The Changing Fact of Additional Insured Coverage

J. Blake Hunter | Butler Weihmuller Katz Craig

As a coverage attorney, I often find myself representing the liability insurers of both general contractors and subcontractors.  When representing a carrier for a general contractor, one of the first questions the client usually asks us to explore is whether its named insured may qualify as an “additional insured” on a policy issued to one of its subcontractor under an additional insured endorsement.  Correspondingly, when representing a carrier for a subcontractor, one of the first questions the client usually asks is whether the client owes additional insured coverage to the general contractor.  The answer to this question of whether the general contractor qualifies as an additional insured on the subcontractor’s policy may more frequently be “no,” in light of a recent decision from the Federal District Court for the Southern District of Florida, Amerisure Insurance Company v. Seneca Specialty Insurance Company, No. 20-20442, 2020 WL 3317035 (S.D. Fla. June 18, 2020). 

In Amerisure, when entering a Walmart, a family was struck by large quantities of wet cement that poured through a gap in the ceiling.  The family sued Walmart alleging that Walmart was directly negligent for failing to maintain the store in a reasonably safe condition and failing to warn plaintiffs of the dangerous condition.  Id.  A final judgment was entered against Walmart.  Id.  Walmart and Amerisure Insurance Company (“Amerisure”) entered into a settlement agreement and assignment of claims wherein Amerisure agreed to pay the judgment entered against Walmart, and Walmart assigned its rights to Amerisure against both the subcontractor on the concrete project and the subcontractor’s insurer, Seneca Specialty Insurance Company (“Seneca”). 

Amerisure sued Seneca arguing that Walmart was an additional insured under Seneca’s policy, but Seneca filed a motion to dismiss arguing that it did not have a duty to defend Walmart.  Id. at *3.  Seneca’s policy provided additional insured coverage to any person or organization shown in the Schedule as required by a written contract, but “only with respect to liability for ‘bodily injury’ … caused, in whole or in part by” the subcontractor’s acts or omissions.  Id. at *1.  

Critically, the court held that the complaint did not allege vicariously liability against Walmart, yet the additional insured endorsement only provided coverage to Walmart as an additional insured for its vicarious liability for actions or inactions of the concrete subcontractor.  Id. at *5.  The court then analyzed Garcia v. Federal Insurance Co., 969 So. 2d 288 (Fla. 2007), explaining: 

The Supreme Court of Florida found that the phrase “because of” in the additional-insured endorsement was “relevant” and that “there is a more circumscribed meaning to ‘because of’ than merely being a sequential link in the chain of events….  The phrase appears to include persons or organizations held in by way of vicarious liability for derelictions of [the named insured].”  Id. at 293 (emphasis added) (quoting Long Island Lighting Co. v. Hartford Accident & Indem. Co., 350 N.Y.S. 2d 967, 972 (N.Y. Gen. Term. 1973)). Thus, the Florida Supreme Court reasoned that “[t]he omission  of the words ‘but only’ in [the insurer’s] policy [did] not materially change the limitation of the additional insured provision to instances of vicarious liability.”  Id.  (emphasis added).  The Florida Supreme Court further explained that “the presence of the words ‘because of’ in [the insurer’s] policy require[d] that an additional insured’s liability be ‘caused by’ the acts or omissions of the named insured.”  Id.  (emphasis added).  In short, the Florida Supreme Court held that the insurer’s policy did not cover the additional insured’s “independent acts of negligence” and that “[b]ecause the accident victim’s suit against [the additional insured] sought recovery only for her direct negligence, and did not allege any liability based on acts or omissions of [the named insured], [the additional insured] [was] not entitled to coverage.” Id. at 294.

Id.  The court further explained that federal courts applying Florida law to additional insured endorsements similar to the one in Seneca’s policy consistently hold that the endorsements do not provide coverage where the underlying lawsuit fails to allege that the additional insured is vicariously liable for the negligence of the named insured.  Id. at *6.  See also, King Cole Condo. Ass’n, Inc. v. Mid-Continent Cas. Co., 21 F. Supp. 3d 1296, 1299 (S.D. Fla. 2014) (holding that no coverage existed because the underlying complaint only alleged direct negligence against the additional insured and the additional insured endorsement only provided coverage for injuries caused, in whole or in part, by the named insured); United Rentals, Inc. v. Mid-Continent Cas. Co., 843 F. Supp. 2d 1309, 1312 n.6 (S.D. Fla. 2012) (same); Mid-Continent Cas. Co. v. Constr. Servs. & Consultants, Inc., No. 06-CV-80922, 2008 WL 896221, *3 (S.D. Fla. March 31, 2008) (not reported) (same). 

