Zurich American Insurance Co. v. National Specialty Insurance Co.

The opinion in Zurich American Ins. Co. v. National Specialty Ins. Co., 2017 WL 1164706 (S.D. FL 2017) touches on several rules of insurance policy interpretation in Florida, but for the first time addresses the term “maintenance,” which is often found in the additional insured endorsement of a commercial tenant’s general liability policy. Also at issue are the term “arising out of,” which typically broadens a policy insuring provisions, and the “Other Insurance” and “Excess Insurance” provisions typically found in today’s general liability policies. As the opinion is quite thorough, it is also long; therefore, we shall attempt to bullet point the most germane legal issues.

Diner 84, a restaurant in Broward County’s Davie Plaza, purchased a general liability insurance policy from National Security Insurance Company (“NSIC”). That policy contained an “Additional Insured – Managers and Lessors of Premises Endorsement,” which in relevant part named Diner 84’s landlord as an additional insured “with respect to liability arising out of the ownership, maintenance or use of that part of the premises leased to you…” Zurich American, 2017 WL 1164706, at 2. Davie Plaza, LLC was the owner of Davie Plaza and had purchased its own general liability policy from Zurich American Insurance Company (“Zurich”). Id.

Both the NSIC and Zurich policies contained the usual and identical “Other Insurance,” “Primary Insurance,” and “Excess Insurance” provisions. Id. The relevant portions of those provisions are as follows:

4. Other Insurance – If other valid and collectible insurance is available to the insured for a loss we cover under Coverages A and B, our obligations are limited as follows:

a. Primary Insurance – This insurance is primary except when paragraph b. below applies. If this insurance is primary, our obligations are not affected unless any of the other insurance is also primary. Then, we will share with all that other insurance by the method described in c. below.

b. Excess Insurance – The insurance is excess over:

(2) Any other primary insurance available to you covering liability for damages arising out of the premises or operations, or the products and completed operations, for which you have been added as an additional insured by attachment of an endorsement.

When this insurance is excess, we will have no duty under Coverage A or B to defend the insured against any “suit.” If no other insurer defends, we will undertake to do so, but we will be entitled to the insured’s rights against all those other insurers.

Mikhael Maroudis, an employee of Diner 84, filed a lawsuit against Davie Plaza, LLC for injuries occurred while climbing down a ladder situated on Davie Plaza’s common area, just outside Diner 84’s kitchen door. Id. at 1. Maroudis later passed away from unrelated causes, leading to his personal representative filing a second amended complaint for the original injuries. The second amended complaint alleged that Maroudis’s supervisor had instructed him to use the diner’s ladder to access the roof to repair a leak. Upon completion of this task, Maroudis fell while descending the ladder, ostensibly because he had positioned the ladder on an uneven surface, resulting in the ladder’s shifting during Maroudis’s descent. The operative pleading charged that Davie Plaza “failed to provide a reasonably safe premises at that time it turned over the property to its tenant.” Id. After a trial, a jury found Davie Plaza 98% at fault, Maroudis 1% at fault, and Diner 84 1% at fault. The jury awarded Maroudis’s estate damages in the amount of $15,212,930. Id.

More than four years after the second amended complaint’s filing, Zurich tendered Davie Plaza’s defense and indemnity to NSIC and Diner 84. Id. at 2. NSIC refused to defend or indemnify, noting that the accident had occurred in a “common area,” as that term was defined in the operative lease between Diner 84 and Davie Plaza. Id. In the lease, “common areas” were those areas designated for general use by all tenants and their customers and for which Davie Plaza expressly asserted exclusive control and management. Id. at 3. Meanwhile, “premises” was defined as “[t]hat certain space located in a building…in the Shopping Center” and incorporated a site plan to visually represent the space. Id.

Zurich sought declaratory relief on NSIC’s obligations pursuant to its policy, and both insurers filed competing motions for summary judgment on the issues. Id. at 3-4. The main issues were the following: (1) was Davie Plaza an additional insured to the NSIC policy; (2) did the loss occur within the parameters of coverage; and (3) was Davie Plaza entitled to defense and indemnity?

In Florida, like most states, insuring provisions are read broadly, and interpretation of an insurance policy – including whether there are any ambiguities – is a question of law for the court. See Id. at 5-6. Ambiguities are read against the insurer, but “’in the absence of some ambiguity, the intent of the parties to a written contract must be ascertained from the words used in the contract, without resort to extrinsic evidence.’” Id. at 6 (quoting Lee v. Montgomery, 624 So.2d 850, 851 (Fla. 1st DCA 1993)).

