U.S. Specialty Insurance Company v. Hudson Insurance Company

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

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U.S. SPECIALTY INSURANCE CO.,

Plaintiff, MEMORANDUM & ORDER

20-cv-4133(EK)(PK)

-against-

HUDSON EXCESS INSURANCE CO.,

Defendant.

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ERIC KOMITEE, United States District Judge:

Plaintiff U.S. Specialty Insurance Co. (“USSIC”) filed

this action in September 2020, seeking a declaration that

another insurance company — the defendant, Hudson Excess

Insurance Co. (“Hudson”) — has a duty to defend and indemnify

certain parties in a state-court action. In the state case,

Nunez v. 672 Parkside, LLC et al. (N.Y. Sup. Ct. Index No.

524820-2018), an injured construction worker is suing the owner

of a Brooklyn building and its general contractor. To date,

USSIC has been paying the defendants’ litigation costs in the

Nunez case.

USSIC now moves for partial summary judgment on

Hudson’s duty to defend (but not its duty to indemnify).

Specifically, USSIC seeks an order “(i) declaring that Hudson

has a duty to defend” certain parties in the Nunez case and

“(ii) declaring that Hudson must reimburse USSIC for the costs

incurred” to date by USSIC for those same parties’ defense. Pl.

Mem. in Support of Summ. J. (“Pl. Br.”) 10, ECF No. 29; see also

Pl. Mot. for Summ. J., ECF No. 25.

For the reasons set forth below, Plaintiff’s motion

for partial summary judgment is GRANTED.

Background1

A. Underlying Action

This insurance dispute arises from an accident at a

construction project at 672 Parkside Avenue in Brooklyn (the

“Project”). Gustavo Nunez, a construction worker on the

Project, alleges (in state court) that he was injured when he

tripped over debris on the first floor of the site in March

2018. The general contractor on the Project was Townhouse

Builders, which does business under the name Promont

(“Promont”); Promont engaged a subcontractor named CML Taping

and Painting, which did business as CML Construction (“CML”).

The details of the subcontract are discussed further below.

After he was injured, Nunez filed the negligence

action against Promont and the owner of the building site (the

1 The facts in this order are drawn from the parties’ submissions in

connection with the motion for partial summary judgment, including

Plaintiff’s Local Rule 56.1 Statement (“Pl. 56.1” (ECF No. 28)) and

Defendants’ opposition to this statement (“Def. Opp. to Pl. 56.1” (ECF No.

31)). The Court views the facts in the light most favorable to Defendant,

the non-moving party. Citations to a party’s Rule 56.1 Statement incorporate

by reference the documents cited therein. For convenience, the Court refers

to Plaintiff’s supporting memorandum of law as “Pl. Br.” (ECF No. 29) and

Defendant’s opposition submission as “Def. Opp.” (ECF No. 33).

“Owner”) in Kings County Supreme Court. Pl. 56.1 ¶¶ 8-9; Def.

56.1 ¶¶ 8-9. Nunez also filed a claim with the New York State

Workers’ Compensation Board (“WC Board”). Before the WC Board,

Promont and CML disputed which one of them employed Nunez (as

they do here). After a hearing in May 2019, the WC Board

concluded that Nunez was employed by CML – not Promont — at the

time of the accident. WC Board Order 2, ECF No. 26-2. The WC

Board thus discharged Promont from the workers’ compensation

claim and directed CML to compensate Nunez for his injuries.

Id.

In the Supreme Court action, Promont and the Owner

filed a third-party complaint against CML, asserting claims for

contractual indemnification, common-law indemnification and

contribution, and breach of contract. Pl. 56.1 ¶ 12; Def. 56.1

¶ 12. Nunez added CML as a defendant to the negligence action

in March 2020 but then dismissed CML a few months later, after

CML contacted Nunez’s counsel and requested that Nunez withdraw

his claims in light of the WC Board’s decision requiring CML to

pay the workers’ compensation award. Pl. 56.1 ¶¶ 16-18; Def.

