This is an insurance-coverage action, arising from an underlying personal-injury action pending in Supreme Court, Kings County. (See Caracciolo v. SHS Ralph, LLC, Index No. 512132/2016.) Plaintiff, Arch Specialty Insurance Co., is the insurer for SHS Ralph, LLC, owner of the project site and a defendant in the underlying action. Defendant HDI Gerling American Insurance Co. is the insurer for nominal defendant ThyssenKrupp North America, Inc., a subcontractor on the underlying construction project. On a prior motion in this case, Arch moved for summary judgment declaring that HDI had a duty to defend and indemnify SHS in the underlying action and to reimburse Arch for defense costs expended to date. HDI cross-moved to compel discovery that HDI contended was relevant to the scope of any coverage obligation it might have — in particular, whether any other insurers were required to contribute on a primary basis to SHS’s defense and indemnity coverage. This court denied Arch’s motion and HDI’s cross-motion in a decision delivered on the record in July 2022. (See NYSCEF No. 185 at 2-10 [transcript of decision]; id. at 1 [order memorializing decision].) Arch now moves for leave to reargue the denial of its summary-judgment motion with respect to HDI’s duty to defend (and obligation to reimburse Arch’s defense costs). The motion is granted with respect to whether HDI owes SHS a duty to defend in the underlying action, going forward. It is denied without prejudice with respect to whether HDI must reimburse Arch for defense costs already incurred. DISCUSSION I. Whether HDI Owes SHS a Duty to Defend in the Underlying Action In moving for leave to reargue, Arch makes two related arguments. First, it contends that this court failed to appreciate the significance of the decision of the Appellate Decision, First Department, in Wilcox Development Corp. v. HDI Global Insurance Co. (198 AD3d 590 [1st Dept 2021]), rendered in a parallel insurance-coverage dispute arising from the same underlying action. Second, Arch contends that this court erred in concluding that factual issues precluded the grant of summary judgment, because the issues identified by the court assertedly go only to whether HDI will ultimately owe a duty to indemnify Arch, not to HDI’s duty to defend. This court concludes that Arch is correct on both counts. Leave to reargue is granted. On reargument, this court agrees with Arch that HDI owes SHS a duty to defend in the underlying action. 1. Wilcox Development Corp., the general contractor on the underlying construction project, is a nominal defendant here; a defendant in the underlying action; and the plaintiff in the parallel Wilcox Development v. HDI coverage action. In that parallel action, the First Department affirmed a decision of this court (David B. Cohen, J.) declaring that HDI has a duty to defend Wilcox as an additional insured on HDI’s policy. (198 AD3d at 590.) The Court explained that “the allegations of the complaint and third-party complain in the underlying action suggest a reasonable possibility of coverage,” thereby implicating the duty to defend; and that this duty was not negated by the possibility that Wilcox “might ultimately be found liable solely for its own independent negligent acts and/or omissions,” which would be outside the scope of Wilcox’s additional-insured coverage. (Id.) As Arch has argued (both on its summary-judgment motion and in seeking reargument), that decision has important implications for the coverage analysis here. Both Arch and Wilcox have claimed additional-insured coverage under a blanket additional-insured endorsement to the HDI policy that affords additional-insured status to any corporation for which ThyssenKrupp is “obligated by virtue of a written contract or agreement entered into with respect to your operations[] to afford coverage such as provided by this policy.” (NYSCEF No. 112 at 167.) The coverage for these additional insureds applies “to liability arising out of operations conducted by or for” ThyssenKrupp under that contract, “to the extent required by such written agreement.” (Id.) And the written contract with ThyssenKrupp under which Wilcox has claimed additional-insured coverage from HDI is drafted expressly not only to benefit Wilcox as the general contractor, but also SHS as the owner. (See NYSCEF No. 36.) Thus, if Wilcox is entitled to a defense from HDI as an additional insured — as the First Department has held — it would appear necessarily to follow that SHS is entitled to a defense from HDI as well.1 2. HDI claims that Wilcox Development is distinguishable from this action because SHS, as the owner of the construction project, is subject to different potential sources of liability in the underlying action from Wilcox as the general contractor. But even assuming HDI is correct on that liability point (a matter this court does not resolve here), that would not render Wilcox Development distinguishable. HDI points to language in the contract between SHS and Thyssen Krupp stating that the insurance policy obtained by Thyssen Krupp and