What happened: Phoenix Insurance alleges a subcontractor's insurer has refused to cover the defense of a Costco slip-and-fall claim despite a contract requiring primary coverage
Who's involved: Phoenix Insurance Company (Travelers group) v. Harleysville Insurance Company of New Jersey (Nationwide group); underlying claim involves Costco, Miller Refrigeration, and Heritage Refrigeration
What's at stake: At least $51,374.53 in defense costs already paid, plus ongoing expenses and a declaration of primary coverage obligations
Why it matters: The dispute turns on whether a subcontract's insurance clause can force another insurer to pay first - a question that touches every contractor and carrier writing additional-insured endorsements
Where it stands: Complaint filed September 29, 2026, in the US District Court for the District of New Jersey
A replacement drain pan arrived at a New Jersey Costco eleven days before a customer slipped on icy water in the dairy cooler. It sat in the subcontractor's warehouse for another five months.
That eleven-day gap is now at the center of a federal coverage dispute between two major insurance groups. Phoenix Insurance Company, part of the Travelers family, filed a complaint on September 29, 2026, in the US District Court for the District of New Jersey, alleging that Harleysville Insurance Company of New Jersey - a Nationwide affiliate - owes primary defense and indemnification for the underlying slip-and-fall claim.
The chain of events started with a leaking drain pan in the refrigerated dairy cooler at a Costco store in Stafford Township, New Jersey. According to the complaint, Miller Refrigeration, Costco's refrigeration contractor, inspected the cooler on June 7, 2023, and quoted a replacement part two days later. Costco was pushing to get the fix done by June 16.
Miller had subcontracted the work to Heritage Refrigeration. The replacement pan was delivered to Heritage's New Jersey location on August 15, 2023.
Eleven days later, on August 26, a customer walked into the dairy cooler, hit what the complaint describes as a puddle of water that "had become slick like ice," and fell. Heritage did not finish the installation until January 31, 2024 - roughly five months after the accident.
The subcontractor has since admitted in sworn deposition testimony that it received the replacement part on August 15, 2023 and failed to follow up, the complaint states.
A non-binding arbitration award dated July 23, 2026 found Heritage 30% liable for the accident. That percentage matters because of a specific clause in Harleysville's liability policy - endorsement CG 7263 12 10 - which the complaint says automatically extends coverage to anyone Heritage agreed in writing to cover. The endorsement kicks in when damage is "caused, in whole or in part" by Heritage. Thirty percent qualifies.
The subcontract between Miller and Heritage required Heritage to carry liability insurance naming both Miller and Costco as additional insureds - meaning they would be covered under Heritage's policy, not just their own - with "minimum primary limits of $5,000,000.00 combined single limit."
Phoenix says that "primary" language means Harleysville's policy pays first, before Phoenix's own policy kicks in. Harleysville disagrees.
The complaint traces a paper trail stretching back to May 2024. Travelers first tendered the claim to Heritage on May 6, 2024, asking Heritage's insurer to take over the defense. Nationwide, acting for Harleysville, turned down the request as premature because no lawsuit had been filed yet.
When litigation began, Harleysville's position shifted but did not resolve. In a November 7, 2025 letter, Harleysville denied that any coverage owed to Miller was primary, calling it excess only. The subcontract, Harleysville wrote, "does not include such a provision requiring coverage to be primary and noncontributory." Phoenix says the subcontract's own wording directly contradicts that.
By March 2026, Harleysville acknowledged for the first time that Miller qualified as an additional insured - but only on a proportional basis, matching Heritage's 30% share of liability. It offered to split defense costs 50-50 for Miller alone and reserved the right to dispute coverage further. Costco's status as an additional insured was denied outright in an August 5, 2026 letter.
Phoenix rejected the offer and filed suit seeking three things: a declaration that both Miller and Costco are additional insureds entitled to full coverage, a declaration that Harleysville's policy pays first, and a money judgment for the $51,374.53 in defense costs already paid plus whatever continues to accrue.
For claims and coverage professionals who handle subcontractor chains, the case puts a familiar question in sharp focus: when a subcontract says "primary," does that settle which insurer pays first - even when the other insurer's endorsement says something different?
None of the allegations in the complaint have been tested, and no court has ruled on the merits of the claims.
