Expansive Additional-Insured Coverage: Duty to Defend Extends to Unleased Access Areas

Introduction

In 523 BWAY, LLC v. Erie & Niagara Insurance Association (2025 NYSlipOp 01598), the Appellate Division, Second Department, reversed a summary judgment that denied additional-insured coverage and held that Erie & Niagara Insurance Association (“ENIA”) must defend and indemnify 523 BWAY, LLC (“523 BWAY”) in an underlying personal injury suit. 523 BWAY was named as an additional insured under a policy issued to its tenant, Dr. Gary Berson, for a dental office leased from 523 BWAY. When an employee of Dr. Berson slipped and fell in the parking lot adjacent to the leased space, 523 BWAY tendered defense to ENIA, which disclaimed coverage on multiple grounds. The trial court granted ENIA’s motion and denied 523 BWAY’s cross-motion; 523 BWAY appealed.

Summary of the Judgment

The Appellate Division reversed. It held that:

ENIA’s additional-insured endorsement unambiguously covered “liability arising out of the ownership, maintenance, or use of that part of the premises…leased…to the named insured” (here, the dental office), and a causal link existed between Pacheco’s fall in the parking lot and the leased premises.
The parking lot, though not expressly described in the lease, was an area to which the tenant had a license and through which all visitors had to pass to reach the dental office).
ENIA failed to demonstrate prejudice from 523 BWAY’s late notice under Insurance Law § 3420(c)(2), and its disclaimer was unreasonably delayed under § 3420(d)(2).

The matter was remitted for an amended judgment declaring ENIA’s duty to defend and indemnify 523 BWAY as an additional insured in the underlying action.

Analysis

Precedents Cited

Regal Constr. Corp. v. National Union Fire Ins. Co. (15 NY3d 34): Established the “exceedingly broad” duty to defend where any claim arguably falls within coverage.
Mack-Cali Realty Corp. v. NGM Ins. Co. (119 AD3d 905): Clarified that an additional insured enjoys the same protective ambit as the named insured; “arising out of” requires only a causal connection.
Frank v. Continental Cas. Co. (123 AD3d 878): Reinforced that insurers must defend the entire action if any claim potentially falls under the policy.
Maroney v. New York Cent. Mut. Fire Ins. Co. (5 NY3d 467) & Lissauer v. GuideOne Specialty Mut. Ins. (161 AD3d 974): Insurers are not liable for unpremised areas for which no premium was received.
1416 Coney Is. Realty, LLC v. Wesco Ins. Co. (217 AD3d 807), Isidore Margel Trust v. Mt. Hawley Ins. Co. (195 AD3d 799), Antoine v. City of New York (56 AD3d 583): Allowed coverage where access to leased space necessarily passed through unleased areas.
Atlantic Ave. Sixteen AD, Inc. v. Valley Forge Ins. Co. (150 AD3d 1182): Distinguished because multiple access points existed and the additional-insured endorsement specifically limited coverage to the leased unit.
Various cases interpreting Insurance Law § 3420 on notice and disclaimer timing: Interboro Mut. Indem. Ins. Co. v. Rivas, First Fin. Ins. Co. v. Jetco Contr. Corp., ADD Plumbing, Inc. v. Burlington Ins. Co., etc.

Legal Reasoning

The court began with the principle that an additional insured’s right to defense is “exceedingly broad.” The endorsement at issue covered “liability arising out of the ownership, maintenance or use” of the dentist office leased by Berson. Although the lease did not expressly include the adjacent parking lot, testimony and photographs established that all clinic visitors—and thus any risk of slip-and-fall—necessarily arose in that lot. Hence, the causal nexus for “arising out of” was satisfied.

On notice, the court applied Insurance Law § 3420(c)(2)(A): because 523 BWAY notified ENIA more than two years after the accident, 523 BWAY bore the burden of proving ENIA suffered no prejudice from late notice. 523 BWAY met that burden by showing ENIA promptly opened an investigation upon tender in April 2020 and conducted a full review. ENIA did not produce evidence of actual prejudice.

Finally, under § 3420(d)(2), an insurer must disclaim coverage “as soon as is reasonably possible” once it knows the grounds for denial. Here, ENIA delayed from April to late September 2020—a period deemed unreasonable under controlling precedents—without justification. That failure further barred its disclaimer.

Impact

This decision strengthens the rights of additional insureds to defense and indemnification, especially where off-site or ancillary areas, not expressly described in a lease, are necessary to access the leased premises. Insurers issuing additional insured endorsements must:

Interpret “arising out of” coverage broadly to include risks in areas functionally connected to the insured premises;
Respond expeditiously to tenders of defense, even if late notice issues arise;
Disclaim coverage in writing without undue delay once grounds are known, or risk waiver.

Future litigants will cite 523 BWAY as authority preventing insurers from using narrow descriptions or delayed disclaimers to avoid duties to additional insureds.

Complex Concepts Simplified

Additional Insured: A party (e.g., a landlord) extended the same policy protections as the named insured (e.g., a tenant).
"Arising Out Of": A low threshold causal link between the injury and the insured premises or operations.
Notice & Prejudice (Ins. Law § 3420): If notice arrives more than two years late, the insured must prove no harm to the insurer; if less, the insurer must show actual prejudice.
Disclaimer Timing (Ins. Law § 3420(d))(2): Once an insurer knows the ground for denial, it must promptly issue a written disclaimer or be barred from denying coverage.

Conclusion

523 BWAY, LLC v. Erie & Niagara Insurance Association clarifies that additional insured endorsements must be read to cover all areas through which the insured conducts business, even if unleased, when those areas are essential to access the insured premises. Insurers cannot rely on strict lease descriptions or belated disclaimers to evade their broad duty to defend and indemnify. This decision will guide policy drafters, tenants, landlords, and insurers in defining and honoring additional-insured relationships going forward.