It happens. Someone is injured on a construction site and everyone goes running to check on their insurance coverage. We all know that insurance policies require notice of an accident, also known as an “occurrence”. But what do you need to say in the notice in order to give “proper” notice? That question was recently before New York’s highest court, the Court of Appeals1.
It was a typical contractor- subcontractor relationship. Contractor was performing a portion of its work with Subcontractor, when on October 20, 2008, Subcontractor’s employee was injured. The subcontract required Subcontractor to name Contractor as an additional insured on Subcontractor’s commercial general liability policy and it also required Subcontractor to defend and indemnify Contractor for all personal injury or property damage claims arising out of Subcontractor’s work. Contractor was first notified of the accident in late December 2009. Contractor promptly notified its commercial general liability insurer, who, on January 27, 2010, sent a letter to Subcontractor, notifying Subcontractor that it agreed to defend and indemnify Contractor and hold Contractor harmless. The letter also asked Subcontractor to notify its (Subcontractor’s) insurance company regarding the accident so Subcontractor’s insurance company could do its own investigation of the accident and claim. On February 9, 2010, Subcontractor forwarded the letter to its insurance company along with a general liability notice of occurrence/claim form describing Subcontractor’s employee’s injury. Additionally, by February 22, 2010, Subcontractor, at its insurance company’s request, also sent its insurance company a copy of the subcontract, which contained provisions requiring Subcontractor to defend and indemnify Contractor and to also name Contractor as an additional insured.
On April 15, 2010, after the injured employee sued Contractor and the property owner for damages arising from his injury, Contractor’s attorney wrote to Subcontractor’s insurance company demanding that it defend and indemnify Contractor in the injured employee’s lawsuit. Contractor’s attorney noted in his letter that Subcontractor was required to defend and indemnify Contractor, and to name Contractor as an additional insured. Contractor’s attorney also enclosed a certificate of insurance showing that Contractor was named as an additional insured on the Subcontractor’s insurance company’s policy which had been issued to Subcontractor by the insurance company. Taking the position that the notice to it was late, Subcontractor’s insurance company denied coverage. Subcontractor’s insurance company said that the initial letter it received from Contractor’s insurance company “framed” Contractor only as a claimant and not as an additional insured.
Contractor commenced a declaratory judgment action against Subcontractor’s insurance company to have the court declare that Subcontractor is obligated to provide insurance coverage to Contractor in the injured employee’s action. Subcontractor’s insurance company moved to dismiss the action. The lower court granted the motion and dismissed the action. Contractor appealed to the Appellate Division. By a three to two decision the appellate court reversed the lower court and reinstated Contractor’s declaratory judgment action2. The appellate court, concluded that the January 27, 2010 letter and form satisfied the requirements of the Subcontractor’s insurance policy to “see to it” that Subcontractor’s insurance company was notified of the accident “as soon as practicable”, and therefore the documentary evidence provided by Subcontractor’s insurance company did not establish a defense to Contractor’s claim as a matter of law.
On further appeal to the Court of Appeals (based upon two dissents in the Appellate Division) the Court of Appeals wrote that “the rule in New York [was] that where a contract of primary insurance require[d] notice ‘as soon as practicable’ after an occurrence, the absence of timely notice of an occurrence [constituted] a failure to comply with a condition precedent which, as a matter of law, vitiate[d] the contract . . . [and][n]o showing of prejudice [was] required”. The appellate court, said the Court of Appeals, properly set forth the issue as whether Contractor’s initial letter constituted notice of an occurrence under Subcontractor’s insurance policy. That policy required that, “You must see to it that [Insurer is] notified as soon as practicable of an ‘occurrence’ or an offense which may result in a claim.” Notice included, to the extent possible: “(1) How, when and where the ‘occurrence’ or offense took place; (2) The names and addresses of any injured persons and witnesses; and (3) The nature and location of any injury or damage arising out of the ‘occurrence” or offense.”
The Court of Appeals rejected Subcontractor’s insurance company’s argument that the initial letter did not timely notify the Insurer of an occurrence. The insurance company had argued that the letter only sought a defense and indemnification under the subcontract from the Subcontractor and that the letter did not expressly state that Contractor also sought coverage as an additional insured. The Court of Appeals noted that the letter did not point to the indemnification provision in the subcontract; it simply requested a defense and indemnity under the contract, without specifically identifying either the indemnification or additional insured provisions. Additionally, the Court of Appeals said, the letter requested that the Subcontractor put its insurance company on notice of the specific claim, and it also provided information about the identity of the injured employee, the date, the location and general nature of the accident, which is the information Subcontractor’s insurance company required in a notice from an insured about an accident. Given these circumstances, said the Court of Appeals, the evidence submitted by the Subcontractor’s insurance company did not conclusively establish a defense to the asserted clams as a matter of law.
Thus, Contractor’s declaratory judgment action is allowed to continue in the lower court. This does not mean that either side won or lost, just that the battle will continue, possibly to trial, with the end result being the lower court’s declaration regarding whether the Subcontractor is required to defend and indemnify the Contractor in the injured employee’s action.
Any accident or occurrence that involves personal injury or property damage on a construction project must be taken very seriously with respect to insurance coverage. All contractors and subcontractors who could possibly be tied to the situation should immediately notify their attorney and seek advice and help to write proper and timely “notice” letters to all of the insurance companies that may possibly be called upon to provide coverage. Contractors and subcontractors must remain vigilant and proactive in these situations so they avoid finding themselves battling with an insurance company over whether they provided the insurance company with timely and proper notice of the “occurrence”. The risk of not being vigilant and proactive when it comes to construction accidents can be catastrophic to your company. Don’t let that happen to you.
1 Spoleta Construction, LLC v. Aspen Insurance UK Ltd., 2016 WL 1136297
2 Spoleta Construction LLC v. Aspen Insurance UK Limited, 119 A.D.3d 1391 (4th Dept. 2014)