Obligation to pay defense fees arose at the time requested; additional insured contractor wins reimbursement for settlement and defense of bodily injury claim

Harco Construction, LLC et al. v. First Mercury Insurance Company, et al., Index No. 16601/2013 (Sup. Ct. Queens Cty. October 15, 2018)

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In an important application of the Court of Appeals' decision in Sierra v 4401 Sunset Park, LLC, the Supreme Court, Queens County ordered and declared that a defendant insurer is obligated to reimburse the plaintiff, an additional insured, for the settlement of one of several underlying bodily injury actions to the $1 million coverage limit of the defendant's policy.

The underlying personal injury actions stemmed from the partial collapse of a five-story building during demolition operations of the defendant insurer's named insured, the plaintiff's subcontractor. The motion sought summary judgment declaring that insurer must defend and indemnify the plaintiff in the underlying bodily injury actions, and an order directing the insurer to reimburse the plaintiff, up to its policy limits for settlement of one underlying personal injury action, and reimburse it for attorneys fees and costs incurred in defense of the underlying actions. It was submitted that the insurer was estopped to assert a work/height exclusion as a defense to coverage, because its disclaimer had previously been fully adjudicated and found ineffective as to the plaintiff.

Justice Allan B. Weiss wrote the 4-page decision directing the defendant insurer to indemnify the plaintiff. The insurer was also ordered to reimburse plaintiff for attorneys fees and costs incurred in the underlying bodily injury actions. Justice Weiss found there was no dispute that the plaintiff qualifies as an additional insured; that the additional insured coverage under the insurer's policy is primary and non-contributory; that the additional insured coverage applies to the claims in the underlying bodily injury actions; and that plaintiff's coverage under its own policy is excess over the defendant insurer's coverage. The defendant had failed to raise any triable issues of fact.

Critically, the Court rejected the defendant insurer's argument that it does not have to reimburse plaintiff because its disclaimer was valid as to plaintiff's insurer, and the plaintiff had no out-of-pocket expenses. In a crucial passage from the decision Justice Weiss wrote:

"FMIC admits that if this court did not find that the disclaimer was valid it would have been obligated to prospectively pay for the defense costs and settlement costs sustained by Harco. It argues, however, that since these payments were made by MHIC at a time when the law of the case was that FMIC was not obligated to pay, FMIC does not have to now reimburse Harco, as Harco did not have any out-of-pocket loss because the payments were in fact made by MHIC. Simply because the payments were made by MHIC does not absolve FMIC of its requirement to pay its share of the due to the invalid disclaimer. FMIC had the obligation to pay the defense fees at the time requested. The fact that the fees and settlement of the underlying actions were paid by someone else during the pendency of this action does not relieve FMIC of this duty (see Sierra v 4401 Sunset Park, LLC, 24 NY3d 514 (2014)). Therefore, the motion is granted."

The motion was briefed by AGF&J's Michael E. Gorelick and Thomas R. Maeglin.