New York Appellate Court Holds That “Designated Premises Endorsement” Restricts Coverage to Claims Connected to Covered Premises Themselves

The New York Supreme Court, Appellate Division, Second Judicial Department, has overturned a lower court decision in Normile v. DB Insurance Co. The opinion holds that a general liability insurance carrier is not obligated to cover a lawsuit alleging off-premises bodily injuries unless those injuries arise out of operations directly connected to a designated premises.

The appellate decision stems from an underlying lawsuit wherein the plaintiff claimed that she was struck by a bicycle courier employed by the insured, a restaurant. The insured’s employee was returning to the restaurant after delivering a takeout food order and collided with the claimant roughly one block from the premises on which the insured operated the restaurant.

The claimant sued the restaurant and others, seeking damages for bodily injury she allegedly sustained as a result of the collision. The insured tendered the lawsuit to its insurer under a general liability policy, and the carrier denied coverage for the lawsuit pursuant to the policy’s “limitation of coverage to designated premises or project” endorsement, which restricted coverage under the policy to claims for “bodily injury ... arising out of ... [t]he ownership, maintenance or use of the premises ... and operations necessary or incidental to those premises.” Citing that the policy explicitly designated the location of the restaurant as a “covered premises,” the insurer denied coverage because the collision did not occur at a covered location.

The claimant obtained a judgment against the restaurant and, pursuant to Insurance Law section 3420(a)(2), commenced a declaratory judgment action against the restaurant’s insurer to recover the unsatisfied amount of the judgment. The parties cross-moved for summary judgment, and the trial court granted the claimant’s motion, finding that the insured’s employee — who was riding a bicycle after delivering food for the restaurant — was engaged in an operation that was “necessary or incidental” to the “ownership, maintenance, or use of the premises.”

The appellate court reversed the decision of the trial court, finding that the bicycle accident lacked the requisite connection to the premises to fall within the scope of coverage under the endorsement. In particular, the court analyzed whether the alleged bodily injury in fact arose out of “operations necessary or incidental to [the] premises.” While the court declined to interpret the policy language in such a way as to allow an insurer to deny coverage whenever an incident does not occur at an expressly identified covered premises, the appellate court instead adopted an interpretation of the policy language requiring a review of the incident and its spatial and circumstantial connection to the covered premises. The court’s ruling holds that the policy language in question affords coverage to an insured where a given incident takes place at a location with a direct relationship to the covered premises and where the circumstances of the incident relate to the nature of the covered premises itself, but not necessarily to the business operating out of such premises.

To this end, the appellate court noted that the actions of the employee might have been incidental to the insured’s business operations, but those actions were not incidental to the operation of the premises itself, as required for coverage under the policy. The court distinguished policy language covering operations “necessary or incidental to a business,” noting that such policy language provides broader coverage for off-site bodily injury and holding that the phrase “necessary or incidental to the premises” is not broad enough to include business-related activity necessary or incidental to the insured’s business operations.

Accordingly, the appellate court found in favor of the carrier.