The parties’ dispute revolved around whether Davie Plaza’s liability arose “out of the ownership, maintenance or use of that part of the premises leased to Diner 84.” Id. Initially, the court stated that “[arising out of] ‘requires more than a mere coincidence between the conduct…and the injury,’ such as a causal connection or a relationship,” but also held that “’arising out of’ is not synonymous with ‘caused by.’” Id. (citing Taurus Holdings, Inc. v. U.S. Fid. Guar. Co., 913 So.2d 528, 539 (Fla. 2005)). Thus, for purposes of determining coverage pursuant to the endorsement, the district court used a broad, if not overly broad, interpretation of the phrase “arising out of.”

The second threshold term in the endorsement was “maintenance.” See Id. at 7. Initially, NSIC made the tactical misstep of not addressing the “maintenance” language in its arguments; whereas, Zurich argued that Davie Plaza’s liability effectively arose from the maintenance that Diner 84 had requested its employee to perform on the roof. See Id. Neither party presented a Florida case by which “maintenance” had been defined, but Zurich did cite to a New York venued case in which a building owner received additional insured coverage for injuries to a tenant’s employee, after said employee had been instructed to perform maintenance on the premises roof. Id. (citing Maldonado v. Kissm Realty Corp., 18 A.D.3d 627, 796 N.Y.S.2d 619 (2005)). In ruling for the building owner, the New York court substantially focused on the term “maintenance” in the endorsement and the tenant’s assumption of maintenance of HVAC units on the roof. Id.

In view of the Maldonado ruling and the established fact that Diner 84’s employee was performing maintenance on the restaurant’s roof pursuant to instructions from Diner 84, the district court held that Davie Plaza’s liability fell within the additional insured endorsement’s insuring provision. See Id. at 8. In reaching this conclusion, the court dispatched NSIC’s argument that the accident occurred in a “common area” controlled by the landlord, rather than in the “premises,” as those terms were defined in the lease. Id. at 8-9. The court refused to consider the lease because the insurance policy and its endorsement were unambiguous and did not incorporate the lease in any fashion; therefore, the court was precluded from considering the lease as extrinsic evidence for purposes of interpreting the endorsement. See Id. at 9.

Further, NSIC’s reliance on the lease terms was “inconsistent” with the additional insured endorsement’s “arising out of” language. Id. That the common area’s uneven surface was the proximate cause of the employee’s fall was not the issue for coverage, but rather, the threshold question was whether Davie Plaza’s liability arose from Diner 84’s ownership, maintenance, or use of the leased premises. See Id. And that question had already been answered by the court in the affirmative.

In ruling that Davie Plaza was an additional insured pursuant to NSIC’s additional insured endorsement, the district court also refused to limit the scope of that coverage by way of Davie Plaza’s comparative negligence. See Id. at 10. In this refusal, the court once again focused on the endorsement’s language, or in this case, lack of language limiting NSIC’s coverage obligations due to Davie Plaza’s negligence. Id. Because Davie Plaza was an additional insured to NSIC’s policy; because the operative complaint alleged Davie Plaza’s liability arising from Diner 84’s maintenance of the premises; and because there was a judgment against Davie Plaza, it was entitled to defense and indemnity from NSIC. See Id. at 10-11.

Finally, the district court ruled that NSIC’s Excess Insurance clause did not apply to the question of coverage responsibility, because whereas Davie Plaza was a named insured to the Zurich policy, it was an additional insured to NSIC’s policy. Id. at 12. The Excess Insurance clause in both the Zurich and NSIC policies expressly stated that the respective insurance was excess over “any other primary insurance available to you…for which you have been added as an additional insured by attachment of an endorsement.” Id. Because Davie Plaza was an additional insured, via endorsement, to NSIC’s policy, Zurich’s Excess Insurance clause was triggered. Meanwhile, NSIC’s Excess Insurance clause was not triggered – because Davie Plaza was not an additional insured of Zurich. See Id. The result was that NSIC got left holding the bag for both indemnity and Davie Plaza’s defense.

Zurich v. National Specialty is both a case of first impression and a tutorial for the interpretation of insurance policies in the State of Florida. Especially worthwhile is the reminder that, absent an ambiguity or an incorporation clause, an insurance policy will be interpreted solely by the four corners of the contract. We highly recommend that all coverage attorneys and claims specialists review the facts and analysis of this case.