Coverage attorneys for insurers of general contractors usually rely on Mid-Continent Casualty Co. v. Royal Crane, LLC, 169 So. 3d 174, 179-83 (Fla. 4th DCA 2015), when seeking additional insured coverage.  The case held that the phrase, “caused, in whole or in part by” the named insured should not be construed narrowly to only provide coverage for vicarious liability of the named insured.  Amerisure was no exception.  However, the court distinguished Royal Crane, explaining: 

Although Royal Crane  provides some support for Amerisure’s argument, that case is inapposite here.  Not only did Royal Crane  openly apply a “relaxed standard,” Id. at 184, but also, it did not address the Florida Supreme Court’s ruling in Garcia, see generally id. – which might be because Royal Crane “ did not involve an additional insured endorsement, but rather only found that there was no ‘insured contract’ within the meaning of the policy” and thus there was no duty to indemnify under the policy’s indemnification provision.  See Cmty. Asphalt Corp., 2017 WL 4712199, at *9 (declining to follow Royal Crane).  In any event, Royal Crane  runs against the Florida Supreme Court’s ruling in Garcia  and the weight of authority in this District. 

Id. at *8. 

What does this all mean?  This was a good result for the defense.  Additionally, when evaluating additional insured coverage, coverage counsel needs to pay specific attention to the causes of action alleged in the underlying complaint and the provisions of the additional insured endorsements.   

Note to “Additional Insureds” Relying on Builders’ Risk Insurance: Federal Court Decision Evaluates Extent of Coverage

Ken Sherman | Construction Law Zone

The United States District Court for the District of Massachusetts has provided construction project owners, developers, general contractors, sub-contractors, suppliers, and vendors with a helpful reminder about obtaining effective additional insurance coverage on construction projects.

In Factory Mut. Ins. Co. v. Skanska United States Bldg., No. 18-cv-11700-DLC, 2020. U.S. Dist. LEXIS 95403, the District Court held that a construction project’s general contractor and sub-contractor were not additional insureds under the construction project’s owner’s Builders Risk insurance policy (“the Policy”). The construction project’s general contractor and its sub-contractor contended they were additional insureds as a defense based on Massachusetts’ anti-subrogation doctrine, which prevents insurers from subrogating against their own insureds for the type of risk the insurer provided to such insureds. The two contractors moved for summary judgment in the subrogation recovery action brought against them claiming they were both additional insureds under the Policy. The District Court, in dismissing the project’s general contractor’s and its sub-contractor’s motions for summary judgment based on their anti-subrogation defenses, determined that the project’s general contractor and its sub-contractor did not qualify as additional insureds under the Policy because: (1) additional insureds under the Policy are those whose liability would be purely vicarious “to the extent of the insured’s legal liability for insured physical loss or damage,” which the District Court determined was not applicable to the undisputed facts pled in the subrogation recovery action and (2) the language of the policy itself seemed to indicate that it applied to only one (and not multiple) insureds, which, in the District Court’s opinion, applied only the construction project’s owner. As a result, the subrogation lawsuit against both the project’s general contractor and its sub-contractor may proceed as the anti-subrogation rule did not apply.

The facts, circumstances, and result of Factory Mutual are unique to the dispute among the matter’s construction project owner, general contractor, and sub-contractor, but its lesson is universal to any party to a construction project. When it comes to securing additional insurance coverage under another party’s insurance policy, interested parties should proceed with care, including insisting on a receiving a copy of the underlying insurance policy, having that insurance policy reviewed by a professional (e.g., an insurance broker, a risk manager, and/or an attorney), and obtaining an opinion as to whether such additional insurance coverage shall be afforded. Parties interested in assuring that they are in fact additional insureds pursuant to another’s insurance policy are not well-served by merely accepting a Certificate of Insurance in which that party is listed as an “additional insured” or relying on language within a contract, agreement, or purchase order in which a party obligates itself to provide such additional insurance.

As we see from Factory Mutual, failing to confirm insurance coverage in advance of an otherwise insurable event may leave a party exposed to having its additional insured coverage determined by a judge instead of among the construction project participants and their respective insurance carriers, as intended.

Information Or Indemnity: Do Certificates Of Insurance Grant Insured Status?

Michael J. Bayern | Butler Weihmuller Katz Craig

Often, a person or entity that is attempting to claim additional insured status under the insurance policy of another will rely on a “Certificate of Insurance” that was issued by the named insured’s agent. However, there are some considerations an insurer should take into account when presented with such a document before affording coverage to a certificate holder.

Frequently, the insurance agent or producer issuing the certificate will use the ACORD form. This form clearly states at the top that

This certificate is issued as a matter of information only and confers no rights upon the certificate holder. This certificate does not affirmatively or negatively amend, extend or alter the coverage afforded by the policies below. This certificate of insurance does not constitute a contract between the issuing insurer(s), authorized representatives or producer, and the certificate holder.

