Environmental, Inc. v. Endurance Am. Ins. Co.., Avis Car Rental, LLC hired JD2 to provide engineering services for the replacement of several underground storage tanks.  JD2 hired Gemstar Construction as a subcontractor to perform the removal and replacement of the tanks.  Disaster struck in December 2011 when Gemstar struck a sewer line, creating a sinkhole at the site, sewage backups throughout the airport, and requiring extensive clean-up.  Avis sued JD2 and Gemstar. JD2 sought coverage from Endurance, Gemstar’s insurer, and Endurance disclaimed coverage.

JD2 filed a declaratory judgment action against Endurance, and moved for summary judgment seeking coverage. In granting JD2’s motion, the court noted the “exceedingly broad” nature of an insurer’s duty to defend, and held that because the complaint in the underlying action alleged facts sufficient to suggest the doctrine of respondeat superior applied to the relationship between JD2 and its subcontractor, a broad reading of the complaint meant that a finding of JD2s vicarious liability was also possible, if not specifically alleged.  Therefore, Endurance’s duty to defend had been triggered and its disclaimer improperly made.

The Court extended this reasoning, looking beyond the complaint, in its additional determination that Avis’ allegations against JD2 were covered under the Contractors Pollution Part of the Policy.  Endurance had argued that because the underlying complaint sought damages for the repair of the pipes only, there was no covered “pollution condition” necessary to trigger coverage.  But the Court disagreed, and held that a reference to “complaints about a sewage back up” in the complaint implicated and suggested the clean-up of waste, and was sufficient to properly trigger this coverage.

Thus, in evaluating coverage with respect to additional insureds in New York, insurers must look beyond the explicit allegations, and also consider the implicit, when analyzing these issues.

Thanks to Vivian Turetsky for her contribution to this post.