In a declaratory judgment action seeking coverage under a general commercial liability (CGL) insurance policy for an underlying action in which a construction worker employed by the insured to perform demolition work was injured, an intermediate New York appellate court found that a policy endorsement containing classification limitations of coverage constituted conduct included in the scope of coverage, and not an exclusion from coverage.

In Black Bull Contracting, LLC v. Indian Harbor Ins. Co., 2016 NY Slip Op 00002 (1st Dep’t Jan. 5, 2016), the Appellate Division, First Department, of the New York State Supreme Court, affirmed a trial court order that granted the defendant insurer, Indian Harbor Insurance Company’s (“Indian Harbor”), motion to dismiss the complaint pursuant to CPLR 3211(a)(1) and (7), and denied the plaintiff insured, Black Bull Contracting, LLC’s (“Black Bull”), cross motion for summary judgment. Since an endorsement to the policy enumerated four specific classifications of work that were covered by the CGL policy, the Appellate Division stated that the policy’s classification limitations of coverage “merely define the activities that were included within the scope of coverage ‘in the first instance’ and do not constitute exclusions from coverage that would otherwise exist.” Id. at *2 (citation omitted).

In Black Bull, the insured’s employee performed demolition work on a building, and was struck by a piece of concrete while using a jackhammer to demolish a chimney in the building. The employee commenced an action against the building owner, who commenced a third-party action against the insured, Black Bull. Black Bull sought coverage under its CGL policy from Indian Harbor. The policy contained an endorsement identifying four specific types of construction operations as being “classified” or covered under the policy, such as “Carpentry,” “Wallboard Installation” and certain “subcontracted work”. None of them included demolition.

In affirming the trial court, the First Department explained that language provided in the policy clearly showed Indian Harbor would only cover bodily injury “to which this insurance applies,” and concluded that “the classification limitation endorsement to Black Bull’s policy was not an exclusion but a definition of the scope of coverage.”   Id. at *3. The First Department disagreed with Black Bull’s contention that demolishing a chimney with a jackhammer fell within the scope of any of the classifications contained in the endorsement.

The First Department also distinguished this matter from Planet Ins. Co. v. Bright Bay Classic Vehs.,75 N.Y.2d 394 (1990), where the policy in that case only covered cars in a rental fleet that were rented for less than 12 months. There, the policy at issue excluded cars that otherwise would have been covered as part of the insured’s fleet, but became uncovered if a car was leased for a period longer than that prescribed in the policy. In that case, the Court of Appeals was concerned that individuals renting cars would have no way of knowing that the period of the lease negated the coverage. Here, however, the First Department found that Black Bull should have known from the outset that it would not be covered for liabilities arising from operations outside the enumerated classifications stated in the policy endorsement.

The First Department further affirmed the trial court ruling notwithstanding that disclaimers of coverage were untimely issued under Insurance Law 3420(d)(2). The court ruled that since there was no coverage under the policy for the underlying action in the first instance, that conclusion by the insurer was not waived by its untimely disclaimer of coverage.

This decision demonstrates that classification limitations are viewed as defining the scope of coverage, and not as exclusions from coverage, and that a late disclaimer of coverage, even though untimely, will not preclude an insurer from denying coverage when the policy does not provide coverage in the first instance.