Extension of Insured Status to Third Parties and Co-Excess Allocation in Risk Retention Group Policies

Introduction

County of Ulster v. Alliance of Nonprofits for Insurance Risk Retention Group, decided April 7, 2025 by the Second Circuit, addresses two closely related issues in the context of coverage under a Risk Retention Group (“RRG”) policy: (1) whether a municipal county becomes an “insured” under an RRG policy when it is vicariously liable for the conduct of a volunteer defined as an insured, and (2) how competing auto liability policies interact when their “other insurance” clauses are essentially identical but one policy contains an “insured contract” priority clause.

Background & Parties:

Plaintiffs: County of Ulster, New York State Local Government Services Foundation Inc. (attorney-in-fact for New York Municipal Insurance Reciprocal), New York Municipal Insurance Reciprocal (together, “the County”).
Defendant/Counter-Claimant: Alliance of Nonprofits for Insurance Risk Retention Group (“ANI”).
Underlying Event: In January 2018, a volunteer driver, Barbara Hyde, operating under the County’s Senior Transportation Program, lost control of her vehicle and collided with a County-owned bus. The accident resulted in Hyde’s death and injury to passenger Joyce Northacker.
Procedural Posture: The County sought a declaratory judgment that ANI’s RRG policy covers its liability in a related state-court action by Northacker. ANI counterclaimed that it did not.

Summary of the Judgment

The Second Circuit affirmed in part and vacated in part the district court’s summary judgment ruling. It held:

The County is an “insured” under ANI’s policy because (a) the volunteer driver, Hyde, was an insured volunteer of Jewish Family Services (“JFS”) by contract endorsement; and (b) the policy extends insured status to any party vicariously liable for the conduct of an insured.
ANI’s policy is not primary over the County’s separate municipal auto policy issued by NYMIR; rather, both policies are co-excess because the liability at issue does not arise from an “insured contract” qualifying for primary status under ANI’s “other insurance” clause.

The case was remanded for further proceedings consistent with these holdings.

Analysis

1. Precedents Cited

Byrne v. Rutledge, 623 F.3d 46 (2d Cir. 2010) – Standard of review for summary judgment.
Goldman v. White Plains Center for Nursing Care, LLC, 896 N.Y.2d 173 (2008) – Interpretation of clear, unambiguous written agreements without extrinsic evidence.
New York decisions on abandonment of contract by conduct:
- EMF General Contracting Corp. v. Bisbee, 6 A.D.3d 45 (N.Y. App. Div. 1st Dep’t 2004)
- Aliperti v. Laurel Links, Ltd., 27 A.D.3d 675 (N.Y. App. Div. 2d Dep’t 2006)

2. Legal Reasoning

a. Insured Status through Volunteer Endorsement
The ANI policy’s Business Auto Coverage insures “all sums an ‘insured’ legally must pay because of bodily injury….” By endorsement, the policy defines “insured” to include “anyone volunteering services to [JFS]…while using a covered auto…to transport [JFS] clients….” The Court examined the “Agreement for Professional Services” between the County and JFS, which established JFS as the program administrator and characterized the drivers as “the Agency’s volunteers.” The plain terms, reinforced by consistent renewal and insurance maintenance, removed any ambiguity: Hyde was a JFS volunteer and thus an insured.

b. Vicarious Coverage for County Liability
The policy’s “Who Is An Insured” section contains a third clause extending coverage to “anyone liable for the conduct of an insured described above, but only to the extent of that liability.” The Court construed this clause in harmony with the volunteer endorsement, thereby covering the County for its vicarious liability based on Hyde’s conduct.

c. Co-Excess Allocation of Competing Policies
The NYMIR policy and the ANI policy both contain nearly identical “other insurance” clauses, except that ANI’s clause carves out priority for liability “assumed under an ‘insured contract.’” Although the underlying Agreement between the County and JFS includes an indemnification provision, the Court clarified that the County’s insured status derives directly from the contract endorsement, not from any separate indemnity obligation. Because the liability did not arise from an assumed contract risk (it arose from vicarious insured status), neither policy fell within the “insured contract” exception, and they must share coverage on a co-excess basis.

3. Impact

Clarifies that third-party governmental entities can be insureds under RRG policies when vicariously liable for volunteer insureds created by endorsement, broadening municipal coverage arguments.
Emphasizes strict adherence to “other insurance” clauses: priority exceptions apply only when liability is directly assumed under a distinct insured contract, preventing policyholders from transforming vicarious or indemnification obligations into primary coverage triggers.
Signals insurers and policyholders to draft endorsement language and inter-policy coordination clauses with precision to avoid unintended co-excess allocations or coverage disputes.

Complex Concepts Simplified

Risk Retention Group (RRG): A self-insurance vehicle for members with similar risks (e.g., nonprofits) that issues liability policies.
Endorsement: A policy addition that modifies or expands coverage—in this case, making volunteers insureds.
Vicarious Liability: Legal responsibility of one party (the County) for the wrongful acts of another (the volunteer), patterned as if the first party itself committed them.
Other Insurance Clause: A policy provision that allocates responsibility among multiple insurers when more than one policy covers the same risk.
Co-Excess: Two or more policies share excess coverage proportionally or equally when no priority rule applies.
Insured Contract Exception: A carve-out granting a policy primary status if liability is assumed under a separate contract specifically defined as “insured” by the policy.

Conclusion

County of Ulster v. Alliance of Nonprofits establishes two key precedents: municipalities can obtain insured status under RRG policies when held vicariously liable for volunteers expressly covered by endorsement, and competing auto liability policies with identical “other insurance” clauses operate on a co-excess basis unless liability is directly assumed under an “insured contract.” Insurers, public entities, and nonprofit RRG participants should carefully draft volunteer endorsements and inter-policy provisions to reflect intended coverage hierarchies and prevent unanticipated allocation disputes.