10 N.Y.3d 411 (2008)
An additional insured endorsement that limits coverage to liability “arising out of” the named insured’s operations requires a causal connection between the injury and the insured’s work; mere presence of the insured’s materials at the accident site is insufficient when negligence related to those materials is disproven.
Summary
Worth Construction, a general contractor, sought defense and indemnification from Farm Family, an insurer for Worth’s subcontractor, Pacific Steel. An employee of another subcontractor, Murphy, was injured at the construction site after slipping on fireproofing on a staircase that Pacific Steel had installed. Worth was an additional insured under Pacific’s policy, but only for liability “arising out of” Pacific’s operations. The Court of Appeals held that Farm Family had no duty to defend or indemnify Worth because the accident, after Worth conceded Pacific was not negligent, did not arise out of Pacific’s operations, even though the injury occurred on a staircase installed by Pacific. The mere presence of Pacific’s work was insufficient for coverage.
Facts
Clayton Park Development hired Worth Construction as the general contractor for an apartment complex. Worth subcontracted with Pacific Steel to construct a staircase and handrailings, requiring Pacific to name Worth as an additional insured on its commercial general liability insurance policy with Farm Family. Pacific installed steel pan stairs, and Worth hired a concrete subcontractor to fill the pans. Before Pacific could install the handrailings, Murphy, an ironworker employed by Fasciano Iron Works, slipped on fireproofing applied to the stairs by another subcontractor, Central Enterprises. Pacific had no role in the fireproofing application and did not subcontract with Fasciano. Murphy sued Worth and Clayton Park, claiming he was injured on the staircase installed by Pacific.
Procedural History
Murphy sued Clayton Park and Worth. Worth sought defense and indemnification from Farm Family based on the additional insured endorsement in Pacific’s policy. Farm Family did not respond, and Worth sued Pacific for contribution and indemnification and sued Farm Family for a declaratory judgment seeking defense, indemnification, and attorneys’ fees. The Supreme Court initially ruled in favor of Worth. Pacific then successfully moved for summary judgment dismissing Worth’s third-party complaint in the underlying action after Worth conceded it had no factual basis to assert a negligence claim against Pacific. Farm Family then successfully moved to renew its motion, and the Supreme Court reversed its original decision, finding no duty to defend or indemnify. The Appellate Division reversed, holding that it was sufficient that Murphy’s injury was sustained on the stairs installed by Pacific. The Court of Appeals reversed the Appellate Division, reinstating the Supreme Court’s ruling in favor of Farm Family.
Issue(s)
Whether an additional insured endorsement providing coverage for liability “arising out of” the named insured’s operations requires the insurer to defend and indemnify the additional insured when the injury occurred on the named insured’s work product but was not caused by the named insured’s negligence?
Holding
No, because the phrase “arising out of” requires a causal relationship between the injury and the risk for which coverage is provided, and Worth conceded that Pacific was not negligent regarding the staircase, the required causal link was broken.
Court’s Reasoning
The court emphasized that an insurer’s duty to defend arises when the underlying complaint potentially gives rise to a covered claim. The additional insured endorsement in this case limited coverage to liability “arising out of” Pacific’s operations. The court stated that “arising out of” means “originating from, incident to, or having connection with” and requires a causal relationship between the injury and the covered risk. While the absence of negligence alone does not automatically negate coverage, Worth’s concession that its negligence claims against Pacific lacked merit was critical. The court found that the general nature of Pacific’s operations involved installing a staircase and handrails. Because a separate company applied the fireproofing and Pacific had completed its work on the stairs before the accident, the staircase was merely the location of the accident, and the causal link to Pacific’s operations was broken. The court distinguished the case from those where the negligence of the insured was still a potential factor. Furthermore, the court noted that while the stairs constituted materials furnished by Pacific, this alone did not trigger coverage because Worth conceded that the stairs were not a proximate cause of the injury. The court directly referenced and quoted from Maroney v New York Cent. Mut. Fire Ins. Co., 5 NY3d 467, 472 (2005), reaffirming the established definition of “arising out of”. The court also distinguished the matter from Impulse Enters./F & V Mech. Plumbing & Heating v St. Paul Fire & Mar. Ins. Co., 282 AD2d 266, 267 (1st Dept 2001), noting that in this case there was no connection between Murphy’s accident and the risk for which coverage was intended.