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Vol. 5, Iss. 11
November 9, 2016

Additional Insured: Don’t Overlook This Easy To Overlook Issue


What do you call a New York Appellate Division decision that’s fifteen Lexis pages long? Answer: I don’t know. I’d never seen one until last month. From the court that skillfully issues decisions that can fit on postcards comes Gilbane Building Company v. St. Paul Fire & Marine Ins. Co., No. 653199/11,884 (N.Y. App. Div. Sept. 15, 2016), a dozen-plus page decision addressing a very interesting, important and easy to overlook additional insured issue. Ironically, the court choose a case that involves the interpretation of just two words to spill all that ink.

Gilbane Building involves a multi-party construction project and the decision has a few moving parts. To keep it simple I limit the background here to just what’s needed to make the points.

Gilbane Building Co./TDX Construction Corp. was a Joint Venture that served as a construction manager for a 15-story building for use by the Chief Medical Examiner of the City of New York. The Dormitory Authority of the State of New York (DASNY) agreed to finance and manage the project. Under the construction management agreement, any prime contractor, whether retained by DASNY or otherwise, was required to name the construction manager – being the Gilbane/TDX Joint Venture -- as an additional insured under its liability policies.

Samson Construction Company entered into a contract with DASNY to perform services as the prime contractor. Samson agreed to procure a commercial general liability policy with an endorsement naming several parties as additional insureds, including “the Construction Manager (if applicable)” [as well as specifically naming the construction manager -- Gilbane/TDX Construction Joint Venture].

Samson, as required, obtained a policy from Liberty Insurance Underwriters that contained an “Additional Insured-By Written Contract” clause, stating: “WHO IS AN INSURED (Section II) is amended to include as an insured any person or organization with whom you have agreed to add as an additional insured by written contract but only with respect to liability arising out of your operations or premises owned by or rented to you.” (emphasis added).

DASNY sued Samson and the project architect seeking damages for Samson’s negligence in performing the work. The architect commenced a third-party action against the Joint Venture. The JV provided notice of the third-party action to Liberty. Liberty denied coverage on the basis that the JV had provided no documentation that Samson, the named insured, was supposed to defend and indemnify the JV. The JV filed an action against Liberty seeking coverage.

The trial court denied Liberty’s motion, holding that “plaintiffs qualified as additional insureds under the policy. The court found that the policy ‘requires only a written contract to which Samson is a party’ and that this requirement was met by Samson’s written contract with DASNY, which obligated Samson to procure insurance naming as additional insured ‘the Construction Manager (if applicable)’ and that the JV was undisputedly the construction manager.”

The Appellate Division – over a very lengthy dissent – reversed. The court’s decision was tied to a literal application of the policy language of the additional insured endorsement: “In this case, the ‘Additional Insured-By Written Contract’ clause of the CGL policy provides additional insured coverage to ‘any person or organization with whom you [Samson] have agreed to add as an additional insured by written contract.’ Contrary to Supreme Court’s determination, and consistent with our prior decisions in [citations omitted] we find that the language in the ‘Additional Insured-By Written Contract’ clause of the Liberty policy clearly and unambiguously requires that the named insured execute a contract with the party seeking coverage as an additional insured. Since there is no dispute that Samson did not enter into a written contract with the JV, Samson’s agreement in its contract with DASNY to procure coverage for the JV is insufficient to afford the JV coverage as an additional insured under the Liberty policy.” (emphasis added).

The court rejected the JV’s argument as distorting “the plain language of the additional insured clause of the Liberty policy issued to Samsom. Indeed, plaintiffs place undue emphasis on the phrase ‘by written contract’ and completely ignore the inclusion of the words ‘with whom’ as the object of the verb phrase ‘you agree.’”

The court criticized the dissent for ignoring the clear and unambiguous policy language in favor of attempting to give the contract a meaning based on “what the parties may have subjectively intended by certain terms.”

It is easy to see how the court reached this decision -- literal application of the additional insured endorsement. Plain and simple. However, it is also easy to overlook this issue when addressing whether a party is an additional insured on the basis that a contract requires that it be named as an AI. Being named as such a party in a contract is not the same as being named as such a party in a contract where the obligation to obtain such AI coverage falls on the named insured.

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