For years parties have disputed just how far “caused in whole or in part” stretches in the context of coverage afforded an additional insured for the acts or omissions of a named insured. New York’s highest court settled the dispute and decreed “caused” refers to proximate, rather than the impermissibly broad “but for,” causation.

The Court of Appeals decided Burlington Ins. Co. v. NYC Tr. Auth., on June 6, 2017, and was presented with a familiar fact pattern in the world of coverage:  a coverage dispute over the scope of additional insured coverage afforded in the scope of construction project.

Burlington insured Breaking Solutions, Inc. (“BSI”), which supplied equipment and personnel for the project. Plaintiff, a Transit Authority employee, fell from scaffolding after BSI equipment came into contact with a live electrical cable that was under concrete.  Burlington initially recognized a duty to defend the Transit Authority, subject to a reservation of rights, based on the Transit Authority’s status as an additional insured.  Burlington reserved its right to deny coverage based on the limitations of the pertinent additional insured endorsements, which afforded coverage:

…only with respect to liability for “bodily injury”, “property damage” or “personal and advertising injury cause, in whole or in part, by:

1. Your acts or omissions; or
2. The acts or omissions of those acting on your behalf.

Subsequent discovery revealed internal Transit Authority memos admitting they were solely at fault, and BSI neither operated the machinery improperly, nor knew of the existence of the cable. Based on these admissions, Burlington disclaimed coverage.

The Court of Appeals held the plain language of the endorsement, including the reference to “liability,” calls for proximate causation. Significantly, the Court rejected the argument that “caused by” is equivalent to “arising out of,” the latter of which signals but for causation.  In the end, the Transit Authority’s sole negligence was not covered under the Burlington policy’s additional insured endorsement.

The Court’s plain language interpretation reflects the common sense recognition that additional insured endorsements are meant to apportion loss to the party with the most control over the risk. In the real world construction context, the endorsement is meant to create a coverage chain in parallel to the contractual chain of indemnification running from the bottom rung subcontractor to the property owner at the top.  Sole acts of negligence of entities higher up the chain always break the liability and indemnification chain in New York, and coverage is no different.

Thanks to Chris Soverow for his contribution to this post.