Harvey Nosowitz | Anderson & Kreiger LLP | April 24, 2018<\/p>\n
Where a Lease Did Not Require the Additional Insured Coverage in the Lessee\u2019s Policy To Be Primary, the Additional Insured Coverage Is Excess Over The Lessor\u2019s Own Fronting Policy.<\/strong><\/p>\n Businesses frequently seek to shift the risk of liability by including in contracts a requirement that they be named as an additional insured on the other party\u2019s liability insurance policy. The road from contract negotiation to insurance payment, however, is a bumpy one. Key hurdles to coverage are the following:<\/p>\n A recent federal court decision maps out this road in detail. In\u00a0Scottsdale Insurance Company<\/em>\u00a0v.\u00a0United Rentals (North America), Inc.<\/em>, United States District Court for the District of Massachusetts, Civil Action No. 13-12824-DPW (Memorandum and Order, March 30, 2018). In that case, a few words missing from the lease between the businesses cost the additional insured much if not all of its indemnity coverage under the other party\u2019s insurance policy.<\/p>\n United leased a lift to Gomes Services under a contract that required Gomes to maintain liability insurance and, when requested, to supply proof of insurance naming United as an additional insured. In a\u00a0prior decision\u00a0in the same case, the court held that this language, while clumsy, was sufficient to require Gomes to add United to its policy as an additional insured. Because Gomes\u2019 policy with Scottsdale included a blanket additional insured endorsement, amending the policy to include as an additional insured any person Gomes was required to add as an additional insured under a written contract United was an additional insured on the Scottsdale policy. The prior decision concluded that, because United\u2019s own policy did not require its insurer to defend United, Scottsdale had a duty to defend United against a suit by a person who was struck and injured by the lift.<\/p>\n Three years later, after the underlying tort case settled, Scottsdale and United returned to the court for a ruling on the duty to indemnify. Two issues were in dispute:<\/p>\n First, the court addressed United\u2019s and Scottsdale\u2019s conflicting interpretations of the limiting language in Scottsdale\u2019s additional insured endorsement. The endorsement stated that the additional insured coverage applied \u201conly with respect to liability for bodily injury . . . caused, in whole or in part, by . . . [Gomes\u2019] acts or omissions.\u201d Was it United\u2019s\u00a0liability<\/u>\u00a0that must be caused by Gomes\u2019 acts, as Scottsdale argued, meaning that the additional insured was only covered for vicarious liability? Or was it the claimant\u2019s\u00a0injury<\/u>\u00a0that must be caused by Gomes\u2019 acts, as United asserted, meaning that United\u2019s liability for its own negligence was covered, as long as Gomes\u2019 conduct was a proximate cause of the injuries (a fact which no one disputed). The court ruled in favor of United, observing that if Scottsdale had intended to limit the additional insured coverage to vicarious liability, it could have said so directly. The court also noted that the limiting clause\u2019s \u201cin whole or in part\u201d language was inconsistent with the interpretation that the clause applied only to vicarious liability, which is \u201can all or nothing proposition.\u201d<\/p>\n This brings us to the last bump in the road: how did the Scottsdale policy\u2019s indemnification obligation interface with United\u2019s own liability coverage? The Scottsdale policy stated that the additional insured coverage was excess over any other valid and collectible insurance, unless a written agreement required it to be primary. United\u2019s own policy stated that it was excess over any other primary insurance for which United has been added as an additional insured, but was otherwise primary.<\/p>\n United\u2019s contract with Gomes required United to be named as an additional insured on Gomes\u2019 policy, but did not require Gomes\u2019 policy to be primary. Therefore, under the policy\u2019s respective \u201cother insurance\u201d provisions, the Scottsdale policy was excess, and United\u2019s own insurance was primary. The court also rejected United\u2019s argument that, because United\u2019s own policy was a fronting policy (with $2 million limits and a $2 million deductible), it did not constitute \u201cother valid and collectible insurance.\u201d The result: United was on the hook for the first $2 million in indemnity.<\/p>\n So, as it turns out, United was tripped up by the very first step in the process. If its contract with Gomes had specified that Gomes was required to name it as an additional insured on a primary basis, then United\u2019s fronting policy would have been excess, and Gomes\u2019 insurer would have provided primary coverage for United.<\/p>\n A Few Observations:<\/strong><\/p>\n\n
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