The Bronx County Supreme Court (which technically is a lower-court decision and does NOT have statewide implications) recently upheld the legality of an “inadequate” policy in the face of a challenge that such policies should be declared unenforceable as violative of the public policy and core objective of New York state to protect construction workers.
The Plaintiff in this case (720-730 Fort Washington Ave. Owners Corp. v. Utica First Ins. Co.) argued the policy should be held to be against public policy as it did not provide any of the insureds with the usual construction site coverage required under plaintiff’s agreement with the contractor and subcontractor. The court (noting that the plaintiff did not claim the three exclusions at issue were vague, ambiguous or inapplicable) examined the sole issue of whether those exclusions violated public policy and if, despite the language, plaintiff might still be entitled to a defense. The court found the issuance of “this inadequate … policy” violated no regulation or statutorily declared public policy. Moreover, the court noted that as lawmakers have not yet chosen to further “implement and fortify” the Labor Law’s core objective by an amendment to the Insurance Law requiring a “uniform construction site insurance policy”, the court was powerless to do so.
Fort Washington entered into a contract with DNA Contracting to perform renovation work at its premises. DNA entered into a sub-contract with Rauman that same day to perform masonry and roof replacement work. The contract between DNA and Rauman required that Rauman purchase general commercial liability coverage and name DNA and Fort Washington as additional named insureds. Rauman purchased insurance from Utica that named those entities as additional insureds, but the policy contained three exclusions: 1.) an “employee” exclusion; 2.) an exclusion for “roofing work;” and 3.) an exclusion for any liabilities assumed under contract or agreement. On its face the Utica First “general liability insurance” policy appeared to provide adequate coverage, the exclusions buried within its terms, rendered it inadequate for the purposes intended. However, the issuance by Utica First of this inadequate insurance policy violated no regulation or statutorily declared public policy regarding the contents of an insurance policy.
According to the court, “the issuance of this worthless policy, although indirectly an impediment to the achievement of the remedial reforms enacted, is not directly violative of the core objective and declared public policy of the Labor Law to protect construction workers by providing them with additional responsible entities and persons. The requirements of the Labor Law have been fulfilled, since the statutorily mandated responsibility of the owner (Fort Washington) and general contractor (DNA) are not directly impacted by the failure to obtain insurance. The ability or inability of these entities to pay a damage award (although relevant to the core objective) is a separate issue; and there is no corresponding public-policy mandate set forth in the Insurance Law, or its implementing regulations, which would “insure” that funds would be available which would provide the coverage needed by “owners, contractors and their agents” to indemnify them from claims made by injured construction workers.” “In other words, in those instances where uninsured owners and/or contractors do not have the ability to pay a damage award, the public policy of New York is incomplete, and thus defeated,” the court continued. “This weakness in the law could easily be remedied by a statute or regulation, which would mandate the issuance of a “uniform construction site insurance policy.” Such a mandated uniform insurance policy, of course, should preclude an insurance carrier from incorporating such exclusions, or if included, have them declared unenforceable as violative of public policy.
Obviously, there are many construction companies that have no assets beyond the funds provided by insurance to pay a damage award. For them and for their workers, the laudable core objective becomes an empty gesture without insurance coverage. It would certainly seem practical, and reasonable, therefore, to extend the worker-protection public policy goal to the Insurance Law and/or its implementing regulations. However, since the Legislature has not yet chosen to further implement and fortify the Labor Law’s core objective by an amendment to the Insurance Law, this court is powerless to do so.”
The court further pointed out that the Insurance Law and the New York State Insurance Department regulations are silent and provide no explicit guidance or protections for insureds as to the minimum requirements for a construction site insurance policy. “Although the silence of the Legislature seems somewhat inconsistent with the Labor Law’s core objective, the only rule applicable here is, “caveat emptor”–let the buyer beware!” A purchaser must, therefore, examine, judge and test for himself whether an insurance policy may be misleading due to being rendered meaningless by its exclusions. As such, Fort Washington and DNA had a duty to do a “due diligence” review of the policy presented by Rauman. Had they read the policy when it was first presented they may have observed the exclusions and rejected the policy as not in compliance with the construction contract requirements. Having failed to do so, they left themselves exposed; and there is no public-policy mandate that the court can utilize to rescue them or the injured worker, if these entities do not have sufficient coverage and/or the ability to pay a damage award. In that regard the court noted that, because of the absence of any statutory mandate, Utica First, the defendant herein, has been repeatedly successful in having its insurance policy exclusions judicially upheld.
The court concluded that coverage, having been rendered moot by the exclusions, there is no legitimate reading of the complaint under which this coverage could be deemed plausible. Thus, it would be manifestly unreasonable to impose a duty to defend.–Guilbault