You may not have that additional insured coverage you thought you had!
In a potentially landmark decision that could send shivers through construction projects throughout the State of New York, the Appellate Division First Department recently ruled in a declaratory judgment action that an additional insurance endorsement in a commercial general liability (CGL) policy issued by insurer to prime contractor which expressly provided that an additional insured was “any person or organization with whom you [the insured] have agreed to add as an additional insured by written contract” covered only those that had written contracts “directly with named insured”. Gilbane Bldg Co. v. St. Paul Fire and Marine Comp., 2016 WL 4837454 (1st Dept. Sept. 15, 2016).
The Appellate Division’s decision rested on the legal notion that the extent of coverage under an insurance policy is controlled by the relevant policy terms, not by the terms of the underlying trade contract that required the named insured to purchase coverage. According to the Court, since the policy language at issue was clear and unambiguous, it must give effect to the phrase “with whom” by employing its plain meaning. The Court found that the ability of the liability insurer to have worded an additional insured clause differently did not render it ambiguous or mandate that it had to be construed in claimant’s favor. In doing so, the Court held that courts could not rewrite a commercial general liability insurance policy to include construction managers as additional insureds under the policy on the basis that the construction contract with the prime contractor required construction managers to be listed as additional insureds under that policy; the requirement only meant that managers may have a claim against the prime contractor for breach of the construction contract’s insurance provision.
The result was a finding that since there is no dispute that Samson did not enter into a written contract with the JV, Samson’s agreement in its contract with DASNY to procure coverage for the JV is insufficient to afford the JV coverage as an additional insured under the Liberty policy.
The dissent direly predicted in the case that “the majority’s unduly narrow reading of policy provision on additional insured would upend the established customs and practices of the construction industry.” It warned under the majority’s view, in such cases, owners and their contractors will not be able to establish coverage for intended additional insured partners in construction projects, such as construction managers, subcontractors and any other entities named by owners, despite their having been listed on the certificates of insurance issued by the agents of the carriers as contemplated in their trade contracts. And new burdens will be placed on general contractors to devise and execute separate side contracts with each party required by the owner to be named as an additional insured on the contractor’s CGL policy, with the concurrence of the insurance carriers, notwithstanding the accepted course of dealing in the construction and insurance industries, the clear terms of the contract between the owner and the general contractor so providing, or the prior issuance of certificates of insurance on behalf of the carriers themselves acknowledging and naming such parties as additional insureds. The dissent also warned that under the majority’s view, this would be so regardless of the language employed by a carrier in its additional insured clause.
Important Lesson learned from the Gilbane Bldg Co., 2016 WL 4837454 (1st Dept. Sept. 15, 2016) case: to ensure coverage, additional insureds must secure a complete copy of the CGL policy before permitting work to begin, not just a certificate of insurance, to legally ensure that the policy language is not limited to any person or organization with whom you [the insured] have agreed to add as an additional insured by written contract or, alternatively, that all additional insureds contractually required to be included as additional insureds on the CGL, are expressly named on a policy endorsement.