Gerber and Bryan Richmond on Whether All Additional Insured Coverage is Primary

Gerber and Bryan Richmond on Whether All Additional Insured Coverage is Primary

Since the New York Court of Appeals decision in Pecker Iron Works and the First Department’s decision in BP Air-Conditioning, arguments have been made from co-insurers in New York that an insured’s coverage as an additional insured is always primary to any coverage as a named insured. In this article, Dan Geber and Bryan Richmond discuss the Court of Appeals recent decision in BP Air-Conditioning, and how practitioners and insurers should be weary of extending such an argument since any determination regarding priority of coverage requires a careful comparison of the policies other insurance clauses.
 
The Court of Appeals held “an insurer’s duty to defend is exceedingly broad and an insurer will be called upon to provide a defense whenever the allegations of the complaint suggest a reasonable possibility of coverage.” Holding that One Beacon was obligated to provide coverage, the Court noted “A duty to defend is triggered by the allegations contained in the underlying complaint. The inquiry is whether the allegations fall within the risk of loss undertaken by the insured and it is immaterial that the complaint against the insured asserts additional claims which fall outside the policy’s general coverage or within its exclusionary provisions. The merits of the complaint are irrelevant and, an insured’s right to be accorded legal representation is a contractual right and consideration upon which a person’s premium is in part predicated, and this right exists even if debatable theories are alleged in the pleading against the insured. An insured’s right to representation and the insurer’s correlative duty to defend suits, however groundless, false or fraudulent, are in a sense ‘litigation insurance’ expressly provided by the insurance contract.”
 
Turning to the issue of priority, the Court stated in the first paragraph of its decision that it was “unable to answer a second question regarding priority of coverage since the relevant parties and policies at issue are not before us.” In addressing the issue later in the decision, however, the Court nonetheless held that the First Department erred in finding that One Beacon’s additional insured coverage is primary and BP’s coverage under its own policy is excess. Modifying the Appellate Division’s order by reinstating the Supreme Court’s decision, the Court of Appeals held “In order to determine the priority of coverage among different policies, a court must review and consider all of the relevant policies at issue. Here, the Supreme Court correctly concluded that because none of the other insurance carriers are parties to this declaratory judgment action and no other relevant policies have been submitted, the priority of coverage cannot be determined.”
 
Gerber and Richmond advise that practitioners and insurers should learn from this case that additional insured coverage cannot be deemed sole primary without a comparison of the “other insurance” clauses contained in the policies. Practically stated, “other insurance” clauses matter. The Court of Appeals decision in BP Air-Conditioning should eliminate arguments stemming from the First Department’s conclusion that Pecker Iron Works stood for the proposition that additional insured coverage is always sole primary without regard to the language utilized in the policies at issue.”
 
 
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