Upstream litigants and their insurers often to push liability to the downstream contractors or insureds, but the policy terms of an upstream insurer, even an excess insurer, can frustrate expectations.

In United Financial Casualty Company v Princeton Excess and Surplus Lines Insurance., Princeton appealed the ruling by the Eastern District of New York that held it had a primary duty to provide coverage in a bodily injury claim for the direct liability of their named insured, Prestige Delivery Services, and Staples, Inc.  Prestige was hired to deliver goods by Staples.  Joseph Nice, who worked for Prestige, had to stop the delivery van for repairs.  In the process of repairs, the repairman, Plaintiff Ken Dunbar, was trapped and dragged under the vehicle, sustaining severe personal injuries.  Dunbar sued Nice for negligence, and asserted claims of vicarious liability (respondeat superior) and negligent hiring, supervision, and retention against Prestige and Staples.

United, which insured Nice, assumed the defense of all parties, settled all claims, and then sued Princeton for (1) contribution on the vicariously liability claims, and (2) a declaratory judgment establishing Princeton had primary coverage duties with respect to the direct liability claims against Prestige and Staples.  The Eastern District of Pennsylvania ruled for United on both accounts, and Princeton appealed only from the latter.

The Third Circuit, however, rejected Princeton’s appeal on two grounds.  First, the Court held the United policy only insured Nice for claims arising directly from his conduct, and the direct liability at issue pertained to negligent hiring and supervision.  As the Court observed, Nice cannot supervise himself.  Second, although an excess form policy, the Princeton policy’s terms provided for primary level coverage for liability assumed in an “insured contract.”  Because Prestige agreed to hold harmless and indemnify Staples for any negligence attributable to Prestige, the Third Circuit affirmed the district court’s ruling.

Such cases are cautionary tales regarding resting on standard assumptions.  Often in such delivery or construction claims, liability flows down to the tortfeasor, who is contractually bound to indemnify those above and whose insurance is obligated to answer on a primary basis.  Excess policies rarely are obligated to assume primary level responsibilities, but most such policies have conditions and terms that would trigger primary coverage.  The details of the policy will trump standard business expectations every time, and the minutiae of the policy should be scrutinized at the outset of every claim as a result.

Thanks to Christopher Soverow for his contribution to this post.