“The Comma That Wasn’t”: Second Circuit Restores Full Scope of Personal-Injury Liability Insurance and Safe-Harbor Protection in N.Y. Ins. Law § 1113(a)(13) & § 1213(e)

1. Introduction

Liberty Insurance Corp. v. Hudson Excess Insurance Co., No. 23-1208 (2d Cir. Aug. 13, 2025), tackles two recurring flash-points in New York insurance disputes:

When may a federal court, in a parallel declaratory-judgment action, decide an insurer’s duty to indemnify while the underlying state tort suit is still pending?
How far does the “personal injury liability insurance” category in N.Y. Insurance Law § 1113(a)(13) extend, and, in turn, when may an unauthorized surplus-line carrier invoke the attorney-fee safe-harbor in § 1213(e)?

The case arose from a construction-site fall at 45 John Street, Manhattan. The property owner (45 John NY LLC) was sued by an employee of subcontractor Skittles Services Corp. Liberty insured the owner; Hudson insured Skittles. Liberty sought a declaration that Hudson owed defense and indemnity to the owner as an additional insured under Hudson’s commercial general liability (“CGL”) policy. After Liberty prevailed in the district court — and was awarded its attorney’s fees under § 1213(d) — Hudson appealed.

2. Summary of the Judgment

The Second Circuit:

Affirmed the district court’s ruling that Hudson must indemnify the owner, holding that the trial court properly found Skittles’ negligence a proximate cause of the employee’s injuries, even though the tort action remains pending. A later state-court summary-judgment order against Skittles did not alter that outcome.
Reversed the award of Liberty’s attorney’s fees. Construing § 1113(a)(13) and § 1213(e) as a coherent scheme, the Court held that a stray comma inserted during the 1984 recodification could not narrow the permissible scope of “personal injury liability insurance” to professional-negligence claims only. Because Hudson’s CGL policy is authorized under § 1113(a)(13), it fits within the § 1213(e) safe-harbor, barring fee-shifting.

3. Analysis

3.1 Precedents Cited & Their Influence

Burlington Ins. Co. v. NYC Transit Auth., 29 N.Y.3d 313 (2017) — established that additional-insured coverage triggered by injury “caused, in whole or in part” by the named insured requires a proximate-cause finding. The panel applied Burlington’s logic to uphold the district court’s fact-finding on proximate cause.
Servidone Constr. Corp. v. Security Ins., 64 N.Y.2d 419 (1985) — distinguished duty to defend from duty to indemnify; the Second Circuit reiterated that indemnity demands a covered loss, but also clarified that a federal court may decide indemnity first if sufficient facts are stipulated.
Admiral Ins. Co. v. Niagara Transformer Corp., 57 F.4th 85 (2d Cir. 2023) — provided the multi-factor test for discretionary jurisdiction under the Declaratory Judgment Act; guided the appellate panel in endorsing the district court’s exercise of jurisdiction.
Statutory guides: N.Y. Ins. Law §§ 1113, 1213, 2105; N.Y. Workers’ Comp. Law § 11; N.Y. C.P.L.R. § 3212.

3.2 The Court’s Legal Reasoning

Duty to Indemnify without Waiting for State Verdict

The panel endorsed fact-finding via a bench trial on stipulated evidence, noting that the federal court was not bound to await the conclusion of the negligence suit. Hudson had stipulated to the applicability of the subcontract (naming the owner as an additional insured) and participated in a settlement acknowledging a primary duty to defend. Those acts, combined with evidence that Skittles built the scaffold and failed to supply safety gear, justified a finding that Skittles’ negligence was a substantial cause of the fall.
Rejection of “Comma-Limited” Reading of § 1113(a)(13)

The district court thought the post-recodification comma made professional-service negligence a prerequisite for all bodily-injury coverage under § 1113(a)(13), thus rendering Hudson’s CGL policy outside the paragraph and disqualifying Hudson from § 1213(e). The Second Circuit disagreed:
- Applying New York’s rule against absurd results, the Court highlighted the legislative record of the 1984 re-codification, which was expressly non-substantive.
- The earlier 1939 and 1982 statutory texts lacked the troublesome comma; nothing in the legislative history evidenced an intent to eliminate standard bodily-injury coverage from the surplus-line market.
- Therefore, the comma is a scrivener’s error; the statute still authorizes personal-injury liability insurance for all bodily injury, whether or not arising from professional negligence.
Because Hudson’s policy was placed by a licensed excess-line broker and named the NY Superintendent of Financial Services for service, the policy satisfied § 2105 and § 1213(e), sheltering Hudson from fee-shifting.

3.3 Impact of the Decision

Clarifies statutory scope: Reinforces that § 1113(a)(13) embraces ordinary CGL bodily-injury coverage. Surplus-line carriers can rely on § 1213(e) without fear that broad bodily-injury risks fall outside the authorization scheme.
Limits attorney-fee exposure: Insureds suing unauthorized insurers must now reckon with § 1213(e) more carefully; fee awards will be rarer where the policy qualifies under § 1113(a)(13).
Procedural guidance: Federal courts in the Second Circuit may, after adequate factual development, decide indemnity obligations before the underlying tort case ends, provided Admiral-type factors favor jurisdiction.
Textual-interpretation lesson: The opinion is a case study on how minor drafting errors (a comma) can spawn major litigation stakes, and how New York courts use legislative history to avoid unintended substantive change.

4. Complex Concepts Simplified

Additional Insured: A party added to someone else’s liability policy, gaining coverage for certain claims arising out of the named insured’s operations.
Commercial General Liability (CGL) Policy: Insurance that covers businesses for bodily-injury, property-damage, and certain personal-injury claims arising from their premises, operations, or products.
Unauthorized / Surplus-Line Insurer: An insurance company not licensed in the insured’s state but permitted to issue policies through licensed “excess line” brokers when coverage is unavailable from admitted carriers.
N.Y. Ins. Law § 1213(d) vs. § 1213(e): § 1213(d) lets courts award attorney’s fees against an unauthorized insurer whose refusal to pay was “vexatious and without reasonable cause.”
§ 1213(e) creates a safe-harbor: if the surplus-line carrier appointed the Superintendent for service and wrote a policy statutorily authorized (e.g., under § 1113(a)(13)), it is immune from § 1213(d) fee-shifting.
Proximate Cause: The legal determination that the defendant’s acts were a substantial factor in bringing about the injury, triggering indemnity where policy language requires causation “in whole or in part.”

5. Conclusion

Liberty v. Hudson answers two significant questions:

A federal court may adjudicate an insurer’s duty to indemnify during the pendency of the underlying tort suit when proximate cause can be established on a developed record.
The 1984 recodification of the Insurance Law did not narrow § 1113(a)(13) to professional-negligence claims. Standard CGL bodily-injury coverage fits within the paragraph, and unauthorized carriers who follow § 2105 can invoke the § 1213(e) safe-harbor to avoid fee awards.

By correcting a punctuation fluke, the Second Circuit preserved decades of commercial-insurance practice and reaffirmed that statutory interpretation must bow to legislative purpose over grammatical happenstance. Insurers, brokers, and policyholders alike should revisit their fee-shifting strategies and coverage analyses in light of this decision.