Court Untangles Which of Three Insurers Should Defend

The federal district court sorted out which of three insurers were obligated to defend the insured after a bodily injury. Travelers Prop. Cas. Co. of Am. v. Arch Ins. Co., 2026 U.S. Dist. LEXIS 197942 (S. D. N. Y. Sept. 1, 2028).

LP Ciminelli, Inc. (LPC) was the contractor for a construction project. LPC hired Franco Associates as a subcontractor. The parties entered a subcontract requiring Franco to indemnify LPC for bodily injury “arising out of or resulting from . . . any acts or omissions on the part of” Franco or its employees. Franco was also required to procure insurance coverage that was “primary over and apply on a non-contributory basis to any other collectible insurance providing coverage to [LPC].”

Franco procured a policy from Arch Insurance Company with policy limits of $1 million. A schedule in the policy included as additional insureds “all parties where required by written contract.” Further, coverage would be provided to additional insureds “only with respect to liability for ‘bodily injury’ . . . caused, in whole or in part, by'” the “acts or omissions” of Franco.

The Arch policy also included an “Other Insurance” endorsement. The endorsement provided that the Arch policy’s insurance was primary and Arch would not seek contribution from Insurance available to an additional insured if Franco agreed in writing “that this insurance would be primary and would not seek contribution from any other insurance available to the additional insured.”

Franco held a policy from Travelers which provided coverage in excess of “proper exhaustion of the Retained Limit,” defined as the greater of “all Scheduled Underlying Insurance.” LPC’s policy was issued by National Fire Insurance Company which provided coverage for bodily injury.

LPC hired Franco as a subcontractor. A Franco worker, Joe Vega, slipped and strained his abdomen at the job site. Vega sued LPC and the project’s owner. The project owner and LPC filed a third-party action against Franco for contractual indemnification, alleging that Vega’s accident resulted from Franco’s acts or omissions.

National Fire tendered the defense and indemnification of LPC to Arch, arguing LPC qualified as an additional insured under the Arch policy. The tender was denied on the ground that Franco’s acts and omissions had not caused Vega’s injuries. National Fire and later Travelers submitted numerous additional tenders, all of which were denied by Arch.

In the underlying action, an appellate court eventually ruled that Franco caused Vega’s injury and held Franco was obligated to indemnify LPC under the subcontract. The Vega action then settled with Arch paying $1 million. The settlement did not resolve the claims in the third-party action, and LPC maintained that Franco was obligated to reimburse LPC for its defense costs in the Vega action.

Travelers sent Arch numerous letters, demanding that Arch reimburse LPC’s defense costs as an additional insured under the Arch policy. Arch refused. Arch argued that by paying $1 million for the settlement, its policy was exhausted.

LPC and Franco settled the third-party action by Franco making a payment to LPC of $245,000. The settlement agreement expressly reserved any rights of Travelers, National Fire, LPC, and Franco to pursue recovery from Arch.

Travelers filed suit naming Arch as a defendant and National Fire as an interested party defendant. All three insurers moved for summary judgment. Arch’s motion, seeking dismissal of the suit, was denied. Under Arch’s policy, exhaustion of limits did not retroactively change its duty to defend. Further, defense costs did not reduce the available amount of the $1 million for judgments or settlements.

Travelers’ motion was granted in part. LPC qualified as an additional insured under the Arch policy because the subcontract was a written contract that required Franco to procure insurance including LPC as an additional insured. Here, Franco, “in whole or in part,” caused Vega’s injury, triggering, Arch’s duty to defend LPC. Further, given the policy language, the Arch policy was primary to that of the National Fire policy.

The court found that Travelers and National Fire were entitled to damages from Arch. But the measure of damages was the amount they paid in defense costs that Arch should have paid up until Arch exhausted its policy with the Vega settlement. Arch was not obligated to pay either post-exhaustion defense costs or the precise amount of the settlement agreement. Traveler’s motion in regard to damages was denied without prejudice.

National Fire’s motion seeking damages representing the difference between the settlement agreement and the anticipated judgment, plus pre-judgment interest, was also denied. The correct measure of damages was the amount that National Fire paid to defend LPC that Arch should have paid prior to exhaustion, not the amount of National Fire’s anticipated judgment.