QBE Insurance v. Adjo Contracting Corp.
997 N.Y.S.2d 425
N.Y. App. Div.2014Background
- Archstone contracted Tocci as general contractor for a Westbury, NY apartment complex; Tocci subcontracted work to numerous trades. Water intrusion and mold occurred, prompting tenant class actions (consolidated tenant action) and other suits (Hunter). Archstone sued Tocci for indemnification.
- Travelers insured Tocci; various insurers (ACE, QBE, Zurich, Liberty Mutual, Erie, Penn National, Scottsdale, Delos, etc.) insured subcontractors. Disputes arose over whether those insurers owed a duty to defend Tocci and/or Archstone in the underlying actions.
- QBE sued for a declaratory judgment that it owed no defense/indemnity to Tocci or Archstone; Travelers and Archstone filed third-party/second third-party actions seeking declarations that the subcontractors’ insurers must defend.
- Supreme Court granted broad duties-to-defend for most insurers; many insurers cross-moved to disclaim coverage based on policy terms, exclusions, notice defenses, or choice-of-law.
- The Appellate Division reexamined insurers’ duties to defend, resolved choice-of-law for certain insurers, addressed late-notice disclaimer timeliness, extrinsic-evidence rules, additional-insured status, and various exclusions, and remitted for entry of declaratory judgments allocating defense obligations.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether insurers owe duty to defend Tocci in construction action | QBE/Archstone: policies potentially cover claims arising from subcontractors’ work that caused tenant injuries/property damage | Insurers: allegations do not implicate their named insureds or are barred by exclusions/occurrence definitions | Court: many insurers (QBE, ACE, American European, Merchants Mutual, American States, Delos, Liberty, Ohio) owe duty to defend Tocci; some insurers (Erie, Penn National) do not due to choice-of-law/occurrence rules |
| Whether insurers owe duty to defend Archstone in consolidated tenant action | Archstone/Travelers: plaintiffs allege bodily injury/property damage from mold/water caused by subcontractor work, creating potential coverage | Insurers: no link to their insureds’ work; some assert exclusions, intended-use or mold exclusions, or notice defenses | Court: several insurers obligated to defend ASOT in consolidated tenant action (QBE, American European, Merchants Mutual, American States, Delos, Ohio, Zurich); others (ACE, Erie, Hartford, Liberty, Penn National) not obligated as to certain actions |
| Applicability of late-notice disclaimers | Insurers: late notice defeats coverage | Archstone/Tocci: notice (Tocci Jan 2008; Travelers Nov 2008) triggered insurers’ duty to timely disclaim; many disclaimers were untimely | Court: insurers who disclaimed months later were estopped from late-notice defense under Ins. Law §3420(d); disclaimers untimely and ineffective |
| Choice-of-law and definition of "occurrence" (Erie/Penn National) | Archstone: New York law treats mold from water exposure as an occurrence; insurers should defend | Erie/Penn National: Pennsylvania law excludes foreseeable damages from faulty workmanship and thus no occurrence | Court: apply Pennsylvania law (insured domiciled there); under Penn. law tenants’ damages are not an "occurrence"; Erie and Penn National owe no duty to defend |
Key Cases Cited
- George A. Fuller Co. v. United States Fid. & Guar. Co., 200 A.D.2d 255 (2d Dep't 1994) (distinguishing covered property damage from damage to the work product)
- Fitzpatrick v. American Honda Motor Co., 78 N.Y.2d 61 (N.Y. 1991) (insurer may consider extrinsic facts that create a reasonable possibility of coverage)
- Frontier Insulation Contractors v. Merchants Mut. Ins. Co., 91 N.Y.2d 169 (N.Y. 1997) (scope of duty-to-defend and use of extrinsic evidence)
- BP A.C. Corp. v. One Beacon Ins. Group, 8 N.Y.3d 708 (N.Y. 2007) (duty to defend is exceedingly broad; allegations need only potentially bring claim within coverage)
- Matter of Firemen's Fund Ins. Co. v. Hopkins, 88 N.Y.2d 836 (N.Y. 1996) (untimely disclaimers can be precluded under Ins. Law §3420(d))
- Continental Cas. Co. v. Rapid-American Corp., 80 N.Y.2d 640 (N.Y. 1993) (construction defect claims can constitute an occurrence when they cause bodily injury or damage to property other than the work product)
- Seaboard Sur. Co. v. Gillette Co., 64 N.Y.2d 304 (N.Y. 1985) (exclusionary clauses must be clear and unmistakable; ambiguities construed against insurer)
- Ooida Risk Retention Grp., Inc. v. Williams, 579 F.3d 469 (5th Cir.) (applying Texas law, recognizing limited exception to strict eight-corners rule)