By David M. Knapp, Ward Greenberg Heller & Reidy LLP
New York’s Appellate Division recently issued two decisions of note:
In Country-Wide Ins. Co. v. Excelsior Ins. Co., 2017 N.Y. Slip Op. 00718 (1st Dept. Feb. 2, 2017), the First Department reaffirmed that, in New York, the phrase “arising out of” is to be construed broadly, even where it appears in an exclusion. This case involved coverage for an underlying action in which plaintiff allegedly was injured when a lift gate failed while plaintiff was unloading material from a shipping trailer. The Court held that an exclusion in a CGL policy for bodily injury “arising out of” the use, including loading and unloading, of autos operated by or rented or loaned to the insured, barred coverage for the claim. In so holding, the Court noted that the phrase “arising out of” when found in an exclusion is to be construed broadly, such that a claim is excluded if it would not exist “but for the existence of the excluded activity or state of affairs.” The Court also rejected the insured’s argument that the exclusion did not apply because the injury was caused by the defective nature of the trailer lift gate, holding that, “[t]he focus of the inquiry is not on the precise cause of the accident but the general nature of the operation in the course of which the injury was sustained.”
In Hansard v. Fed. Ins. Co., 2017 N.Y. Slip Op. 00633 (2d Dept. Feb. 1, 2017), the Second Department held that an insurer had no duty to defend or indemnify an insured under a D&O policy for claims alleging that the employer-insured violated the Fair Labor Standards Act and New York Labor law by (1) depriving employees of regular and overtime pay by requiring them to work “off the clock” and misclassifying them as “salaried,” (2) discharging employees before a certain date to avoid paying promised settlement packages, (3) failing to keep accurate records of wages and hours, and (4) delaying issuance of paychecks beyond when payment was due. The policy provided coverage for “Wrongful Act[s],” as that term was defined, but excluded coverage for “any employment-related Wrongful Act.” The term “employment-related” was not defined in the policy; however, the Court, relying on dictionary definitions of the words, held that the term “employment-related” was unambiguous and meant “connected by reason of an established or discoverable relation to the act of employing or the state of being employed.” Under that definition, the Court found that the allegations of the underlying complaint fell squarely within the exclusion and therefore that there was no coverage. The court also held that it was irrelevant that the phrase “employment-related Wrongful Act” might be ambiguous in the context of other “employment-related” claims, because it was not ambiguous in the context of the claims at issue before the Court.