naming SHS as an additional insured need not provide that the additional insured is “defended or indemnified for its own acts, actions, omissions, [or] neglects.” (NYSCEF No. 36 at 4 [emphasis added].) Because the additional-insured endorsement to the HDI policy limits coverage to the extent required by the contract, HDI would not owe a defense to SHS for liability stemming from its own actions. One of the issues in the underlying action is whether SHS breached a non-delegable duty to the injured worker stemming from SHS’s status as owner — i.e., a duty that Wilcox would not owe. Therefore, HDI says, the First Department’s conclusion that HDI owed Wilcox a duty to defend would not necessarily imply that HDI owes the same duty to SHS. And, as a result, HDI claims that this court was correct to find that issues of fact about SHS’s independent liability to the injured worker preclude summary judgment on Arch’s coverage action. This argument — and this court’s prior conclusion on Arch’s motion — misses the mark. HDI’s central argument on appeal in Wilcox Development was the contract-based contention that HDI raises here about the scope of its duty to defend. That is, HDI argued that because language in the SHS/ThyssenKrupp/Wilcox language excepted defense coverage (not just indemnity coverage) for Wilcox for liability stemming from Wilcox’s own acts or omissions, the existence (or scope) of HDI’s duty to defend turned on whether Wilcox would be held liable in the underlying action (and on what grounds).2 And, as discussed above, the First Department rejected that argument on the ground that the existence and scope of an insurer’s duty to defend is based on the pleadings in the underlying action, not on the ultimate liability determination. (See Wilcox Development, 198 AD3d at 590, citing Fitzpatrick v. American Honda Motor Co., 78 NY2d 61, 65-66 [1991].) That HDI now says that SHS is exposed to liability in the underlying action on more grounds than Wilcox does not change this conclusion. Either way, HDI’s duty to defend turns on the facts as alleged and known at the pleading stage, not on whether SHS is, or is not, later held liable. It might be that a future liability finding against SHS, on grounds outside the scope of SHS’s additional-insured coverage, would entail Arch’s reimbursing HDI for defense costs. But that result is not equivalent to a conclusion now that HDI has no duty to defend. II. How to Implement HDI’s Duty to Defend Given this court’s conclusion on reargument that HDI owes SHS a duty to defend, the question becomes how to carry that conclusion into effect. Arch’s reargument motion seeks declaratory relief with three components: declaring that (i) “SHS is entitled to additional insured status under the HDI policies on a primary and non-contributory basis”; (ii) “HDI must immediately defend SHS”; and (iii) “HDI must reimburse Arch for its costs incurred in defending SHS in the Underlying Action.” (NYSCEF No. 182 at 21.) As this court sees it, the first two components of this requested declaration are straightforward. The third, however, is more complicated. In briefing on the summary-judgment motion, HDI argued that under the terms of a putative side agreement between SHS and Wilcox, SHS is also entitled to primary, non-contributory coverage from Wilcox’s insurer, defendant United Specialty Insurance Company (USIC), which would limit the scope of HDI’s monetary obligations under any duty to defend SHS.3 HDI also cross-moved to compel discovery to support its contentions about the existence and terms of an SHS/Wilcox agreement. This court rejected HDI’s reliance on this asserted agreement (and therefore denied HDI’s cross-motion), because the authenticity, validity, and enforceability of the agreement was at issue in the underlying action and should be resolved there. (See NYSCEF No. 185 at Tr. 7-8.) As a result, this court held, it would be premature for the court to determine priority of coverage. (Id. at 8.) For that same reason, it would be premature for this court to direct HDI to reimburse all of Arch’s reasonable defense costs incurred in the underlying action, as Arch requests. That request is denied without prejudice to its renewal, following any determination in the underlying action about the existence and effect of the asserted SHS/Wilcox agreement, and its implications for SHS’s additional-insured coverage.4 Accordingly, it is ORDERED that Arch’s motion for leave to reargue this court’s order entered July 28, 2022, is granted; and it is further ORDERED that on reargument, Arch’s motion for summary judgment is granted in part and denied in part without prejudice; and it is further ADJUDGED AND DECLARED that the HDI policy issued to ThyssenKrupp affords additional-insured coverage to SHS on a primary and non-contributory basis, with the scope of that additional-insured coverage to be determined based upon the resolution of the underlying action; and it is further ADJUDGED AND DECLARED that HDI is required going forward to defend SHS in the underlying action. Dated: February 24, 2023
