Does “Caused By” Mean “Arising Out Of”? New York Court of Appeals Likely to Decide

July 29, 2016

The Appellate Division, First Department of New York has repeatedly held that the phrase “caused by,” as used in an additional insured endorsement, does not materially differ from the phrase, “arising out of.”

As aresult, endorsements using plainly different language have been interpreted identically. The issue has now been brought before the New York Court of Appeals in the case of Burlington Insurance Co. v. New York City Transit Auth., Index No. 102774/2011, New York Supreme Court, New York County.

In Burlington, Burlington Insurance Company’s policyholder, Breaking Solutions, was retained by the New York City Transit Authority (“NYCTA”) to provide a concrete breaker, which was used to chip concrete pursuant to NYCTA instructions. The contract between the NYCTA and Breaking Solutions obligated the latter to procure additional insured coverage for the NYCTA. In satisfaction of this obligation, Breaking Solutions obtained a policy from Burlington with an endorsement providing the NYCTA with additional insured coverage for liability “caused, in whole or in part, by” Breaking Solutions “acts or omissions; or the acts or omissions of those acting on its behalf.”

Thomas Kenny, a NYCTA employee, was injured during the excavation of a subway tunnel when he tripped on debris while trying to flee the subway after an explosion. It was undisputed that the NYCTA’s negligence was the sole cause of the explosion. Nevertheless, the First Department held that the NYCTA’s liability was caused by Breaking Solutions acts or omissions because a Breaking Solutions employee operated the machine that set off the explosion.

Although the decision was unanimous, the Court of Appeals granted leave. In its brief, Burlington argues that “caused by” “your acts or omissions” should be interpreted to require negligence and/or proximate cause. Burlington emphasizes that the majority of jurisdictions to interpret endorsements using the “caused by” “acts or omissions” language have construed the coverage more narrowly than endorsements using the
phrase “arising out of” and have required either proximate cause or negligence. Burlington further argues that failing to construe the subject endorsement to require proximate cause renders other critical language in the endorsement, namely, “in whole or in part,” superfluous. Burlington also points out that it was the intent of the Insurance Service Office for the subject endorsement to restrict coverage to liability arising from the fault of the named insured. The First Department, in its decision, acknowledged this truth, but held that it would not read in a negligence requirement where the word negligence was not used.

The NYCTA is scheduled to submit its brief in mid-August, with Burlington’s reply due in September. We anticipate that a decision will be rendered in early 2017. In the interim, insurers assessing whether to provide coverage under endorsements using the same or similar language in New York should be mindful that this issue is before the highest court of New York.

Should anyone have questions or need additional information regarding this issue, please do not hesitate to contact us.