56.1 ¶¶ 16-18. As a result, CML remains in the state case only

as a third-party defendant.

B. The Insurance Contracts

At the time of Nunez’s injury, Promont (the general

contractor) was insured by USSIC. Promont’s subcontract with

CML (the subcontractor) required CML to purchase commercial

general liability insurance and to include Promont and the Owner

as additional insureds, Pl. 56.1 ¶ 21 — that is, to procure

coverage for Promont and the Owner. See Subcontract 4, ECF No.

1-3 (“Subcontract”). CML obtained this insurance from Hudson.

See Hudson Policy, ECF No. 26-9 (“Hudson Policy”). The policy

that Hudson issued to CML (the “Hudson Policy”) did not refer to

Promont and the Owner by name, but (the parties agree) did

define “additional insureds” in a way that covered them.2

The Hudson Policy went on to define the scope of

coverage running to the additional insureds to include

liabilities arising from “bodily injury” that was:

1. “caused, in whole or in part, by”

2. the “acts or omissions” of CML, or those “acting on

[its] behalf,”

3. if those acts or omissions occurred “in the

performance of [CML’s] ongoing operations for the

additional insured.”

Hudson Policy 34. The parties dispute whether Nunez’s injuries

satisfy these requirements.

The policy that USSIC wrote to Promont (the “USSIC

Policy”), for its part, contained provisions limiting USSIC’s

2 As relevant here, the Hudson Policy conferred “automatic status” on

parties who CML was “required to add as an to add as an additional insured

under the contract or agreement.” Hudson Policy 34.

obligation to “excess” coverage, in the event that other primary

insurance was available: Section IV.4 stated that “if other

valid and collectible insurance is available to the insured” for

certain covered losses, then the USSIC policy would be for the

“excess over” any “other primary insurance available to

[Promont] covering liability for damages arising out of the

premises or operations, or the products and completed

operations,” for which Promont has “been added as an additional

insured by attachment of endorsement.” USSIC Policy 35, ECF No.

1-5 (“USSIC Policy”).

C. Hudson’s Denial of Defense

Since Nunez filed his lawsuit, USSIC has twice

tendered requests for the defense and indemnity of Promont and

the Owner to Hudson and CML. Pl. 56.1 ¶¶ 29-30; Def. 56.1 ¶¶

29-30. Hudson rejected these requests on the basis that CML did

not employ Nunez, despite the WC Board Order finding that it

did. In an April 2020 letter, for example, Hudson wrote that it

had “not been established that the injured claimant Nunez was an

employee of CML” at the time of the alleged accident. Ltr. from

Hudson dated Apr. 21, 2020, ECF No. 26-12; see also Pl. 56.1

¶ 31. USSIC continues to defend Promont and the Owner in the

underlying state-court action; as of May 2021, it had incurred

over $20,000 in defense costs. Pl. 56.1 ¶ 32.

Legal Standards

Summary judgment is appropriate when the record

demonstrates that“there is no genuine dispute as to any material

fact and the movant is entitled to judgment as a matter of law.”

Fed R. Civ. P. 56(a). “A fact is material for these purposes if

it might affect the outcome of the suit under the governing law.

An issue of fact is genuine if the evidence is such that a

reasonable jury could return a verdict for the nonmoving party.”

Lovejoy–Wilson v. NOCO Motor Fuel, Inc., 263 F.3d 208, 212 (2d

Cir. 2001).3

The moving party has the burden of demonstrating the

absence of a dispute of material fact. Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 256 (1986). If the movant carries

its burden, “the nonmoving party must come forward with

admissible evidence sufficient to raise a genuine issue of fact

for trial in order to avoid summary judgment.” Jaramillo v.

Weyerhaeuser Co., 536 F.3d 140, 145 (2d Cir. 2008). If the non-

moving party fails to do so, the Court should grant summary

judgment. The entry of summary judgment is appropriate “against

3 Unless otherwise noted, when quoting judicial decisions this order

accepts all alterations and omits all citations, footnotes, and internal

quotation marks.

a party who fails to make a showing sufficient to establish the

existence of an element essential to that party’s case, and on

which that party will bear the burden of proof at trial.”

Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). In

performing this analysis, the Court must resolve all ambiguities

and draw all inferences in favor of Plaintiff, the non-moving

party. Gallo v. Prudential Residential Servs., Ltd. P’ship, 22

F.3d 1219, 1223 (2d Cir. 1994).

Discussion

USSIC seeks partial summary judgment on two issues:

whether Hudson has a duty to defend Promont and the Owner in the

underlying action; and, if so, whether Hudson must reimburse

USSIC for the defense costs it has incurred to date. (This

latter question, put differently, asks whether Hudson is

obligated to provide primary – as opposed to excess – coverage.)

I conclude that the answer to both questions is yes.

A. Hudson’s Duty to Defend

Under New York law, courts “determining a dispute over

insurance coverage . . . first look to the language of the

policy. We construe the policy in a way that affords a fair

meaning to all of the language employed by the parties in the

contract and leaves no provision without force and effect.”

Raymond Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa.,

800 N.Y.S.2d 89, 92 (N.Y. 2005).

Whether an insurer has a duty to defend a claim

against its insured is determined “by comparing the allegations

of [the] complaint with the wording of the insurance contract” —

here, the Hudson Policy. Int'l Bus. Machines Corp. v. Liberty

Mut. Ins. Co., 363 F.3d 137, 144 (2d Cir. 2004). Importantly,

“the standard for determining whether an additional named

insured is entitled to a defense is the same standard that is

used to determine if a named insured is entitled to a defense.”

BP Air Conditioning Corp. v. One Beacon Ins. Grp., 840 N.Y.S.2d

302, 306 (N.Y. 2007).4

“In New York, an insurer’s duty to defend is

exceedingly broad. . . .” Euchner-USA, Inc. v. Hartford Cas.

Ins. Co., 754 F.3d 136, 140 (2d Cir. 2014). As the Second

Circuit has explained,

[T]he New York cases establish that so long as the

claims asserted against the insured may rationally be

said to fall within policy coverage, whatever may

later prove to be the limits of the insurer's

responsibility to pay, there is no doubt that it is

obligated to defend. In other words, a separate,

contractual duty to defend exists, and perdures until

it is determined with certainty that the policy does

not provide coverage.

4 See also Pecker Iron Works of N.Y., Inc. v. Traveler’s Ins. Co., 756

N.Y.S.2d 822, 823 (2003) (“‘Additional insured’ is a recognized term in

insurance contracts . . . As cases have recognized, the well-understood

meaning of the term is an entity enjoying the same protection as the named

insured.”).

Hugo Boss Fashions, Inc. v. Fed. Ins. Co., 252 F.3d 608, 620 (2d

Cir. 2001). Accordingly, “[a]n insurer will be called upon to

provide a defense whenever the allegations of the complaint

suggest a reasonable possibility of coverage.” Euchner-USA, 754

F.3d at 141. That said, “[t]he insurer’s duty to defend is . .

. not an interminable one, and will end if and when it is shown

unequivocally that the damages alleged would not be covered by

the policy.” Sturges Mfg. Co. v. Utica Mut. Ins. Co., 332

N.E.2d 319, 323 (N.Y. 1975); see also Kinsale Ins. Co. v. OBMP

NY, LLC, 171 F. Supp. 3d 277, 281 (S.D.N.Y. 2016) (the duty to

defend “is limited absolutely by the scope of the coverage

purchased by the insured”).

1. USSIC Has Demonstrated a “Reasonable Possibility” of

Coverage

Applying this standard, Hudson is obligated to defend

Promont and the Owner because the record, even viewed in the

light most favorable to Hudson, suggests at least a “reasonable

possibility of coverage” under the Hudson Policy. See Euchner-

USA, 754 F.3d at 140.

