“Arising Out of” is Not the Functional Equivalent of “Proximately Caused by”

The NY Court of Appeals, construing language of an insurance endorsement, has held that the endorsement terms established a proximate cause standard. In the process, the court reiterated that a proximate cause standard is narrower than the phrase “arising out of.” Applying the proximate cause standard, the appellate court held that a subcontractor’s carrier had no obligation to defend the additional insured parties when the sub’s actions were not the proximate cause of a worker’s injury.

The underlying facts include a few twists. The policy at issue was for a sub on a New York City subway construction project. The NY City Transit Authority (NYCTA) and MTA New York City Transit (MTA) were to be named as additional insured parties. The endorsement provided that NYCTA and MTA were additional insured parties “only with respect to liability for 'bodily injury', . . . caused, in whole or in part, by: 1. [the sub’s] acts or omissions.” A NYCTA employee was injured when he fell from an elevated platform, trying to avoid an explosion after the sub’s machine touched a live electrical cable buried in concrete. The triggering cause was not the sub’s machine making contact with the cable, however, but NYCTA’s failure to have marked the cable location in the first instance.

The worker brought a lawsuit against the City of New York and the sub, and the city tendered its defense to the sub’s carrier. The carrier initially issued a reservation of rights letter, but when NYCTA threatened to withhold payment under the contract, the carrier agreed to defend the city without reservation. In the meantime, the city impleaded NYCTA and MTA in the lawsuit, based on indemnities in the agreements among those parties.

The sub’s carrier brought a declaratory judgment action, seeking a decision that it had no duty to defend NYCTA and MTA. The Appellate Division decided that the policy language provided coverage for the additional insured parties, even when an additional insured party was solely responsible for the accident. The Court of Appeals reversed.

Part of the argument on appeal was that the standard for scope of the indemnities among the owner authorities was for claims “arising out of” the acts of a contractor. Thus, the argument was that the injury "arose out of" the sub's work, and so the sub’s carrier was obligated to defend, even when an additional insured party was responsible. But the Court of Appeals noted that the endorsement language (“caused, in whole or in part”) was language of proximate causation, and was not as broad as “arising out of.” The endorsement language being the operative standard, the sub’s carrier was obligated to respond only to claims proximately caused by the sub. Since the NYCTA employee’s injury was proximately caused by the failure of NYCTA to properly mark cable locations, the sub’s carrier had no obligation to defend NYCTA and MTA.

The case is Burlington Ins. Co. v NYC Tr. Auth., 2017 N.Y. LEXIS 1404 (June 6, 2017).