The Metropolitan Transit Authority and the Long Island Railroad (collectively, "LIRR") and the Admiral Insurance Company ("Admiral"), appeal of the March 3, 2020 judgment of the U.S. District Court Southern District of New York (Furman, J. ), which grants a declaratory judgment in favor of the Century Surety Company ("Century Surety") based on its Memorandum Opinion and Order of January 29, 2019. IC entury Surety Company v. Metropolitan Transit Authority, Long Island Railroad, Admiral Insurance Company, Rukh Enterprises, Inc., Marcelo DeJesus No. 20-1474-cv, United States Court of Appeals, Second Circuit (October 5, 2021) Insurer's Claim that it was deductible ignored the compensation agreement signed by its insured.
On April 8, 2013, LIRR entered into an agreement with the main contractor Defendant Rukh Enterprises, Inc. ("Rukh") to complete a lead paint removal and repainting project on a railway bridge on the Metropolitan Transit Authority's property – Cypress Bridge in Cypress Bridge Queens, NY ("the Trade Contract"). To carry out this project, Rukh hired a non-party subcontractor, East Coast Painting & Maintenance ("East Coast"), to complete some lead-related work on the project as Rukh was not certified to carry out lead-related activities. This project involved not only the underlying trade agreement, but four insurances.
On September 13, 2013, an employee of the East Coast subcontractor suffered an injury while working on the Cyprus Bridge project, prompting the East Coast employee to sue Rukh and LIRR in the court in the state of New York with a claim of negligence. Rukh, East Coast and LIRR eventually reached a settlement on December 16, 2019, for which three of the four insurance companies involved – Admiral (for LIRR), Arch (for Rukh) and Harleysville (for the East Coast) – agreed to pay in the settlement amount. Century Surety did not contribute to the settlement and denied all coverage.
On January 27, 2017, Century sued Rukh (its insured), Marcelo DeJesus (the injured employee in the underlying state court) and LIRR, requesting a declaratory judgment that it did not had any obligation to defend or indemnify any party to the action of the Land Court. On April 4, 2017, Admiral sued Century Surety and also requested a declaratory judgment that Century Surety was obliged to defend and replace Admiral's insured, LIRR, and that the insurance limits in Century Surety's surplus insurance would need to be exhausted before Admiral's insurance was involved. Century Surety requested a summary judgment against Rukh, LIRR, Admiral and Marcelo DeJesus (who was finally dismissed as a party to the district court's action for failure to serve). LIRR, Admiral and Rukh went across for summary judgment.
The district court granted a partial summary judgment in favor of Century Surety. The district court concluded that based on the language of the "Other insurances" provision in the Century Surety policy, that insurance was a "real deductible insurance" that was not required to pay tenders until the other available insurances, including the Admiral police, had submitted payments in accordance with its policy boundaries. The district court "judged  [Century Surety] a declaratory judgment that it is not obliged to provide insurance cover for the underlying measure" and closed the case.
As a threshold issue, Century Surety claimed in the appeal that the district court correctly concluded that the provision on "Other insurances" in the Century Surety policy qualifies that insurance as a "real deductible insurance", for example that Century Surety is not liable. that tender payment until all other applicable insurances, including the Admiralty policy, have been used up. However, the complainants do not question Century Surety's claim that the Century Surety policy is a "real surplus policy". Instead, the appellants claim that the district court erred in failing to recognize the legal effect of the damages agreement in the underlying trade agreement between Rukh and LIRR, according to which Rukh agreed to reimburse LIRR for debts arising from the Cyprus Bridge project. According to the appellants, the indemnity agreement between Rukh and LIRR controlled and Century Surety, whether the Century Surety policy is a "real surplus policy", must tender and exhaust its policy limits before the Admiral.
The main issue in the appeal. is the relevant contractual term governing – the indemnity agreement in the underlying trade agreement between Rukh and LIRR or the "Other Insurance" provision of the Century Surety Policy. On the one hand, if the indemnity agreement governs, Century Surety must pay into the settlement amount and exhaust its policy limits before the admiral in accordance with Rukh's obligation to indemnify LIRR. On the other hand, if the "Other Insurance" provision of the Century Guarantee governs, the Admiral must pay the settlement amount and exhaust its insurance limits before the Century Guarantee as the Century Guarantee would exceed all other applicable insurances, including the Admiralty Policy.
In particular, also if the contractor's insurance was in excess of the owner's insurance, the contractor's insurance would pay first because the owner's liability would still pass to the contractor and its insurer. Based on recent rulings by the New York State Appellate Division, the federal court predicted that the New York Court of Appeals would adopt the views that a damages agreement in the underlying trade agreement between insureds governs the terms of a priority coverage insurance.
Century Surety claims yet that New York law requires that the terms of a coverage priority insurance policy always govern all underlying compensation agreements between the insured. Century Surety, however, failed to point to any New York case that would support Century Surety's understanding of New York law.
The Second Circuit concluded that the New York Supreme Court would not require a separate action to enforce the parties 'indemnity agreement, and that the parties' rights and obligations based on both the terms of the Century Surety policy and the underlying indemnity agreement should be set out in one action.
Finally, the Second Circuit concluded that Century Surety, under New York law, as Rukh's insurer, is obliged to pay into the underlying settlement and exhaust its insurance limits before the Admiral, LIRR's insurer.
The Second Circuit reached its conclusion despite the decision. on "Other Insurance" in the Century Surety policy which claims to qualify the insurance as a "true excess policy" as the indemnity agreement in the underlying trade agreement between Rukh and LIRR governs the resolution of this case. Consequently, the district court erred in issuing a declaratory judgment that Century Surety is not obliged to provide insurance cover for the underlying action. The District Court's judgment was set aside and remanded for further processing in accordance with its decision.
Other insurance clauses are important contractual terms for several insurers to be able to decide which insurer is obliged to defend and replace the insured and in what order. In this case, Century Surety claimed that its "other insurance" clause checked that it exceeded all other insurers, while the other insurers, and the other circuit, found that the contracts' compensation agreements were checked before the other insurance clauses entered into force. In the second circle, it is important to have insurance and indemnity agreements in each construction contract to control the risk transfer. on insurance coverage, handling of insurance claims, bad faith and insurance fraud almost equally for insurers and policyholders.
He also acts as an arbitrator or mediator for insurance-related disputes. He practiced law in California for more than 44 years as a lawyer for insurance coverage and claims management and more than 54 years in the insurance industry.
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