It is undisputed that Promont and the Owner are

additional insureds under the Hudson Policy. Hudson does not

dispute that Promont and the Owner are “additional insureds”

under the Hudson Policy, which provides that “when . . . [a]

written construction agreement” requires that an entity be named

as an “additional insured,” that status is automatic. Hudson

Policy 34. Here, the Subcontract (i.e., the written

construction agreement) expressly required that “the Owner and

Contractor [Promont] . . . be named as additional insured” in

CML’s policy. Subcontract 4.

The scope of Hudson’s coverage to additional insureds

subsumes liability for Nunez’s injury. There is also a

reasonable possibility that CML’s liability for Nunez’s injury

would fall within the scope of coverage for “additional

insureds” — including Promont and the Owner — under the Hudson

Policy. Nunez alleges, in the state-court action, that he was

injured when he “tripped and fell on debris/construction

material” while working at the Project on March 16, 2018. Nunez

Compl. ¶ 89, ECF No. 1-1. He alleges that CML was a “project

manager” and contractor for “work, labor, and services,” and

that CML “was to provide site safety management of the . . .

premises.” Id. ¶ 86. He claims his injury was the “result of

the careless and negligent manner in which Defendants owned,

maintained, controlled, and performed construction work and

inspection” at the site, including “knowingly . . . allowing the

. . . premises to be, become and remain in a defective, unsafe

and dangerous condition.” Id. ¶¶ 85-86.

These allegations suggest more than a reasonable

possibility that Nunez’s injuries were caused, at least in part,

in the course of CML’s “ongoing operations” under the

Subcontract. See Hudson Policy 34. CML’s “ongoing operations

for the additional insured” — Promont — were, in turn, specified

by the subcontract between Promont and CML. Id.5 The

Subcontract’s “scope of work” covered: “demolition of interior

4th floor roofing material”; “complete framing as per plan”;

“complete installation of sheetrock as per plan”; “complete

installation of dens glass as per plan”; “complete application

of compound as per plan”; and “installation of doors as per

plan.” Subcontract 1. The record shows the day of Nunez’s

injury, CML’s work for Promont consisted of “labor done on 1st

floor” – specifically, “cleaning.” Invoice, Pl. Ex. 8, ECF No.

26-8 (“Invoice”). This is consistent with Nunez’s testimony

that his work at the Project consisted primarily of “cleaning”

up “construction garbage” and debris on the first floor, or

bringing that debris down from the other floors. Pl. Reply Ex.

A, Nunez Dep. 21:3-23:10, ECF No. 35-1. These facts give rise

to a reasonable possibility (if not more) that the debris that

is alleged to have caused Nunez’s injuries was created in the

course of CML’s “ongoing operations” at the project.

5 The Hudson Policy defines the coverage available to additional

insureds based on the named insured’s “ongoing operations” by reference to

the written agreement or contract (i.e., the Subcontract here): the coverage

“[w]ill not be broader than that which [CML is] required by the contract or

agreement to provide for such additional insured.” Hudson Policy 34.

Read alongside the Policy and Subcontract, Nunez’s

allegation – that he was injured when tripping on debris at the

Project – suggests the possibility (at least) that his injury

was causally connected to CML’s ongoing operations for Promont.

The New York Court of Appeals has held that the language

“caused, in whole or in part” in an additional insured

endorsement requires the named insured to be a proximate cause

of the injury giving rise to liability, not the “but for” cause.

Burlington Ins. Co. v. NYC Transit Authority, 57 N.Y.S.3d 85,

89-90 (N.Y. 2017). District courts in this circuit have

interpreted this to mean that the language “caused, in whole or

in part” triggers “additional insured” coverage “where the named

insured is more than 0% liable for the underlying plaintiff’s

injuries.” Starr Indem. & Liab. Co. v. Excelsior Ins. Co., 516

F. Supp. 3d 337, 349 (S.D.N.Y. 2021). Here, Hudson has not

established there is no possibility that CML will be held liable

under this standard of causation.

2. Hudson’s Defenses

Hudson contends that its policy does not cover Nunez’s

injuries for two reasons: first, because Nunez was injured on

the first floor of the Project, and CML’s “ongoing operations”

were limited to the fourth floor; and second, because Nunez was

employed by Promont, not CML. Neither of these arguments

undermines USSIC’s right to declaratory relief it seeks.

