Additional Insureds Give Pause – KNOW YOUR CLAUSEPrint Article
- Posted on: Oct 6 2017
Many contracts require that a party procure an “Additional Insured” endorsement to their commercial general liability (and similar) insurance policies. Generally, the purpose of an “Additional Insured” endorsement is to provide insurance coverage to individuals or entities other than the purchaser of the policy. For example, many commercial lease agreements require not only that a tenant procure insurance to cover a variety of risks, but that the landlord be named as an additional insured. If the landlord is named as a defendant in a lawsuit as a result of an accident, or the landlord suffers a loss as a result of a casualty such as fire or flood at the leased premises, the landlord can make a direct claim to the tenant’s insurance carrier for defense and/or indemnification.
Like commercial leases, construction contracts typically contain an “Additional Insured” endorsement requirement. Construction contract scenarios can frequently be more complicated than a typical bipartite lease. For example, a construction contract between an owner and a contractor may require that the contractor obtain an “Additional Insured” endorsement naming as additional insureds numerous different types of individual or entities such as architects, construction managers, owner’s representatives, project engineers, lenders, local municipalities and the like.
The comfort obtained from an “Additional Insured” endorsement can quickly turn to anxiety when the carrier denies coverage. Such was the case in Gilbane Building Co./TDX Construction Corp. v. St. Paul Fire and Marine Insurance Company, 143 A.D.3d 146, 38 N.Y.S.3d 1 (1st Dep’t 2016). The plaintiff in Gilbane, entered into a written contract with the Dormitory Authority of the State of New York (the “DASNY”) to provide construction management (“CM”) services in conjunction with a construction project at the Bellevue Hospital Campus. The CM contract between Gilbane and DASNY required that any contractor hired by DASNY name Gilbane as an additional insured under that contractor’s liability policy.
Thereafter, Samson Construction Company (“Samson” or “GC”) entered into a written contract with DASNY to “…perform services as the prime contractor for all foundation and excavation work on the project” (Gilbane, 143 A.D.3d at 148, 38 N.Y.S.3d at 3) and in which Samson agreed that an endorsement to its general liability policy would name as additional insureds:
Dormitory Authority of the State of New York, The State of New York, the Construction Manager (if applicable) and other entities specified on the sample Certificate of Insurance provided by the Owner.
(Gilbane, 143 A.D.3d at 148, 38 N.Y.S.3d at 3.) The sample Certificate of Insurance specifically named Gilbane, among others, as additional insureds.
The policy obtained from defendant Liberty Insurance Underwriters contained an “Additional Insured—By Written Contract” clause, which provided:
WHO IS AN INSURED (Section II) is amended to include as an insured any person or organization with whom you have agreed to add as an additional insured by written contract but only with respect to liability arising out of your operations or premises owned by or rented to you.
(Gilbane, 143 A.D.3d at 149, 38 N.Y.S.3d at 3.)
Samson’s work on the project allegedly caused damage to neighboring property resulting in litigation in which Gilbane, among others, was named as a defendant. After Gilbane’s request to Liberty for a defense and indemnification was denied, it commenced an action “… seeking a declaration that Liberty is obligated to provide [Gilbane] with coverage.” (Gilbane, 143 A.D.3d at 150, 38 N.Y.S.3d at 4.) The First Department described the ruling in the court below as follows:
Supreme Court denied Liberty’s motion, holding that plaintiffs qualified as additional insureds under the policy. The court found that the policy “requires only a written contract to which Samson is a party” and that this requirement was met by Samson’s written contract with DASNY, which obligated Samson to procure insurance naming as additional insured “the Construction Manager (if applicable)” and that [Gilbane] was undisputedly the construction manager.
(Gilbane, 143 A.D.3d at 150, 38 N.Y.S.3d at 4.)
The First Department disagreed. In reversing the supreme court, the First Department reiterated that: an insurance policy is a contract between the insured and the insurer and must be interpreted according to the rules of contract interpretation; and, the extent of coverage is controlled by the terms of the policy “and not the terms of the underlying trade contract that required the named insured to purchase coverage.” (Gilbane, 143 A.D.3d at 151, 38 N.Y.S.3d at 5 (quoting Bovis Lend Lease LMB, Inc. v. Great Am. Ins. Co., 53 A.D.3d 140, 145, 855 N.Y.S.2d 459 (1st Dep’t 2008).)
The Appellate Court found that the language of the “Additional Insured—By Written Contract” clause in Samson’s policy with Liberty was clear and unambiguous and “…requires that the named insured execute a contract with the party seeking coverage as an additional insured.” (Gilbane, 143 A.D.3d at 151, 38 N.Y.S.3d at 5.) Because Samson never entered into a written contract with Gilbane, “…Samson’s agreement in its contract with DASNY to procure coverage for [Gilbane] is insufficient to afford [Gilbane] coverage as an additional insured under the Liberty policy.” (Gilbane, 143 A.D.3d at 152, 38 N.Y.S.3d at 5.)
Gilbane was left without the coverage to which it was entitled in its agreement with DASNY. All Gilbane may be left with, however, is a possible breach of contract claim against DASNY and/or a third-party beneficiary claim against Samson for failing to procure the required insurance set forth in Samson’s prime contract with DASNY.
The Second Department, relying on Gilbane came to a similar result in Harco Construction, LLC. v. First Mercury Insurance Company, 148 A.D.3d 870, 49 N.Y.S.3d 495 (2017), when interpreting a similar, but not identical, endorsement.
There are many different “Additional Insured” endorsements/clauses that typically appear in insurance policies. Gilbane and Harco make plain that courts in the First and Second Department will continue to construe such provisions as written – when clear and unambiguous. Those seeking the benefits of an “Additional Insured” endorsement such as the one at issue in Gilbane (that requires privity of contract with the policy purchaser) must make sure that they have a written agreement with policy purchaser to provide such coverage. This may be as simple as having the individual or entity seeking additional insured status execute the prime contract solely for compliance with the additional insured provisions therein.