KEEPS CHUGGING ALONG…
Railroads have been asking for additional insured coverage from their vendors, contractors and lessees for some time now. The body of case law challenging that coverage is slowly building. In the railroads’ favor. Let’s take a look together at the most recent case for some additional nuggets of insight.
In Norfolk Southern Ry Co., v. National Union Fire Ins. of Pittsburgh, PA, 999 F. Supp. 2d 906 (U.S. Dist. W. VA 2014) reconsideration denied (March 21, 2014), the railroad (NFS) was an additional insured on its lessee’s CGL policy. Please recall, dear readers, that a CGL policy is a commercial general policy of insurance that covers all risks unless specifically excluded. NFS was not an additional insured by endorsement. Rather NFS asked to included as an insured in an underlying lease agreement with Cobra Natural Resources, the lessee. Cobra’s CGL main form policy provided that it would also cover:
any person, organization…that has obligated you by written contract to provide the insurance that is afforded by this policy, but only with respect to liability arising out of “Your Work,” “Your Product,” and to property owned or used by you.”
Id., 999 F. Supp at 911. My faithful readers will also recall that any time the words “You” or “Your” are in caps, the policy language is referring to the Named Insured, and not the Additional Insured. Thus, the coverage provided to NFS by the insurer, National, would only be triggered if the loss arose out of Cobra’s work or products. But we knew that. So why the litigation?
The beef between National Union and NFS centered on this policy clause, even though the facts were undisputed. An NFS train derailed while being filled with coal at the Cobra site. A Cobra employee determined during the filling process that a Cobra scanning device was not working properly. The Cobra employee asked NFS to back up the train. The train derailed.
In moving for summary judgment, National argued that the phrase “arising out of” as used in the policy means the same as proximate causation under general tort law. For that reason, National said, NFS must be solely responsible for the loss. It occurred when the NFS employee reversed the train. Cobra was not involved in that maneuver.
In its counter motion for summary judgment NFS argued to the contrary. NFS stated that the phrase “arising out of” when used in an insurance policy is much broader. It means only “some causal connection or relationship” between the loss and the Named Insured’s work. NFS argued that the Cobra equipment failure was the trigger for reversing the train movement. If the Cobra equipment had not failed, the derailment would never have occurred.
West Virginia law applied. The court found that “In this case, a derailment at a railroad coal load out is foreseeably identifiable with Cobra’s work at the load out.” Id., at 914 (emphasis added). The derailment arose out of the operations performed on Cobra’s behalf. Id.
The court distinguished the phrase “arising out of” from the phrase “arising from.” “Arising from” is much narrower. It essentially means “resulting from.” Id. But that was not the case here with the policy language. When the National policy used “arising out of,” all that was required was some causal connection that was “foreseeably identifiable” with the Named Insured’s work. Accordingly, the court granted the NFS motion for partial summary judgment.
When a CGL policy uses the phrase “arising out of” in a covered contract clause, all the Additional Insured must prove is that there was a “foreseeably identifiable” connection between the loss and the Named Insured’s work.
BTW: This is the majority rule my friends. Please call or write me with comments or questions.