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A Cautionary Tale Involving Additional Insured Coverage
Posted in Contracts, Insurance

In an earlier post, we addressed post the important role that “additional insured” status plays in the construction industry. An “additional insured” is any entity, other than the primary insured, who is covered under the primary insured’s insurance policy. Additional insured status carries important rights, such as the right to file a claim for damages directly against the primary insured’s insurance carrier; the right to a legal defense against third-party claims; and coverage for any damage caused – the additional insured enjoys these rights while keeping its own loss history clean and protecting itself from future premium increases.

Importantly, the only way that additional insured status may be legally obtained is through an endorsement to the primary insured’s policy, and the scope of the additional insured’s coverage is determined solely by the four corners of the endorsement itself. A recent case from New York State illustrates the importance of the language of the endorsement. In the New York case, a construction manager which thought that it was an additional insured under the general contractor’s insurance policy found out the hard way that it actually was not, all because of the difference between the words “with whom” and the words “for whom.”

In Gilbane Building Co. v. Liberty Insurance Underwriters, the City of New York undertook a project involving the construction of a 15-story building on the Bellevue Hospital NYC campus for use as a DNA lab for the Chief Medical Examiner of New York City. The City entered into a contract with the New York State Dormitory Authority for financing and management of the project. The Authority, in turn, hired Gilbane to be the construction manager or CM for the project. The CM’s contract with the Authority required the Authority to make sure that the prime contractor named the CM as an additional insured under the prime’s liability policy.

The Authority then signed a contract with Samson Construction Company to be the prime contractor on the project. In its contract with the Authority, Samson agreed to obtain CGL coverage with an endorsement naming, among others, the CM as an additional insured. Samson did just that, obtaining a policy from Liberty Insurance Company with a provision that stated that the basic policy was amended to include, as an additional insured, any organization “with whom” Samson  had agreed to add as an additional insured. “With whom” Samson agreed to add – not, as many additional insured endorsements provide, any person “for whom” the primary insured agreed to provide coverage.

Subsequently, the prime contractor’s excavation and foundation work allegedly caused adjacent buildings to sink, resulting in significant (and very expensive) structural damage to those buildings. The Authority sued the prime contractor and the architect. The architect filed a third-party claim against the construction manager who, because it thought it was an additional insured under the prime’s insurance policy with Liberty, filed a claim with Liberty for a legal defense to the lawsuit. 

To the surprise of the CM, Liberty denied coverage, stating that the CM did not qualify as an additional insured, even though the CM had been named as such on the sample Certificate of Insurance that had been provided. The CM then sued Liberty, seeking a declaration from the Court that it was indeed an additional insured under the prime’s policy. The Court, however, focused on the words “with whom [the prime contractor had] agreed to add as an additional insured,” insisting that, because the prime had never entered into a written contract with the CM agreeing to add the CM as an additional insured, there was no additional insured coverage. The CM was left holding the bag.

The lesson from the New York case? To ensure you have properly and legally become an additional insured, 1). make sure that an endorsement is definitively issued;  2). read the language of the endorsement carefully; and 3). check with your legal team to make sure you have properly been named as an additional insured. 

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