If you are a business owner, it is important to understand what is covered by the various insurance policies you have, so you don’t find yourself with a gap in coverage. This lesson was evident in a recent New York Appellate Division, Second Department case involving a restaurant. The Court found that the insurer was not liable for injuries caused by a food delivery employee because of the wording of the restaurant’s insurance policy.

In Normile v. DB Insurance Co., Ltd., the plaintiff was hit by a restaurant employee on a bicycle one block from the restaurant as he was returning after making a food delivery. She sued the restaurant and various other defendants in a separate action and obtained a $500,000 money judgment. The restaurant had tendered the claim to its insurer, which disclaimed coverage. The restaurant apparently accepted the denial of coverage and did not seek a declaratory judgment requiring the insurer to defend and indemnify it. Instead, the restaurant defended itself in the case, the result of which was the $500,000 judgment.

The plaintiff had little success in collecting on the judgment and commenced an action directly against the restaurant’s insurer pursuant to New York Insurance Law Section 3420 (a)(2), which gives an injured plaintiff the right to directly sue a tortfeasor’s (in this case, the restaurant) insurer in order to satisfy a judgment obtained against the tortfeasor. The lower court granted the plaintiff’s motion for summary judgment and directed the insurer to pay the judgment. The insurer appealed.

In dispute was the interpretation of the language in the restaurant’s general liability business insurance policy. The appellate court reviewed the relevant case law and found that the plaintiff’s injuries were not covered because the restaurant’s policy language only covered injuries arising out of “[t]he ownership, maintenance or use of the premises … and operations necessary or incidental to those premises.” The court made a distinction between a policy that covered operations necessary or incidental to ‘premises’ and one that covered operations necessary or incidental to the ‘business’ (the latter would have covered the plaintiff’s accident).

The plaintiff had argued that the insurer was aware that the restaurant offered food delivery when it insured the business and that the employee’s actions were performed in the scope of his employment and should be covered. The court disagreed and found that the policy language was not broad enough to cover all business-related activity necessary or incidental to the business operations of the restaurant. Any alleged incident must include a “spatial and circumstantial connection” to the insured premises under the policy. This likely means that had the incident occurred as the delivery person was pulling into or out of the restaurant’s driveway or alleyway, the result in the case may have been different, and the insurer would have been held liable.

Instead, the Appellate Division reversed the lower court’s decision and dismissed the case against the insurer. This decision highlights the importance of ensuring you have in place all required and appropriate insurance for your type of business.

Please contact one of our attorneys to review your business’s liability risks and insurance needs.