First Department Finds That Classification of Coverage Endorsement Is Part of Coverage Grant Under Insurance Policy -- Not A Policy Exclusion That Would Otherwise Require Timely Disclaimer

In Black Bull Contr. v. Indian Harbor Ins. Co., Indian Harbor issued a policy of commercial general liability insurance to Black Bull under which Indian Harbor agreed to pay all sums the insured was legally obligated to pay as the result of damages "to which this insurance applies."  Pursuant to Endorsement #003, the insurance applied "only to operations that are classified or shown on the Declarations."  According to the Declarations, Black Bull was insured for four classifications: (1) Carpentry; (2) DryWall Installation; (3) subcontracted work in connection with construction, reconstruction, repair or erection of buildings; and (4) subcontracted work uninsured/underinsured.  

Black Bull was hired to perform work on a building and one of its employees was injured while using a jackhammer to demolish a chimney.  The worker commenced an action against the owner of the building, who in turn commenced an action against Black Bull.  Black Bull tendered to Indian Harbor both Black Bull's defense to the owner's action and the owner's defense to the worker's action. Indian Harbor issued two disclaimers, 79 and 85 days after being notified of the loss, on the basis that the worker was not injured while performing work within any of the four classifications enumerated in the Declarations page.

In a declaratory judgment action against Indian Harbor, the Supreme Court granted Indian Harbor's pre-answer motion to dismiss, which was affirmed by the First Department.  The First Department found that the Indian Harbor disclaimers were untimely as a matter of law, but, significantly, the Court also found that Indian Harbor was not obligated to timely disclaim coverage to Black Bull. The Court indicated that Indian Harbor's disclaimers were based on a lack of coverage in the first instance, not a policy exclusion that would have otherwise required a timely disclaimer.  More specifically, the policy's classification limitations defined the activities that were included within the scope of coverage, i.e. the activities "to which this insurance applies."

The First Department further found that the demolition work engaged in by Black Bull's worker was not an activity that could be included within the four policy classifications.  The work clearly was not carpentry or drywall and the Court found that the remaining classifications for subcontracted work applied to work subcontracted by Black Bull to others, not work that was subcontracted to Black Bull.  Any other interpretation, the Court found, would be "untenable as a matter of law, because it would render meaningless and without effect the two previous classification limitations by extending Black bull's coverage to all of its contracting operations, whether or not they constitute carpentry or wall installation."  Therefore, the Court declared that Indian Harbor had no duty to defend or indemnify either Black Bull or the underlying owner for the worker's claims.