A recent NY Appellate Division case upheld a disclaimer of liability coverage for an accident that occurred on an undisclosed three story addition to a one-story building. The court based its decision on well-settled principles of insurance contract law, i.e., the scope of the duty to defend, as well as the scope of coverage for designated premises.
While the obligation to defend is broader than the duty to indemnify, insurance carriers are not obligated to cover claims that are not covered by the policy. Therefore, if the allegations in the request of coverage or complaint do not allow for an interpretation that affords coverage, there is no duty to defend. Moreover, it has long been the law of New York that the scope of insurance coverage does not extend beyond the premises designated in the application for insurance and in the policy. In other words, if the insured requests coverage for a portion of a building, the policy will not ordinarily cover an injury occurring in another portion of the building.
In Seneca Ins. Co. v. Cimran Co., an employee of a framing subcontractor was injured on October 12, 2009 while working on a three-story addition to a one-story building. The injured employee sued the building owner claiming negligence, and the building owner sought liability coverage from Seneca Insurance Co., its commercial general liability insurer. Upon receipt of notice of the claim, Seneca promptly cancelled the policy effective April 1, 2010 based on the fact that the building was under construction. Senenca then filed suit seeking a declaration that the policy was void at inception, or in the alternative that there was no coverage because the three-story addition was not part of the premises covered under the policy.
Seneca’s argument with respect to voiding the policy was that the insured made a material misrepresentation by failing to disclose that the premises was under construction or that construction was being contemplated. The court declined to void the policy because the evidence on record merely showed that the insurance application was submitted in January 2007 and the decision to build on top of the existing structure was not made until March 2008.
However, the court found that there was no issue of fact with respect to the scope of coverage. It found that the policy only provided coverage for injuries arising out of the insured building, namely, the 10,000 square foot one-story building. Concluding that the injury did not occur on the insured premises, the court found that Seneca did not owe its insured a defense or indemnification in the underlying personal injury matter.