It is doubtful that CML’s “operations” were restricted

to the Project’s fourth floor. Hudson mischaracterizes the

factual record when it claims that CML’s work was limited to

demolition on the fourth floor. See Def. Opp. Def. Suppl. Ltr.

3, ECF No. 40. While the first item in the “scope of work”

section of the Subcontract — “Complete demolition of interior 4th

floor roofing material” — mentions the fourth floor

specifically, none of the other types of work listed are

similarly limited to any specific floor. E.g., Subcontract 1

(other items include: “Complete framing as per plan”; Complete

installation on sheetrock as per plan”; “Complete installation

of doors as per plan”). Hudson, for its part, has not explained

why those types of work could not have involved work on the

first floor.

Moreover, even if CML’s work was initially limited to

work on the fourth floor, USSIC has pointed to evidence

suggesting that this scope may have been expanded. The

Subcontract contemplates this possibility, via change orders:

“All additional work performed in additional apartments and/or

floors will be considered change orders to the contract and be

considered part of the scope herein.” Subcontract 1. And CML’s

invoice to Promont for the day of Nunez’s injury — which is

designated a “change order” at the top of the document —

specifies that it is for “labor done on 1st floor.” Invoice.

The parties have not pointed to evidence that the change was

submitted in writing and approved by Promont, as required by the

Subcontract, see Subcontract 3, but there is also no evidence

that it was not approved. The fact that the work was done, see

id., creates at least an inference that it was approved prior to

being done. (Moreover, USSIC asserts — and Hudson does not

dispute — that Promont paid CML for this work.)

There is at least a substantial probability that CML

employed Nunez when he was injured. Hudson also argues that the

accident was not caused by CML’s “ongoing operations” because

Nunez was actually employed by Promont. In support of this

argument, Hudson points to Nunez’s deposition testimony that

Promont paid him. See Def. 56.1 ¶ 13; Def. Ex. A, Nunez Dep.

17:11-12:2, ECF No. 34-1. USSIC responds by invoking the WC

Board’s decision concluding that Nunez was employed by CML at

the time of the accident.

The language of the Hudson policy does not restrict

coverage for bodily injury to CML’s employees and agents.

Instead, it restricts coverage to the additional insureds for

injuries caused, in whole or in part, by the acts or omissions

of CML or its agents, regardless of who employs the injured

victim. Hudson Policy 34. Hudson may mean to say here that

Nunez caused the conditions that led to his own injury himself,

and it matters for that reason who employed him. But Hudson’s

argument fails on its own terms there, for reasons stated above:

the WC Board found, after hearing testimony from Promont’s

president and from Nunez, that Nunez was a CML employee. WC

Board Order 2. And that conclusion finds additional support

here from the invoice from CML to Promont that indicates that

CML did work on the first floor — the floor where Nunez was

injured — on the day of Nunez’s injury. See Invoice.

For these reasons, even if this factual dispute may

(down the line) affects Hudson’s obligation to indemnify, it

does not bear on its duty to defend. This conclusion finds

support in All State Interior Demolition Inc. v. Scottsdale Ins.

Co., where the parties disputed who the underlying plaintiff was

working for when he was injured. See 168 A.D.3d 612 (App. Div.

1st Dept. 2019). The Appellate Division concluded that, given

the language of the policy, the injured worker’s pleadings

“implicate[d] [the named insured’s] actions” and thus triggered

Scottsdale’s duty to defend. Id. The same is true here.

In sum, none of these factual disputes would “allow a

court to eliminate the possibility that the insured’s conduct

falls within coverage of the policy.” Int’l Bus. Machines

Corp., 363 F.3d at 148. Even viewed in the light most favorable

to Hudson, the evidence here establishes at least a reasonable

possibility of coverage. Thus, Hudson is not relieved of its

duty to defend.

