Allocation of settlement and defense fees between Employers Liability and Umbrella Excess policies improper where unlimited Employers Liability coverage available

QBE v. Zurich, Index No. 159020/2013 (Sup.Ct. N.Y. Cty. September 7, 2017)

Terms of an unlimited Employers Liability insurance policy and an Umbrella Excess policy required payment of the entire amount of settlement for an employee's wrongful death claim, as well as defense expenses, out of the Employers Liability policy. So held the Supreme Court, New York County, in a detailed decision of Justice Manuel Mendez.

This declaratory judgment action arose out of the 91st Street Crane case, where a the collapse of a Kodiak Tower Crane during construction of a mixed use building resulted in tragic loss of life and injuries, as well as extensive property damage.

The defendant insured the employer under an Employers Liability insurance policy, as well as a Primary Commercial General Liability and an Umbrella Excess Liability policies. It defended the owner of the project and construction manager as additional insureds and eventually paid a settlement on their behalf to the estate of the employee, the crane operator who died as a result of the accident. It purported to allocate the settlement amount equally between the Employers Liability policy and the Umbrella Excess policy. The owner and construction manager, as well as their own commercial general liability insurer, objected to the allocation and made a claim for declaratory relief saying that under the terms of the policies, the settlement had to be paid entirely out of the unlimited Employers Liability policy. The issue was framed for competing motions for partial summary judgment.

The heart of the issue lay in when, if at all, the Umbrella Excess Liability policy might apply. The policy included Excess Follow Form Liability coverage (Coverage "A"), in which the defendant had agreed to pay "damages covered by this insurance in excess of the total applicable limits of underlying insurance." Underlying insurance was defined to include the Primary policy, an auto policy, and the Employers Liability policy. The Court held, "[u]nder the plain language of the policy the [Employers Liability policy] would have to be exhausted before the [Excess Liability policy] is applied, and any ambiguity in that is applied against [the defendant insurer]." Because New York law requires that employers liability insurance policies provide unlimited coverage, and the underlying Employers Liability policy in this action indisputably applied, the "underlying insurance" had not been exhausted, the Excess Follow Form Liability coverage did not apply, and therefore there was no basis for allocating any part of the settlement to the Umbrella Excess Liability policy.

Defendant contended that it was the separate Umbrella coverage provided under the Umbrella Excess policy (Coverage "B") that it had allocated to the settlement. The Court rejected this argument because Coverage B was subject to a specific exclusion of claims pursuant to the Workers Compensation Law.

AGF&J partner Michael E. Gorelick briefed and argued the motion, with assistance of partner Thomas R. Maeglin.