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Vol. 12 - Issue 2

March 14, 2023

Additional Insured Issue I’ve Never Seen: What Does “Blanket” Mean?


I do not do a lot with additional insured decisions in Coverage Opinions.  They are usually fact and policy language specific, which limits their ability to offer guidance or be relevant to future cases.  But I selected Travelers Indem. Co. v. Southwest Marine and General Ins. Co., No. 21-1828 (E.D.N.Y. Feb. 10, 2023) to address here.  A New York federal Magistrate Judge
authored a Report and Recommendation that addressed a different kind of AI issue – and one that I’ve never seen.  If you work with AI endorsements, I think you’ll find this interesting.

Like so many additional insured issues, it started with a construction site injury.  And, as if often the case, there are lots of parties involved – owner, construction manager, construction company, subcontractor.  That makes it complex and difficult to keep everyone straight.  But I’ll simplify it.

The claim involved additional insured coverage for parties for a claim by a worker who was injured when a bucket of spackle fell off a scaffold and injured him.

[Incidentally, I am really un-handy around the house.  There is pretty much nothing I can do to fix things.  More like make it worse is my specialty.  But -- and now, I don’t want to brag here -- I am very good at spackling.  A real pro.  You would marvel at my work.  Of course, how did I get so good?  From my skill at hanging pictures.]

Back to the wayward bucket of spackle. To not bog this down with all kinds of names and who did what on the project, here are the only facts needed. A construction company did the spackling work (incidentally, I’ve never dropped a bucket of spackle).  The construction company is the named insured.  There are other parties – owner, general contractor and construction manager -- seeking to be additional insureds on the named insured’s liability policy.  Even though they are seeking to be additional insureds, I’ll still simply refer to them as the additional insureds.

Southwest Marine issued a general liability policy to the named insured-spackler.  Travelers, which generally owed obligations to the additional insureds, said that the Southwest policy should be primary and non-contributory to any coverage that Travelers owed to the additional insureds.  This is certainly not an unusual argument in this situation.

Here’s where it gets interesting.      

The Southwest Policy contained an additional insured endorsement -- CG 20 10 04 13, Owners, Lessees or Contractors – Scheduled Person or Organization.  Under “Name Of Additional Insured Person(s) Or Organization(s)” appeared the word “BLANKET.”  The “Location(s) of Covered Operations” portion of the Schedule of the AI Endorsement was blank.

A purchase order, for the named insured-construction company’s spackling work, obligated the company to have a $1 million general liability policy and name the owner as an additional insured.  “Owner” was not defined in the P.O. and the space on the P.O. for “owner” was blank.

So, as Southwest saw it, it had no obligation to provide coverage to the additional insureds, since the purchase order did not require them to be named as additional insureds.  That was a requirement of the additional insured endorsement as it was a “Scheduled Person or Organization” form.  

Travelers’s take on the operation of the AI endorsement was different: “Travelers asserts that there are no scheduled limitations to this blanket coverage and that there is no requirement that coverage be required by an underlying written agreement.  Because the Claimant in the Underlying Action has alleged that his injury was caused by [named insured] in its performance of work for [additional insureds], Travelers urges the Court to find that Southwest has the duty to defend [additional insureds].”

The dispute came down to this: what does the word “Blanket,” appearing on the AI endorsement under “Name Of Additional Insured Person(s) Or Organization(s),” mean? 

Southwest argued that “Blanket” “‘can only plausibly mean’ that coverage is only owed to an entity which the insured agrees to provide coverage to by contract.  Southwest avers that the term ‘blanket’ is an industry term which means coverage is to be provided to any person or organization for which the named insured is obligated (such as by contract) to name as an additional insured.  The other option would be to provide for additional insureds by ‘schedule,’ which requires a listing of the additional insureds by name.  Thus, Southwest contends that the only plausible reading of the word ‘blanket’ requires the Court to consult the Purchase Order to determine [named insured’s] obligation, if any, with respect to additional insureds.”

As I said, it’s an interesting issue.  I use the term “banket additional insured endorsement” all the time.  And when I do, I’m describing an AI endorsement that offers AI coverage to a party that the named insured is contractually obligated to name as an additional insured.  I bet most of you also have that meaning in mind when using the term “banket additional insured endorsement.”    

But the court sided with Travelers.  While I am not going to get into every reason discussed by the court, here are the principal ones.

First, the court rejected my thinking – that everyone knows that the term “banket additional insured endorsement” means that AI status is provided to persons or organizations that the named insured is contractually obligated to name as additional insureds. 

While Couch agrees with me, the court poo-pooped that: “Southwest cites to ‘Couch on Insurance"’ (3 Couch on Ins. § 40:30) for the general proposition that a blanket additional insured endorsement ‘generally’ provides coverage to the person or entity who the insured is obligated to name as an additional insured by virtue of a contract. (DE 21-1 at 8-9.) While the Court recognizes the Couch as a leading treatise on insurance law, relying on an excerpt can hardly be deemed sufficient to satisfy one's burden on summary judgment.”

Then IRMI suffered the same fate: “The same,” the court noted, “can be said about Southwest’s citation to the Glossary of Insurance and Risk Management Terms at International Risk Management Institute for its definition of a ‘Blanket Additional Insured Endorsement. (citing ‘Glossary of Insurance and Risk Management Terms at International Risk Management Institute (IRMI).’”
Here's where Southwest hit a serious roadblock.  It’s AI endorsement stated: “If coverage provided to the additional insured is required by a contract or agreement, the insurance afforded to such additional insured will not be broader than that which you are required by the contract or agreement to provide for such additional insured.” (italics added).

I’ll set out the court’s take on that verbatim:

“If the Court were to accept Southwest’s reading of ‘blanket’ coverage—that coverage is owed to additional assureds only pursuant to an underlying contract—then the [italicized] phrase in the Southwest AI Endorsement above is rendered superfluous. Put differently, if coverage is only provided based on an underlying contract, then there would be no need to say ‘[i]f coverage. . . is required by a contract.’ Instead, the paragraph above would just read, ‘insurance afforded to such additional insured will not be broader than that which you are required by the contract or agreement to provide for such additional insured.’ The Court finds that by stating ‘[i]f coverage. . . is required by contract or agreement,’ the Southwest AI Endorsement necessarily contemplates a scenario where coverage is not required by contract or agreement. Reading the Southwest AI Endorsement as a whole, it is plain that the above paragraph is meant to limit the scope of coverage provided to additional insureds and does not establish that an underlying contract is a precondition to receiving coverage. The Court finds that under the plain and ordinary meaning of the Southwest AI Endorsement, a party can qualify as an additional insured even where not required by an underlying contract or agreement. Therefore, it is respectfully recommended that the Court find a genuine issue of fact does not exist on this ground.”

Travelers prevailed.  Its insureds were entitled to AI coverage, under the Southwest policy, and on a primary and noncontributory basis.  Southwest was obligated to reimburse Travelers for the defense costs incurred for the additional insureds. 

As is usually the case when it coverage -- the policy language controlled the outcome.




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