March 16, 2022
Attorneys James Walsh and William Edwins of London Fischer LLP were recently granted summary judgment in a matter before the Hon. John P. Cronan of the Southern District of New York in a declaratory judgment action involving application of the Contractor Conditions Endorsement under a commercial general liability policy issued by Peleus Insurance Company (“Peleus”).
The dispute was predicated on a construction site accident involving an employee of Taconic Builders, Inc. (“Taconic”). Taconic was retained by Peleus’ Named Insured, Atlantic State Development Corp. (“Atlantic”), the general contractor. The employee commenced a Labor Law action against Atlantic. Peleus assigned counsel to defend Atlantic under a reservation of rights and undertook an investigation which revealed that Atlantic failed to comply with the Peleus Policy, specifically the No Coverage Applies if Contractor Conditions Not Met Endorsement (“Contractor Conditions Endorsement”). The motion demonstrated that Atlantic failed to obtain an executed agreement with Taconic obligating Taconic to defend and indemnify Atlantic and failed to have Atlantic named as an Additional Insured on Taconic’s insurance policy as required by the Contractor Conditions Endorsement. Peleus commenced a declaratory judgment action against Atlantic seeking a declaration that, because of this violation, there was no coverage under the Peleus Policy.
In a well-reasoned opinion, the Court held that Peleus conducted a prompt, thorough and diligent investigation, that Peleus properly reserved its rights, and that Peleus’ disclaimer was timely. The Court rejected Atlantic’s arguments, finding that Peleus’ reservation of rights gave Atlantic fair and explicit notice of its position, and that Peleus was not estopped from denying coverage. The Court also rejected Atlantic’s argument that Peleus was required to provide independent counsel, agreeing with Peleus that “An insurer’s reservation of rights does not automatically entitle its insured to representation of its choice at the insurer’s expense.”
In sum, the Southern District held that “The undisputed facts have demonstrated that there is no reasonable possibility of coverage under the Insurance Policy between Atlantic and Peleus . . . Peleus therefore has no duty to defend or indemnify Atlantic in the New York case and may withdraw its defense in that case.”
This or similar endorsements are a frequent subject of coverage litigation and the Southern District’s enforcement of the Contractors Conditions Endorsement will be useful in future disputes.
View a copy of Judge Cronan’s Opinion and Order below:
