The trigger wording "caused in whole or in part" in the current version of Insurance Services Office (ISO) additional insured (AI) endorsements has recently generated a flood of declaratory judgment (DJ) coverage actions.

Parties, claim adjusters, coverage counsel and judges, often in that order, must interpret this wording in Commercial General Liability (CGL) policies in a wide array of tort claims.

However, the surge of AI litigation may be just beginning.

This discussion will examine the current debate, where it may be headed, and how parties might plan inside and outside the courtroom for future clashes over AI coverage.

Endorsements

Most current 04 13 and 12 19 edition ISO AI endorsements state, in part, that coverage is afforded "only with respect to bodily injury or property damage caused in whole or in part by the acts or omissions … [emphasis added]" of the named insured.

Although "caused in whole or in part" trigger words were introduced by ISO in the 2004 AI forms, it was not until 13 years later, in Burlington Ins. Co v. NYC Tr. Auth., 29 N.Y.3d 313 (2017), that the Court of Appeals interpreted their meaning.

Rather than providing definitive guidance, this case resulted in widespread confusion as evidenced by the over 150 reported citations to Burlington in state and federal courts across the country by recent count, including several law review articles in less than three years.

Proximate Cause

The court in Burlington interpreted the word "caused" in the phrase "caused in, whole or in part," to mean proximate cause.

What, then, is proximate cause?

The majority in Burlington held that "proximate cause refers to a legal cause to which the court has assigned liability [emphasis added]." Id. at 321.

Much of the initial confusion after Burlington arose from a misunderstanding that "assigned liability" meant a requirement that the named insured be negligent whereas the court repeatedly referred to liability for negligence or other actionable deed.

The reference to other actionable deeds strongly suggests that the named insureds' violations of the Building or Industrial codes, regulations, OHSA and other rules would be enough to trigger AI even if not necessarily admissible in the underlying tort claim. See Julian D. Ehrlich, "Reaction and Overreaction to 'Burlington v. NYC Transit Auth.,'" NYLJ (Feb. 28, 2018).

However, a closer examination of Burlington indicates that the court borrowed the definition of proximate cause from case law in the tort liability context where foreseeability rather than "assigned liability" is the focus.

One of the liability cases cited by Burlington was the Court of Appeals decision in Hain v. Jamison, 28 N.Y.3d 524, 528 (2016) which, in an historic understatement, held that "the concept of proximate cause has proven to be an elusive one, incapable of being precisely defined…."

Foreseeability

If proximate cause is to have the same elusive meaning in the coverage context as it has in the tort context, then reviewing other authoritative definitions may be instructive and reveals that foreseeability, rather than "assigned liability," may be at the core nature of proximate cause.

For example, one widely used one definition of proximate cause relied upon by parties for years and across jurisdictions is found in the IRMI (International Risk Management Institute) glossary, which states:

As a principle of tort law, proximate cause refers to a doctrine by which a plaintiff must prove that the defendant's actions set in motion a relatively short chain of events that could have reasonably been anticipated to lead to the plaintiff's damages. If the defendant's actions were "proximate" or close enough in the chain of causation to have foreseeably led to the plaintiff's damages, courts will impose liability. Otherwise, if the defendant's actions set in motion a long, bizarre chain of events that could not have reasonably been foreseen to lead to the plaintiff's damages, courts will not impose liability.

Thus, proximate cause exists where a short foreseeable chain of events leads to a loss.

Moreover, this definition is consistent with Hain, where the court stated that the "overarching" principle governing proximate cause is whether a party was a substantial cause of events which produced injury, the determination of which "turns upon questions of foreseeability." Id. at 529.

Curiously, Burlington does not mention of foreseeability. Similarly, a review of the rapidly growing body of AI decisions reveals a dearth of significant discussions of foreseeability.

