When Primary Coverage is Unlimited, Excess Cannot be Triggered

In a recent decision in the Second Department, the court addressed a situation where a contractor was represented as a third party defendant through its workers’ compensation and employer’s liability policy that had unlimited coverage limits.

In Arthur Vincent & Sons, Inc. v. Century Surety Ins. Co., plaintiff was hired by Fordham University to install a new roof.  Pursuant to its contract with Fordham, plaintiff maintained three separate insurance policies:  (1) a workers compensation and employer’s liability policy issued by Commerce and Industry Ins. Company, covering common-law indemnification claims and excluding coverage for contractual indemnification claims; (2) a commercial general liability policy issued by Century Surety Ins. Co., covering contractual indemnification claims, and (3) an excess liability policy issued by Admiral Ins. Co. covering contractual indemnification claims.

During the course of the project, an employee of plaintiff had a fatal accident that resulted in a wrongful death action against Fordham.  Fordham sued the employer seeking contribution, common-law indemnification, contractual indemnification, and a failure to procure insurance.

Commerce provided plaintiff with coverage and a defense in the action pursuant to the workers compensation policy, while Century and Admiral disclaimed coverage.  Century disclaimed coverage since it excluded contractual indemnification claims. Plaintiff sued Admiral arguing it was obligated under the excess policy to defend and indemnify plaintiff against the third party claims, and to defend and indemnify Fordham as an additional insured in the underlying action since the Admiral policy provided coverage for contractual indemnification claims.  Admiral moved for summary judgment in  arguing it was not obligated to defend or indemnify plaintiff on the ground that the employer’s primary liability coverage was unlimited, thus never triggering excess coverage.  Plaintiff cross moved arguing that Admiral was obligated to defend it and Fordham on an excess, noncontributory basis to the coverage provided by Century because the Commerce policy excluded contractual indemnification claims.

The Second Department found that the unambiguous provisions of the Admiral policy stated it would provide coverage for the “ultimate net loss” in excess of the “underlying insurance limit.” Here the underlying insurance limit was case was unlimited pursuant to the New York Limit of Liability Endorsement contained in the Commerce policy.  Accordingly, the excess coverage under the Admiral policy could not be triggered.

The Second Department effectively found that when a party is being defended under a policy with unlimited insurance coverage (only), the excess policy cannot be triggered because the primary coverage limits cannot be exhausted.

Thanks to Valeria Prizimenter for her contribution to this post.