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Newsletter -
Fall 2010
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Recently, the New York Appellate Division, First Department, reversed the New York County's Supreme Court decision of January 12, 2009, which denied an insurance company's motion for summary judgment seeking to dismiss plaintiff's claim for coverage under it s Commercial General Liability Policy. Ultimately, the New York Appellate Division held that Nautilus Insurance Company did not have an obligation to defend or indemnify the defendants based upon the broad construction of an exclusionary provision in its policy.
The underlying action occurred when Timothy Shea, an employee of United Stage Associates, sustained injuries in an on-the-job accident, fell off of a utility vehicle. United Stage Associates had been hired by Matthew David Events to perform services in connection with a corporate party designed and managed by Matthew David Events.
At the time of the accident, Matthew David Events was insured by Nautilus under a Commercial General Liability policy. Upon Shea's commencement of a personal injury action, three years after the injury, Matthew David Events notified Nautilus which disclaimed coverage on the premise of untimely notice, and that Shea's injury was excluded under the terms of the policy.
After denying coverage, Nautilus commenced an action seeking a declaration that it did not owe coverage to Matthew David Events for the claims asserted by Shea. Included within the complaint was an allegation that the policy did not apply and coverage was excluded for Shea under the "employee" exclusion. The exclusion applies to bodily injury of an "employee" of the insured "arising out of and in the course of: (a) [e]mployment by the insured; or (b) [p]erforming duties related to the conduct of the insured's business." The lower court held that the "employee" exclusion was inapplicable because ambiguities are construed against the insurer, thereby dismissing this cause of action from the complaint. Nautilus appealed.
The lower court's primary rationale rested with the notion that the phrase "contracted for," as contained within the definition of "employee," applied to Shea. The lower court held that the phrase was susceptible to multiple meanings and interpretations, because the phrase was not defined within the policy. The Appellate Division reversed, citing New York case law to highlight the court's responsibility to determine obligations and rights under insurance contracts based upon the specific language contained in the policies. The Appellate Division cautioned against finding ambiguity where none exists, and found that the "employee" exclusion was very broad.
Ultimately, the Appellate Division chose to interpret the phrase "contracted for" in accordance with its plain and ordinary meaning, and, in doing so, found that Nautilus was correct that Shea was an employee subject to the exclusionary language of the policy. The Appellate Division, upon granting summary judgement to Nautilus, cited case law to support the notion that an interpretation giving effect to all terms of an agreement is preferred over one that ignores terms or ascribes to them an unreasonable interpretation.
The Appellate Division's decision is significant with respect to New York insurance policies in that it adopts a broad approach, expressing disapproval for finding ambiguities within an undefined term or phrase. This decision signals a positive shift in favor of insurance companies with respect to the reasonable interpretation of policy language.
Lauren M. Adornetto, Esq.
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