Federal Insurance v. American Home Assurance Co.
2011 U.S. App. LEXIS 7057
2d Cir.2011Background
- Federal, as subrogee of AAA Mid-Atlantic, sought indemnification under AAA’s insurers for a $26.5 million settlement in Cannon v. Taber; the district court applied Florida law and held the AHA and NUIC policies insured AAAMA and allocated $12 million from NUIC and $1 million from AHA to Federal, with equal sharing of the remainder by the two umbrella policies; the court rejected limiting liability by AAAMA’s 14% fault; Federal sought prejudgment interest; the district court treated Florida law on notice as controlling but applied New York law for contract interpretation; the Second Circuit later held AAAMA was not an additional insured under the AHA endorsement and reversed.
- The underlying accident involved a tow truck operator, AAAMA’s preferred service provider, colliding with Cannon after responding to an AAA member call; the jury found AAAMA 14% liable, AAA National 0%, E&D 85%, Cannon 1%; Cannon’s claim settled for $27.25 million with Federal contributing $26.5 million.
- AAAMA’s insurance coverage included a Florida umbrella (NUIC) and a Federal umbrella, but the AHA endorsement limited coverage to liability arising out of AAA’s operations or premises owned by AAA, a threshold issue.
- The district court found that AAA National’s operations included emergency roadside oversight that connected to the Cannon accident; the Second Circuit rejected this, holding AAA National’s operations did not include AAAMA’s actual roadside services.
- The court remanded with instructions to enter judgment in favor of defendants-appellees, effectively defeating Federal’s demand for full umbrella coverage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether AAAMA qualifies as an additional insured under the AHA Endorsement | Federal: AAAMA insured for liability arising out of AAA operations | AHA/NUIC: AAAMA not insured as its liability did not arise out of AAA operations | AAAMA not an additional insured under the Endorsement |
| Whether the liability pooled under the other-insurance provisions should be shared equally | Federal: NUIC and Federal umbrellas share remainder after primaries | Defendants: mutually repugnant terms drop out, equal sharing appropriate | Not reached because AAAMA not insured; issue affirmed for reversal by separate holding |
| What law governs interpretation and notice for insurance policies | Federal: New York law controls; Florida notice rules apply but prejudice shown | Defendants: Florida law governs notice and prejudice not shown | New York law governs interpretation; potential conflict resolved by agreement; notice issue not dispositive |
| Whether the district court erred in concluding AAA National’s operations included AAAMA’s liability | Federal: AAA National’s operations connected to Cannon accident | Defendants: AAA National not responsible for AAAMA’s roadside services | AAAMA liability did not arise out of AAA National’s operations; reversed |
Key Cases Cited
- Worth Construction Co. v. Admiral Insurance Co., 10 N.Y.3d 411 (N.Y. 2008) (absorption of risk when injury occurs on site is not arising out of insured’s operations)
- Bovis Lend Lease LMB, Inc. v. Garito Contracting, Inc., 65 A.D.3d 872 (N.Y. App. Div. 2009) (coverage depends on whether liability arises out of named insured’s work)
- Greater N.Y. Mutual Ins. Co. v. Mutual Marine Office, Inc., 3 A.D.3d 44 (N.Y. App. Div. 2003) (coverage limited to insured operations; roof collapse not arising out of operations)
- Maroney v. N.Y. Cent. Mut. Fire Ins. Co., 5 N.Y.3d 467 (N.Y. 2005) (arising out of requires some causal relationship to risk)
- Mount Vernon Fire Ins. Co. v. Belize NY, Inc., 277 F.3d 232 (2d Cir. 2002) (contract interpretation: give plain meaning to unambiguous terms)
- Chateaugay Corp., 891 F.2d 1034 (2d Cir. 1989) (bankruptcy context: operations may include ancillary activities)