New York Court Finds Insured Failed to Establish its Broad Discovery Demands Might Lead to Evidence Relevant to the Application of an Exclusionary Provision in Commercial General Liability Policy

In Northfield Insurance Company v. Golob, an insurer issued a commercial general liability policy to owners of a residential construction project. The policy contained an exclusion titled “Contracted Persons” exclusion, which barred coverage for bodily injury sustained by any person “employed by . . . any organization that . . . [c]ontracted with [the named insured] or with any insured for services” where the injuries “[arose] out of and in the course of employment by that organization.” As a part of the construction project, the insureds retained ADT, LLC to perform certain services at the project. While performing those services, an ADT employee was allegedly injured. The insurer disclaimed coverage to its insureds based on the “Contracted Persons” exclusion, since the ADT employee was acting in the course of his employment for ADT, who was retained by the insureds, when the accident occurred. Notwithstanding its disclaimer, the insurer agreed to provide its insureds with a gratuitous defense, and commenced a coverage action seeking a judicial declaration as to the parties’ rights and obligations under the policy. A review of the records on appeal reveals that, during the course of that litigation, the insureds requested the following categories of documents/information:
  1. Reserve information;
  2. Information concerning the proprietary methods of calculating the defendants’ premiums;
  3. Information concerning other “similar” claims and/or litigation that are not the subject of this litigation over an unlimited period of time; and
  4. Requests for information relating to the insurer’s document retention program.
While the insurer moved for a protective order precluding compliance with these demands, the trial court, without opinion, granted the insureds’ motion to compel disclosure of the requested information. The insurer appealed. While the discovery appeal was pending, the insurer moved for summary judgment on the sole substantive issue in the litigation: the application of the “Contracted Persons” exclusion.  Specifically, the insurer argued that because there was no genuine issue of fact that the underlying claimant was injured during the course of his employment for an entity contracted by the insureds, the exclusion applied as a matter of law. The insured countered, asserting that the exclusion did not apply because ADT had been instructed to hold off performing the work, and for that reason, the claimant was “nothing more than a trespasser” on the property at the time of the accident. The insureds argued, in the alternative, that the insurer’s motion should be denied as premature in light of the outstanding discovery at issue in the pending appeal. The trial court granted the insurer’s motion, and the insureds appealed. On August 15, 2018, the New York State Supreme Court, Appellate Division, Second Department, issued two separate decisions addressing each appeal. With respect to the insurer’s summary judgment motion, the Appellate Division affirmed the trial court’s decision, finding that “[t]he alleged fact that ADT performed the work earlier than instructed did not demonstrate the potential inapplicability of the exclusion, as it did not negate the fact that the work was performed pursuant to a contract with the defendants [insureds], or that Christensen [the claimant] was acting within the scope of his employment with ADT at the time he was injured.” The court also found that there was “no merit” to the insureds’ contention that the insurer’s motion was premature given the outstanding discovery. The court noted that for a dispositive motion to be deemed premature, the party must establish that the outstanding discovery “might lead to relevant evidence or that the facts essential to oppose the motion are exclusively within the knowledge and control of the movant.” The court found that the insureds failed to meet the burden with respect to the various categories of documents/information requested. In light of its decision on the summary judgment motion, the Appellate Division dismissed the appeal on the discovery issues on the basis it had been “rendered academic.”

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