Insurers Must Cover Policyholder’s Landlord in Tort Claim

Last week, a New York federal court ruled that an insurance company’s “very broad duty to protect its insured persons” extends to policyholder compensation for landlords in underlying tort claims. . ConMed Corporation (“ConMed”), a medical technology company, has filed a lawsuit against Federal Insurance Company (“Federal”), a division of Chubb. litigation.

The coverage dispute stems from allegations that ConMed employees were exposed to dangerous levels of ethylene oxide, a chemical used to sterilize ConMed equipment. Initially, the employee sued ConMed and its contractor who performed the sterilization, but in April 2021, the employee filed a separate lawsuit against ConMed’s landlord (the “Landlord Lawsuit”). In the landlord lawsuit, plaintiff’s employees asserted negligence by abetting negligence, tort, fraud, wrongful death, and agency liability/respondent’s superior claims. All of these resulted from exposure to ethylene oxide.Pursuant to the lease agreement with ConMed, the landlord submitted the defense and compensation of the landlord lawsuit to his ConMed, which then submitted the defense to the Federal. The Federal did not accept Landlord Action’s defense, and ConMed sued.

ConMed’s policy defines “insured” as follows:[p]However, this excludes “when damage occurs”.[e] From their only negligence. The policy also provides for “damages that the insured becomes legally obligated to pay by reason of liability.” . . is assumed in the insurance contract. FOR PERSONAL INJURY OR PROPERTY DAMAGE CAUSED BY AN EVENT TO THIS COVERAGE. Based on these clauses, ConMed argued that the landlord constituted the insured or that ConMed was responsible for their defense in the insured contract, specifically the lease contract. The lease included a clause requiring ConMed to indemnify the landlord “except and to the extent of the landlord’s negligence or willful misconduct.”

The Federal argued that the landlord is not an additional insured and the lease agreement does not constitute an insurance policy. Federal pointed out a provision in the lease agreement that excluded compensation for the landlord’s own negligence, arguing that the landlord action sought to recover damages from the landlord’s negligence, not ConMed’s.

The court rejected the federal argument and found that the alleged negligence against the landlord “caused and intertwined” with ConMed’s negligence regarding ethylene oxide sterilization. The judge further added, “The extent to which the defendant landlord is accused of his own ‘negligence or willful misconduct’ [ConMed] Anything explicitly identified as an act [ConMed] The defendant landlord must be compensated. Further, citing the insurer’s “very broad duty to defend the insured,” the court ruled that the Federal had failed to prove there was no potential coverage in the landlord lawsuit. The court also found the landlord to be an additional insured and contractual indemnifier under the terms of Conmed’s policy with the federal government.

Finally, the court also rejected Federal’s argument that the contract exclusion and contamination exclusion precluded coverage. The pollution exclusion excludes bodily injury “resulting from ‘actual, alleged, or threatened emission, dispersion, leaching, movement, release, or leakage of a pollutant.'” New York Court of Appeals Citing precedent, the court did not apply pollution exclusion damages because they were not “true environmental in nature” and were not “results of pollution to the environment.”

The court’s ruling emphasizes not only the importance of coverage and depth of liability coverage for policyholders, but also the proper construction of contractual relationships, such as lease agreements, to maximize potential coverage of indemnification obligations. It also emphasizes the need In addition, policyholders can rely on this determination to support arguments regarding the limited scope of decontamination. In any event, the Court’s decision reaffirms the basic principle that insurance companies have a broad obligation to protect the insured pursuant to the terms of the policy.