On June 6, the New York Court of Appeals in Burlington Insurance Co. v. NYC Transit Authority held that where liability is limited to injuries “caused, in whole or in part” by the named insured’s “acts or omissions,” coverage extends only to those injuries proximately caused by, not just causally linked to, the named insured’s actions or omissions. The 4-2 decision reversed the intermediate appellate court’s (Appellate Division, First Department) holding that under such policy language, coverage extends to injuries caused solely by the additional insured’s own negligence, even where the named insured is not at fault, ending a recent streak of pro-insured decisions issued by New York courts in cases involving standard additional insured endorsements.
The Policy and Claim
In Burlington, the New York City Transit Authority (NYCTA) had contracted with Breaking Solutions, Inc. (BSI) to perform excavation work in a Brooklyn subway tunnel. Pursuant to the NYCTA’s contract requirements, BSI obtained a general liability policy from Burlington Insurance Co. (“Burlington”) with an endorsement naming NYCTA, the Metropolitan Transit Authority (MTA), and the City of New York (the “City”), as additional insureds. The endorsement used standard additional insured language adopted from an Insurance Services Office (ISO) form, which provided, in pertinent part, that NYCTA, MTA, and the City were additional insureds under the policy:
[O]nly with respect to liability for ‘bodily injury,’ ‘property damage’ or ‘personal and advertising injury’ caused, in whole or in part, by:
1. [BSI’s] acts or omissions; or
2. The acts or omissions of those action on [BSI’s] behalf.
During the policy period, an MTA employee was injured by an explosion that occurred when one of BSI’s machines contacted an exposed electrical cable. The employee sued the City and BSI. The City tendered the defense to Burlington as an additional insured under the BSI policy, which Burlington accepted (initially under reservation of right, which it later withdrew). The City then impleaded NYCTA and MTA and asserted third party claims against them. Like the City, NYCTA also tendered its defense and that of the MTA to Burlington as additional insureds under the BSI policy. Burlington accepted tender to defend NYCTA and MTA under reservation of right that they qualify as additional insureds under the policy.
During discovery, the parties learned that NYCTA, not BSI, was solely at fault for the employee’s injury. As a result, Burlington disclaimed coverage for NYCTA and MTA arguing that, consistent with the endorsement language, without evidence that BSI was negligent or otherwise at fault, NYCTA and MTA did not qualify as additional insureds under the policy. After settling with the employee, Burlington brought suit against NYCTA and MTA for declaratory judgment and indemnification to recover the settlement amount and litigation costs.
Trial Court’s Decision and Appellate Division’s Reversal
The New York County Supreme Court agreed with Burlington, but the appellate court reversed. It held that regardless of whether BSI was negligent, BSI’s actions triggering the explosion were a cause of the employee’s injury. Because, as the appellate court explained, the injury was causally connected to BSI’s actions, NYCTA and MTA qualified as additional insureds under the endorsement language.
The Court of Appeals’ Holding
The Court of Appeals reversed the appellate court’s decision. Although the Court agreed that the endorsement language was unambiguous, it found that the appellate court wrongly interpreted the phrase “caused, in whole or in part” to mean “but for” causation instead of proximate causation.
According to the Court, under its plain meaning, the phrase “caused, in whole or in part” can only be interpreted as requiring proximate causation because “but for” causation cannot be partial. A different interpretation, the Court explained, would render the words “in whole or in part” superfluous since all “but for” causes bear some connection to the outcome regardless of whether any or all actually result in legal liability.
The Court rejected the argument that the phrase “in whole or in part” was necessary to clarify that coverage was not limited only to injuries “solely caused by” the named insured. Since there may be more than one proximate cause to an injury, the Court held that the phrase “caused, in whole or in part, by” is not synonymous to “solely caused by.”
Moreover, the Court emphasized that the endorsement limited additional insured coverage to “liability” and liability, the Court reasoned, implies a certain degree of fault. As the Court put it:
That the policy extends coverage to an additional insured “only with respect to liability” establishes that the “caused, in whole or in part, by” language limits coverage for damages resulting from BSI’s negligence or some other actionable “act or omission.”
The dissent argued that Burlington’s arguments must fail because the policy doesn’t specifically reference “proximate causation.” The Court quickly disposed of this argument holding that the endorsement language expressed in “lay terms” the well-understood legal doctrine of proximate causation.
Although the Court based its holding on the plain language of the policy, its analysis went beyond the four corners of the agreement to show additional support for its holding. In dicta, the Court rejected the notion that the phrase “arising out of,” which results in coverage regardless of named insured’s negligence, is the functional equivalent of “caused, in whole or in part.” Looking at the intent behind the ISO form’s latest amendment, which replaced the phrase “arising out of” with “caused, in whole or in part”, the Court noted that the change was meant to prevent coverage from extending to injuries caused by an additional insured’s sole negligence.
The Court went even further and concluded that a different holding would run contrary to the overall purpose of additional insured coverage, which is to cover the named insured’s actions that may expose the additional insured to liability and not to cover injuries that result solely from the additional insured’s conduct.
This decision is a big win for CGL insurers providing additional insured coverage because it clarifies that additional insured coverage is limited to only the liability proximately caused by the named insured’s actions or omissions.