Time Limits on Defense Obligation. Hudson makes an

alternative argument that, even if it has a duty to defend, that

duty should extend only to the two months during which CML was a

defendant in Nunez’s claim – from the time Nunez filed his

amended complaint (March 2020) to when he dismissed CML (May

2020). See Def. Opp. 12. Hudson argues that after Nunez

dismissed CML in the underlying action, USSIC made “shot-gun”

allegations against CML to add it as a third-party defendant.

The shotgun phrase suggests Hudson’s view that the allegations

against CML in the underlying state action are frivolous, and

that they were made only for the purpose of triggering Hudson’s

coverage. Id. at 15-16. This allegation of frivolity is

undermined, however, by the WC Board’s finding that CML employed

Nunez on the relevant date. In any event, Hudson cites no legal

support for this requested time limit on its obligations.

Hudson’s request to limit its duty to defend is denied.

B. Primary Versus Excess Coverage

I also conclude that the Hudson Policy provides

primary, as opposed to excess, coverage for Promont.

Accordingly, Hudson is obligated to absorb the cost of Promont’s

defense from Dollar One — not merely once other coverage has

been exhausted — and to reimburse USSIC for its costs incurred

to date. I address the merits of USSIC’s arguments although

Hudson does not meaningfully dispute or address it.

Where — as here — “one insurance policy is primary and

one insurance policy is excess based on the ‘other insurance’

clauses, the primary insurer has the primary duty to defend on

behalf of its insureds and it generally has no entitlement to

contribution of an excess insurer.” Liberty Mut. Ins. Corp.

N.Y. Marine & Gen. Ins. Co., 505 F. Supp 3d 260, 276 (S.D.N.Y.

2020); see also Zurich Am. Ins. Co. v. Harleysville Ins. Co.,

194 F. Supp. 3d 253, 261 (S.D.N.Y. 2016) (same). Here, the

Hudson Policy is primary and the USSIC Policy is excess. The

Hudson Policy expressly states, in its other-insurance

provision, that “[t]his insurance is primary,” with the

exception of limited situations that do not apply here. Hudson

Policy 21. Another section, titled “Primary and Non-

Contributing Insurance Where Required By Written Contract(s)

Endorsement,” confirms:

Where you are specifically required by a written

contract to provide insurance that is primary and non-

contributory and the written contract so requiring is

executed by you before any “occurrence” or offense,

this insurance will be primary and the other insurance

will not contribute with this insurance, but only if

and to the extent required by that written contract.

Hudson Policy 57 (emphasis added). Hudson concedes that the

Subcontract required that CML to provide primary coverage for

the additional insureds. See Def. 56.1 ¶ 21 (“Admit”). The

Hudson Policy is therefore primary. The USSIC Policy, on the

other hand, expressly provides for excess coverage: “This

insurance is excess over . . . [a]ny other primary insurance

available to you covering liability for damages arising out of

the premises or operations, or the products and completed

operations, for which you have been added as an additional

insured by attachment of endorsement.” USSIC Policy 35; see

also Pl. 56.1 ¶ 28.

Accordingly, because Hudson has a duty to defend in

the underlying action and its coverage is primary, Hudson owes

defense costs to USSIC.

Conclusion

For the foregoing reasons, Plaintiff’s motion for

partial summary judgment, on the issue of Defendant’s duty to

defend, is GRANTED.6 Hudson has a duty to defend the Owner and

Promont in the underlying action, Nunez v. 672 Parkside, LLC et

al. (N.Y. Sup. Ct. Index No. 524820-2018), and Hudson must

reimburse USSIC for the costs thus far incurred by USSIC in

defending the Owner and Promont in that action. This case shall

proceed to trial on any remaining claims. The parties’ joint

6 This order does not dispose of the issue of Hudson’s duty to

indemnify, which is not before the Court in this motion.

proposed pretrial order is due thirty days from entry of this

order.

SO ORDERED.

/s/ Eric Komitee__________

ERIC KOMITEE

United States District Judge

Dated: September 30, 2022

Brooklyn, New York