New York High Court Finds No Additional Insured Coverage In Absence of Contractual Privity With Named Insured

It is a common practice in the insurance industry for a project owner to require the general contractor to provide additional insured status to other entities, such as construction managers, that do not have a direct contract with the general contractor. The decision in Gilbane Bldg. Co./TDX Constr. Corp. v St. Paul Fire & Marine Insurance Co., No. 22, 2018 N.Y. LEXIS 490 (Mar. 27, 2018), should serve as a reminder to any person or organization that believes it is covered as an additional insured to request and review a copy of the additional insured endorsement to confirm that it clearly and expressly provides appropriate coverage.

The issue in Gilbane was whether a construction manager qualified as an additional insured under a prime contractor’s CGL policy pursuant to an endorsement that conferred additional insured status upon “any person or organization with whom [the general contractor has] agreed to add as an additional insured by written contract . . . .” The prime contractor’s CGL insurer argued that the construction manager did not qualify as an additional insured because the general contractor’s obligation to procure additional insured coverage for the construction manager was contained in the contract between the general contractor and the project owner rather than in a contract between the general contractor and the construction manager. According to the New York Court of Appeals, the CGL insurer was correct and the construction manager did not qualify as an additional insured because “the endorsement is facially clear and does not provide for coverage unless [the construction manager] is an organization 'with whom' [the general contractor] has a written contract.” In so ruling, the majority explained that the word “with” in the additional insured endorsement “can only mean that the written contract must be 'with' the additional insured."

Two judges dissented. The dissent found the endorsement to be ambiguous because, among other things, the phrase “by written contract” is located at the end of the sentence and, therefore, it is reasonable for an insured to conclude that “by written contract” modifies only “to add.” Under that construction, the construction manager would be entitled to additional insured coverage because the general contractor had agreed to add the construction manager as an additional insured on its policy by written contract, albeit in a written contract between the general contractor and the project owner. The dissent also noted that the same insurer resisting coverage in Gilbane had prevailed on the opposite position in Liberty Mutual Fire Insurance Co. v Zurich American Insurance Co., 14 Civ. 7568, 2016 US Dist LEXIS 13604 (SDNY Feb 4, 2016), in which the court declined, under similar language, to require a contract between the named insured and putative additional insured as a prerequisite to coverage.

The language at issue in Gilbane is slightly different from the language in one of ISO’s blanket additional insured endorsements, CG 20 33. Although the dissent did not specifically refer to CG 20 33, it cited language found in CG 20 33 as “clear and unambiguous language” that required a contract between the named insured and putative additional insured as a prerequisite to coverage. In relevant part, ISO 20 33 additional insured status upon a person or organization “when [the named insured] and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on [the named insured’s] policy.”

The risk that a party is not entitled to additional insured coverage because it does not have a direct contract with the named insured can be avoided with ISO’s additional insured endorsement No. CG 20 38 04 13, which provides additional insured coverage to:

1. Any person or organization for whom you are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy; and

2. Any other person or organization you are required to add as an additional insured under the contract or agreement described in Paragraph 1. above.

Had the general contractor in Gilbane endorsed its policy with CG 20 38 04 13, there would have been no question that the construction manager qualified as an additional insured.