Commentary and analysis on the
law of insurance coverage
Author: Carl A. Salisbury
In Burlington Insurance v. NYC Transit (get a copy here), the New York City Transit Authority believed that it had coverage as an “additional insured” under a policy issued to a construction contractor, Breaking Solutions, Inc., or BSI, that was doing excavation work on NYCTA property. An NYCTA employee fell off of a scaffold following an explosion when a BSI machine came in contact with a live electrical wire buried in concrete that BSI was excavating. As a condition to being awarded the excavation contract, BSI purchased an “additional insured” endorsement to a liability policy issued by The Burlington Insurance Company. The endorsement said that NYCTA would be an additional insured “only with respect to liability for ‘bodily injury’… caused, in whole or in part, by [the] acts or omissions” of BSI.
The injured employee sued BSI and NYCTA, which sought coverage under the Burlington policy, arguing that the employee’s injuries were “caused, in whole or in part, by the acts of BSI” (the named insured) and, therefore, NYCTA qualified as an “additional insured.” During the employee’s case against BSI and NYCTA, the court and the parties determined that BSI was not at fault for the employee’s injuries because NYCTA never informed BSI about the buried cable and NYCTA neglected to make sure that the wire was not live at the time of excavation. That left NYCTA solely liable for the injuries. It settled the employee’s claim for $950,000 and sought coverage under the Burlington policy. The carrier argued that NYCTA did not qualify as an “additional insured” because, what the policy really meant to say was that the bodily injury must be caused by the negligent acts or omissions of BSI.
The central, fundamental, undeniable purpose of insurance is to provide coverage for injuries caused by the insured’s negligence.
I watched the oral argument on the appeal before the New York Court of Appeals (New York’s high court), which provided clear indications about how the various Judges were going to come down on the coverage question. (This is not always the case; there are times when an appellate court’s decision provides a result that is completely at odds with the tenor of the questions and the statements of the judges at oral argument.) There was a particularly interesting exchange between carrier counsel and one of the Judges.
Under questioning by Judge Eugene M. Fahey, Burlington’s lawyer admitted that he was arguing for “implying” the word “negligence” into the language of the applicable provision. Judge Fahey observed, “I worked as house counsel at Kemper for about eight years and we were pretty strict about the rule that the words in the contract are the words in the contract. And, of course, it’s an adhesion contract so it has to be read against the carrier…. So your argument seems a stretch in terms of basic contract interpretation.” Interestingly, it was Judge Fahey, the former insurance company executive, who dissented from the Court’s decision that the policy language precluded coverage to NYCTA as an additional insured.
Judge Jenny Rivera, who wrote the decision for the four-to-two majority, challenged the policyholder’s lawyer about the propriety of “rewarding” an additional insured with coverage for its own negligence. Judge Rivera observed that it was Burlington’s argument that “when the named insured is not to blame but, instead, the additional insured is to blame, then the additional insured shouldn’t get the benefit of their own negligence.”
This is an interesting approach to liability insurance coverage. And, by “interesting” what I mean is, “wrongheaded.” The central, fundamental, undeniable purpose of insurance is to provide coverage for injuries caused by the insured’s negligence. As Judge (later, U.S. Supreme Court Justice) Benjamin Cardozo correctly stated, way back in 1921, when he was serving as a Judge on the New York Court of Appeals, “To restrict insurance to cases where liability is incurred without fault of the insured would reduce indemnity to a mere shadow.”
Judge Rivera also attached significance, both at oral argument and in the opinion, to the fact that the Insurance Services Office changed the phrase in the standard form “additional insured” endorsement four years before Burlington issued the policy in question. The old language provided that coverage applied to an additional insured only for liability “arising from” the named insured’s acts or omissions. Judge Rivera concluded that the new language, “caused, in whole or in part, by” must mean something different from – and, indeed, something more narrow than – “arising from;” otherwise, why would the insurance industry change the language if not to restrict coverage?
Of course, as the dissenting opinion points out, the court’s task is to look at the actual words in the policy and to attempt to discern its plain and ordinary meaning. It is not to attempt to determine what the insurance-industry drafters hoped it would mean.
Ultimately, the majority concluded that the phrase “caused, in whole or in part, by” the acts of the named insured means – and can only mean – “proximately caused by.” And, since “proximate cause” is a legal concept that assumes negligence or fault, then to qualify for additional insured status, the purported additional insured must show not only that the named insured’s acts were a “cause” of the bodily injury, but that the named insured’s acts were the negligent cause of the injury. How an ordinary layperson is supposed to read the words of the policy and discern that hyper-technical legal meaning is a question the majority leaves unanswered.
Unless they have actually served on a civil jury, most laypeople will never even have heard the phrase “proximate cause.”
In interpreting the policy language in the way a layperson would interpret it, the majority says that the phrase “arising out of” does not mean the same thing as “caused by.” At the same time, the majority says the phrase “caused in whole or in part by” does mean the same thing as “proximately caused by.” A layman might very well have a hard time distinguishing the meaning of “arising out of” from the meaning of “caused by.” These two phrases certainly appear to mean the very same thing from the standpoint of a layperson. (Heck, they appear to mean the same thing to this lawyer.)
But it would be the rare layperson, unschooled in the esoteric jargon of the law, who would look at the phrase “caused in whole or in part by” and volunteer that this phrase means the same thing as “proximately caused by.” Even a sophisticated business policyholder would almost certainly never equate those two phrases. Unless they have actually served on a civil jury, most laypeople will never even have heard the phrase “proximate cause.” These are things that it is all too easy for a lawyer or a judge to forget. Just because these legal concepts are second nature to us does not mean that they are part of the lexicon of ordinary everyday life.
The dissent – again, written by Judge Fahey, who, we learned at oral argument, was once an in-house lawyer for Kemper Insurance Company – has the much better view under the settled rules that apply to interpretation of insurance policies. As he points out, the words of an insurance policy are supposed to be accorded their plain and ordinary meaning as understood by a layperson. “The endorsement confers additional insured status where the mere acts of the named insured cause the bodily injury. If the drafter meant for such status to be contingent upon a negligent act or acts of the named insured, then the policy easily could have said as much.” (Emphasis in original.) The dissent finds “no basis to apply a legal meaning, rather than a plain and ordinary meaning, to the word ‘cause’ in this context.” (Emphasis in original (again)).
To strengthen its case further, the dissent observes that, even if “cause” must be given a purely “legal” meaning, rather than a meaning employed in common speech, a reasonable mind could interpret the word to have the legal meaning ascribed to it by Black’s Law Dictionary: “A cause that directly produces an event and without which the event would not have occurred.’” No overlay of “proximate cause” or “negligence” needed for that definition.
Check and mate.