No. 93 BP Air Conditioning Corp. v One Beacon Insurance Group

Henegan Construction Company, Inc., the general contractor for a construction project at One World Trade Center in 2000, hired BP Air Conditioning Corp. as the HVAC subcontractor. BP, in turn, subcontracted the steamfitting work to Alfa Piping Corp. in an agreement that required Alfa to obtain comprehensive general liability insurance naming BP as an additional insured. Alfa's policy was issued by One Beacon Insurance Group.

The insurance dispute in this appeal arose in December 2000, when Joseph Cosentino, an
employee of another BP subcontractor, Karo Sheet Metal, Inc., slipped and fell on a patch of oil at the work site and filed a personal injury suit against Henegan (the Cosentino action). Henegan brought a third party action against BP and Alfa, and Cosentino later added them as direct defendants. When BP sought a defense from One Beacon, the insurer refused, contending that BP's additional insured coverage under Alfa's policy would not be triggered until it was determined in the Cosentino action that Alfa was responsible for the oil slick that caused Cosentino's fall. One Beacon relied on a portion of the additional insured endorsement in Alfa's policy, which provides that a contractor employing Alfa "is an additional insured only with respect to liability arising out of your ongoing operations performed for that insured."

BP commenced this declaratory judgment action against One Beacon, contending it was entitled to
a defense in the Cosentino action. Supreme Court ruled in favor of BP, declaring One Beacon was
obligated to provide a defense.

The Appellate Division, First Department upheld Supreme Court's ruling on the insurer's duty to
defend in a 3-2 decision, rejecting One Beacon's argument that "the liberal principles governing the
activation of the duty to defend ... apply only to named insureds, not to parties covered pursuant to additional insured endorsements, such as BP." The majority relied on Pecker Iron Works of N.Y. v
Traveler's Ins. Co. (99 NY2d 391 [2003]), concluding that, "in the absence of unambiguous contractual language to the contrary, an additional insured 'enjoy[s] the same protection as the named insured.'" It said, "As applied here, this principle can mean only that, for named insureds and additional insureds alike, the activation of the duty to defend depends on the allegations of the pleadings" and not on final adjudication of the underlying personal injury action. The majority modified Supreme Court's ruling by further declaring that One Beacon's coverage is primary, and BP's coverage under its own policy is excess.

The dissenters argued that One Beacon is not required to defend or indemnify BP "unless and until
it is determined that its additional insured obligation is triggered. That determination can only be made if the factfinder in the underlying Cosentino action determines that Cosentino's accident resulted from Alfa's activities." They said, "No one challenges an insurer's broad duty to defend its named insured, whose status as an insured is not conditional. In the case of BP's coverage as an additional insured, however, BP must meet the condition precedent set forth in Beacon's additional insured endorsement before the endorsement, and hence, coverage, is triggered."