January 17, 2017

New York Court finds direct contract necessary for “Additional Insured By Written Contract” coverage

The “Additional Insured” provision is commonly found within a commercial general liability (“CGL”) insurance policy. This provision, as its name implies, extends potential coverage to persons or entities other than the named insured. But some CGL policies provide that for the additional insured to obtain coverage, a written agreement must exist between the named insured and the additional insured. This policy variation is known as the “Additional Insured By Written Contract” provision. Typically, under this provision if there is no written agreement, coverage will not be afforded to the additional insured. Despite the seemingly straightforward nature of this analysis, however, issues may still arise when potential insureds disagree over the terms and impact of the additional insured provision.

So it was in the recent New York appellate case Gilbane Building Company/TDX Construction Corporation v. St. Paul Fire & Marine Insurance Company, 143 A.D.3d 146, 38 N.Y.S.3d (N.Y. App. Div. Sept. 15, 2016). In Gilbane, the underlying coverage issue arose from a construction project in New York City financed and managed by the Dormitory Authority of the State of New York (“DASNY”). DASNY retained Gilbane Building Company/TDX Construction Corporation, a Joint Venture (“JV”), to provide construction management services for the project. Under their construction management agreement, a prime contractor, retained by DASNY, was required to name the construction manager, i.e., JV, as an additional insured under its liability policies.

Separate and apart from the construction management agreement, DASNY contracted with Samson Construction Company (“Samson”) as the prime contractor for all foundation work on the project. Samson was insured by Liberty Insurance Underwriters (“Liberty”) under a policy that contained an “Additional Insured By Written Contract” clause stating:

“WHO IS AN INSURED… 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.” (emphasis added).

The contract between DASNY and Samson required that Samson include the “Construction Manager” as an additional party. As such, Samson listed JV as an additional insured on its certificate of insurance.

During construction, Samson’s excavation work allegedly caused adjacent buildings to sink. DASNY brought suit against Samson and the project architect, seeking damages for Samson’s alleged negligence. The project architect then commenced a third-party action against JV, who provided notice to Liberty, seeking a defense and indemnification as an additional insured under Samson’s policy. In response, Liberty denied coverage to JV, claiming that JV was not an additional insured under Samson’s policy.

JV brought a declaratory action against Liberty seeking a ruling that Liberty was obligated to indemnify them. Liberty moved for summary judgment. The New York trial court found that JV qualified as an additional insured under the Liberty policy, reasoning that the “Additional Insured By Written Contract” provision did not require JV to actually be a party to the contract; rather, all that was required was a written contract to which Samson was a party that named JV as an additional insured. The court found that this requirement was met when Samson contracted with DASNY because the contract obligated Samson to name as an additional insured “the Construction Manager” and JV was the construction manager.

On appeal, the New York Appellate Division reversed. The court rejected JV’s arguments that the Liberty policy and Samson’s certificate of insurance evinced coverage. Rather, the court found that the Liberty policy and Samson’s certificate of insurance only constituted evidence that Samson was required to provide JV with coverage, but not that it actually made JV an additional insured.

To that end, the court held that the language of the “Additional Insured By Written Contract” provision of the Liberty policy clearly and unambiguously required the named insured to enter into a contract with the additional insured before coverage was afforded, thus, JV was not an additional insured under the policy. In reaching its holding, the court held that the words “with whom” in the “Additional Insured By Written Contract” provision refer back to the “person or organization” mentioned previously, thus, when restricted to the policy’s plain meaning, a direct written contract between Samson and JV was necessary for JV to qualify as an additional insured under the Liberty policy. Accordingly, because JV had not executed a contract with Samson, JV was not an insured under the Liberty policy.

At bottom, Gilbane reinforces New York’s well-settled principle that an insurance policy is interpreted to give effect to the intent of the parties as expressed in the clear and unambiguous language of the contract.

Thank you to the New Jersey Insurance Coverage Group and legal intern Derek Prevete for their contributions.