It further states, “Important: if the certificate holder is an additional insured, the policy(ies) must be endorsed.”

The majority rule is that a certificate of insurance that contains such language will not bind the insurer unless the agent who issues the certificate is acting pursuant to authority granted by the insurer. Florida case law that explicitly adopts this position is scarce. However, in a footnote to Official Cargo Transp. Co., Inc. v. Underwriters at Lloyd’s of London, an unpublished opinion, the Eleventh Circuit Court of Appeals agreed with the trial court below that coverage was not afforded under the certificate of insurance. The appellate court indicated that the “certificate of insurance did not in any way evidence that [the insurer] had agreed to the addition of [the certificate holder] as a named insured.” Thus no coverage was afforded and the trial court properly granted summary judgment in favor of the insurer. In Nexus Properties, Inc. v. Clarendon Nat’l Ins. Co., the United States District Court for the Southern District of Florida relied on this commentary to rule that the certificate holder seeking coverage was not an insured under the policy. The certificate did not create coverage or any legal obligations between the insurer and the certificate holder.

A couple of notable exceptions to this general rule do exist in Florida. The insurer should review all the facts available to it before concluding the certificate holder is not an insured. As mentioned above, one exception exists under Florida law in the rare instance when the producing agent acts with authority granted by the insurer. Another exception arises where the insurance policy affords coverage to the certificate holder irrespective of the certificate. There are several instances where this situation may arise. A couple of common examples include policy provisions that provide coverage as a result of a contractual obligation and provisions that provide coverage to the permissive user of an automobile.

Before denying coverage to a person or entity seeking insured status, an insurer should consult with an attorney to determine whether any policy provisions afford coverage irrespective of the certificate of insurance, whether the producing agent acted with authority granted by the insurer, or whether any other exceptions may apply under the State’s laws that govern the insurance policy’s interpretation.

  1. Mountain Fuel Supply v. Reliance Ins. Co., 933 F.2d 882, 889 (10th Cir. 1991) (“Absent a plain manifestation of the intent to incorporate a certificate or endorsement into an insurance policy, the policy will remain in force as originally written. The majority view is that where a certificate of insurance, such as the ACORD certificate, expressly indicates it is not to alter the coverage of the underlying policy, the requisite intent is not shown and the certificate will not effect a change in the policy”) (citations omitted); Taylor v. Kinsella, 742 F.2d 709, 711 (2d Cir. 1984) (“As a general rule, where a certificate or endorsement states expressly that it is subject to the terms and conditions of the policy, the language of the policy controls. This rule accords with the widely recognized principle that the intent to incorporate additional papers into an insurance policy must be plainly manifest”) (citations omitted). Trapani v. 10 Arial Way Assocs., 755 N.Y.S.2d 396, 399 (Sup. Ct. 2003) (“[A] certificate of insurance which expressly states that it is a matter of information only and confers no rights upon the certificate holder… is insufficient, by itself, to show that such insurance has been purchased.”) (internal quotation marks omitted); TIG Ins. Co. v. Sedgwick James of Washington, 184 F. Supp. 2d 591 (S.D. Tex. 2001) (“[W]hen a certificate of insurance contains language stating that the certificate does not amend, extend, or alter the terms of any insurance policy mentioned in the certificate, the terms of the certificate are subordinate to the terms of the insurance policy. The certificate of insurance will not suffice to create insurance coverage if such coverage is precluded by the terms of the policy.”).
  2. Official Cargo Transp. Co., Inc. v. Underwriters at Lloyd’s of London, 143 Fed. Appx. 173, n.1 (11th Cir. 2005).
  3. Id.
  4. Id.
  5. Nexus Properties, Inc. v. Clarendon Nat’l Ins. Co., 2008 WL 11399625, at *5 (S.D. Fla. Jan. 15, 2008).
  6. Id.

Insurance Exclusion Negates Additional Insured Coverage

Stanley A. Martin | Commonsense Construction Law

So you think your additional insured status as a GC provides protection against claims by your sub’s injured workers? Think again.

General contractors commonly require subs to include the GC as an additional insured party on the sub’s general liability insurance policy. This requirement, coupled with an express indemnity of the sort found in all major industry contract templates, will provide protection for the GC in the event of a claim against the GC by a sub employee that arises out of the sub’s work.

But one GC has discovered that some insurance policies include a so-called “cross liability exclusion,” which bars coverage for bodily injury to an “employee of any insured.”