Nonetheless, foreseeability may be the next battleground of AI interpretation as courts increasingly correct the early misunderstanding that coverage is not dependent upon the named insured's negligence. See Cesar A. Perriera and Julian D. Ehrlich, "Additional Insured Coverage: Asked, Answered and Unanswered," NYLJ (Jan. 23, 2019).

"… in whole or in part"

If the true nature of proximate cause has proven elusive, then the AI endorsement modifier "in whole or in part" has only complicated matters.

While ignoring foreseeability, the majority and dissent in Burlington strongly differed on the meaning and modifying effect of the words "in whole or in part."

A closer look at these words is revealing. In fact, they may not modify anything.

Removing "in whole or in part" arguably has no impact on the operation of the trigger. The trigger may be binary in the sense that either the named insured proximately caused a loss, or it did not, regardless of degree.

As the court stated in Burlington, "[a]n event may not be wholly or partially connected to a result, it either is or is not connected" while also finding there can be more than one proximate cause. Id. at 322.

Accordingly, if it is even somewhat foreseeable that a short chain of events started by the named insured led to the loss, then there is proximate cause. Slight foreseeability is foreseeability.

Support for this approach may be found in NY Pattern Jury Instruction 2:70 entitled "Proximate Cause," which echoes Hain, and states in part, that "An act … is regarded as the cause of an injury if it was a substantial factor in bringing about the injury … [y]ou may decide that a cause is substantial even if you assign a relatively small percentage to it."

Accordingly, there are questions whether "in whole or in part" is merely legacy language carried forward over years of form changes, or perhaps reflects a drafting preference to change as little wording as possible as the forms evolve.

The Future

If future AI coverage disputes are decided based on foreseeability, then risk transfer is likely to be delayed, more expensive and more unpredictable.

Historically, DJ actions often could be decided relatively quickly by motion practice based solely on documents—the pleadings, contracts and policies.

However, as the court stated in Hain, foreseeability is "typically" a question for the factfinder. Accordingly, more summary judgment motions may be denied based on issues of fact. DJ actions that require trials to decide issues of fact can be expected to take longer and, thus, will necessarily be more expensive.

Similarly, if jury trials become more common in DJ actions, then outcomes may be less predictable. Questions of what could have been reasonably foreseen and what constitutes a short chain of events are inherently fraught with subjectivity and hindsight.

Accordingly, more cases may be subject to the whims of a jury on any given day. Reasonable minds will disagree about what constitutes proximate cause.

Planning

AI disputes centered on foreseeability will also present new challenges for parties, their representatives, insurers, courts and anyone else involved in the risk management process.

Parties might consider insurance procurement provisions that avoid AI conditioned on "caused in whole or in part" trigger wording and instead opt to require forms using the older "arising out of work" trigger if commercially available.

Moreover, the phrase "caused in whole or in part" with all its accompanying problems is not limited to AI endorsements. This trigger wording is also widely used in contractual indemnity provisions. However, it may be easier to tailor contract wording than to change copywrite ISO wording.

Accordingly, if the parties agree, using the broader "arising out of work" trigger in contractual indemnity provisions may also streamline risk transfer.

In addition, investigation and discovery may be more centered around what events were reasonable to anticipate pre-loss and not just in retrospect. What witnesses expected, knew or should have known about the likelihood each link in the chain of events, training on the risk in question, past similar experiences, and outcomes may all be more relevant.

Conclusion

As the above discussion highlights, it is reasonably foreseeable that the elusive nature of causation will both change the direction and increase the volume of AI coverage litigation in the future.

The recent surge in AI coverage litigation does not reflect merely some academic debate for coverage attorneys now awash in additional work caused by the holding in Burlington.

For parties, insurers and their representatives, AI disagreements can lead to claims for breach of contract to purchase insurance, delayed risk transfer, unwanted frictional DJ costs and now more uncertain outcomes.

"Caused in whole or in part"—in summary, it is remarkable how so few words can generate so much disagreement.

Julian D. Ehrlich is Senior Vice President Claims for Aon's Construction Services Group in New York.