Court Holds A $500,000 SIR Fails To Comply With Insurance Requirements

A trial court in New York recently was faced with questions concerning the amount of damages a contracting party, Citibank, was entitled to because of the failure of its contractor to procure insurance. (See Spector v. Cushman & Wakefield, 2012 N.Y. Misc. LEXIS 2794; 2012 NY Slip Op 3155U (Sup. Ct. N.Y. Co.)) Citibank sought all expenses incurred in connection with an underlying personal injury action, i.e., the amount of any settlement or judgment and reasonable attorneys’ fees, because Citibank was a self-insured party. In addressing damages, the court noted that New York’s highest court has held that, where a party intended to be insured by its contractor has its own insurance nonetheless, the measure of damages is limited to out-of-pocket expenses such as premiums and any additional costs incurred, including deductibles, co-payments and rate increases in the party’s insurance. (Inchaustegui v. 666 Fifth Avenue Limited Partnership, 96 N.Y.2d 111, 725 N.Y.S.2d 627 (2001)) However, that decision acknowledged that where the party was left uninsured, it could recover “the full amount of the underlying tort liability and defense costs.” (Id. at 114) In this recent June 2012 trial court decision, the court granted Citibank’s summary judgment motion for defense costs because it was self-insured.

But what was more significant to me than the issue of the amount of damages was the court’s affirmance of a prior order in December 2011 in which the court held that the contractor “failed to obtain the requisite insurance for Citibank’s benefit.” (Slip. Op. at 8) A reference to the prior order reveals that the relevant contract provisions required the contractor to procure liability insurance in the amount of $1,000,000 “including but not limited to coverage for its indemnitees to the Agent under this Agreement,” and further required Citibank to be an additional insured under that policy. (December Slip. Op. at 12-13) (The December 2011 decision is under appeal and is reported here.) Further, the requirements stated that “[i]f the Contractor’s CGL policy includes a self-insured retention, the certificate of insurance shall so indicate, including the amount thereof.” (Id. at 13) While the policy obtained did include $1,500,00 of limits and an automatic additional insured endorsement providing coverage for contractually required additional insureds, that coverage was subject to a self-retained limit, or SIR, of $500,000.

While the court acknowledged that the contract did not expressly preclude self-insured retentions, “considering the reasonable expectations of the parties, the court finds that [contractor] breached its obligation to procure insurance naming Citibank as an additional insured …with a limit of $1,000,000.” (Id. at 14) Because the policy required the contractor to pay out $500,000 before the policy pays any benefit, it granted summary judgment to Citibank on its breach of contract claim relying on the following: “It is well settled that self-insurance is not insurance but an assurance–an assurance that judgments will be paid.” (quotations and citations omitted) (Id.)

Accordingly, the court granted Citibank’s motion for a judgment of liability for costs incurred in defending the action up to $500,000 as Citibank had no insurance––as a self-insured––up to the amount of the SIR. (Slip. Op. 13)