Project and the Lawsuit

A worker for a scaffolding company was injured when he fell from scaffolding that he was helping to dismantle. The section of scaffolding where he was standing did not have a guard rail, and the worker had not been provided with fall protection. The facts recited all point to control by the sub, and not the GC, over the detail of the operations.

The injured worker sued the GC, and the GC tendered the defense to the sub’s carrier, based on the GC’s additional insured status and on the subcontract indemnity. Since both scaffolding sub and GC were insured parties, the GC was seeking coverage for a claim ostensibly barred by the cross liability exclusion, and the carrier declined to defend the GC.

Court Decision

The Massachusetts Appeals Court has upheld the carrier, denying coverage to the GC.

The GC argued that the cross liability exclusion should be read in conjunction with the separation of insureds clause (referred to generically as a “severability of interests clause”), which states:

Except with respect to the Limits of Insurance, and any rights or duties specifically assigned in this Coverage Part to the first Named Insured, this insurance applies:

1. As if each Named Insured were the only Named Insured; and

2. Separately to each insured against whom claim is made or ‘suit’ is brought.

The GC noted that the two clauses were inconsistent, and argued that the term “any insured” in the cross liability exclusion is thus ambiguous and should be construed in favor of the GC. But the Appeals Court did not agree. The court noted use of both “the insured” and “any insured” at different places in the policy, and held that the distinct language should be assumed to be intentional.

The court concluded: “There would thus be ‘no logical reason why [a severability of interests clause] would operate to limit application of an exclusion whose very purpose is to prevent one insured (or its employee) from suing another insured (or its employee).’” (citations omitted)

Impact of Decision

Query whether anyone informed the court that a major source of claims to be covered by the additional insured endorsement is the type of claim here – a sub employee injured while carrying out the sub’s work, who then sues the GC. The court’s comment, noted above, shows a lack of understanding of the very logical reason why GCs would consider the cross liability exclusion to run counter to a major reason for demanding additional insured status.

In any event, this decision is a wake-up call to general contractors. Pay attention to whether the subs’ insurance policies include a cross liability exclusion, which could prevent the GC from requiring subs to defend and indemnify the GC against injured worker claims. And this will be the same issue for owners, relative to GC worker claims.

The case is Phoenix Baystate Construction v. First Financial Insurance Company, 2020 Mass. App. Unpub. LEXIS 411 (May 18, 2020).

Separation of Insured Clause Strikes Again to Deny Coverage

Stanley A. Martin | Commonsense Construction Law

A very recent blog discussed the effect of a separation of insured clause, on the scope of general liability coverage for an additional insured, when a personal injury claim is pursued by an injured worker. A federal court judge has just reached the same conclusion in another case.

Here, a residential project was being built by a developer and its related construction company. The construction company engaged a framing subcontractor. An employee of the framing sub was injured on the job, and he eventually sued the developer and contractor, who had a general liability policy with Nautilus Insurance Company.

Notice was sent to Nautilus, and it denied coverage. The developer/contractor filed a lawsuit for declaratory judgment, seeking a court order requiring Nautilus to defend and provide coverage.

A federal court judge has ruled in favor of Nautilus and against the developer/contractor, holding that the separation of insured clause acted to exclude coverage for the injured worker claim. In its decision, the court quoted a portion of the endorsement and separation of insured clause:

The Policy includes Endorsement L205 (the “L205 Endorsement”). D. 25 at 84. The L205 Endorsement states in capital letters that it “CHANGES THE POLICY” and further reiterates that the endorsement “modifies the insurance policy” by replacing the employer’s liability exclusion in the general terms with the following terms of the exclusion:

e. Injury to Employees, Contractors, Volunteers and Other Workers

“Bodily Injury” to:

(1) “Employees”, “leased workers”, “temporary workers”, “volunteer workers”, statutory “employees” casual workers, seasonal workers, contractors, subcontractors, or independent contractor of any insured; or

(2) Any insured’s contractors’, subcontractors’ or independent contractors’ “employees”, “leased workers”, “temporary workers”, “volunteer workers”, statutory “employees”, casual workers, seasonal workers, contractors, subcontractors or independent contractors arising out of and in the course of:

(a) Employment by any insured; or

(b) Directly or indirectly performing duties related to the conduct of any insured business; . . . .

Note here that the phrase “Employment by any insured” in section (e)(2)(a) is not being construed by the court in the sense of an employer/employee relationship. Rather, the court is construing that phrase in the context of engagement by the insured even if indirectly. This is a critical element of the court’s analysis, which results in the endorsement sweeping away an entire category of coverage, and parties who would assume they had coverage, that would ordinarily be expected.

The federal court case is Nagog Real Estate Consulting Corp. v. Nautilus Ins. Co., 2020 U.S. Dist. LEXIS 126737 (D. Mass., June 20, 2020).