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Vol. 8 - Issue 1
January 3, 2019


Gilbane Building Company/TDX Construction Corp. v. St. Paul Fire & Marine Ins. Co., 97 N.E.3d 711 (N.Y. 2018)

High Court Rejects Additional Insured Coverage In A Commonly Sought Scenario

As important as additional insured decisions can be, I rarely report on them in Coverage Opinions.  Their outcomes are often dictated by specific policy language, or facts, or both.  As a result of their sui generis nature, additional insured decisions often-times do not offer easily discernable or wide-reaching lessons nor have the ability to influence other courts nationally.  So for this reason it is even more unusual that I would include an additional insured decision as one of the year’s ten most significant.   

But the New York Court of Appeals’s decision in Gilbane Building Co./TDX Construction Corp. v. St. Paul Fire and Marine Ins. Co. is an exception.  The additional insured policy language at issue is widely used, the scenario at issue arises with frequency in the construction context and there are few decisions addressing it.  Thus, the decision has the makings to influence other courts nationally.  Toss in that it comes from an influential court and rejected an obvious counter-argument.  For these reasons, Gilbane Building is in a special category of additional insured decisions.  [Incidentally, Gilbane Building is the King of Additional Insured decisions.  A Lexis search of decisions, with the name “Gilbane” in the caption, and “additional insured” in the body, gets 18 hits.]       

In “Gilbane No. 18,” the New York high court addressed the following additional insured scenario.  As is often the case, when it comes to AI decisions, there are various parties and contracts at issue.  It can be confusing to the reader.  The players are as follows:

Dormitory Authority of the State of New York (DASNY) (Owner) contracted with Samson Construction Company, a general contractor, for construction of a new forensic laboratory for New York City. 

“DASNY also contracted with a joint venture between Gilbane Building Company and TDX Construction Corporation (‘Gilbane JV’) for Gilbane JV to be the construction manager for the project. 

DASNY’s contract with Samson provided that Samson would obtain general liability insurance for the job, with an endorsement naming as additional insureds: ‘DASNY, the State of NY, the Construction Manager [Gilbane JV] and other entities specified on the Sample Certificate of Insurance provided by DASNY.’”

Samson secured general liability coverage from Liberty Insurance Underwriters.  The Sample Certificate of Insurance listed as “Additional Insureds under General Liability as respects this project: . . . Gilbane/TDX Construction Joint Venture.”

To clarify, Samson Construction Company, a general contractor, has a CGL policy that purports to provide additional insured coverage for Gilbane JV.      

Next, DASNY sued Samson and Perkins Eastman, Architects, P.C., the project architect, alleging construction defects.  Perkins commenced a third-party action against Gilbane JV.  Gilbane JV sought defense and indemnity, as an additional insured, under the Liberty policy, for the Perkins suit.  Liberty denied coverage and Gilbane JV filed suit against Liberty.  Following trial court and appellate division decisions, the case made it to Albany.

The additional insured endorsement at issue provided as follows:

“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).

So, any person or organization with whom Samson (being “you”) agreed to add as an additional insured, by written contract, is an additional insured (but only with respect to liability arising out of your operations or premises owned by or rented to you).

But here’s the rub – Gilbane JV has no contract with Samson.  Rather, Samson had a contract with DASNY -- and that’s the source of Gilbane JV’s additional insured rights.

Gilbane JV did not see this as a problem, arguing: “[T]he phrase ‘by written contract’ modifies ‘to add,’ and argues that it refers to the act of the named insured, Samson, agreeing to add an additional insured. Put differently, Gilbane JV argues that ‘by written contract’ means only that any agreement by Samson to add an additional insured must be memorialized in a writing — not necessarily a writing between Samson and the purported additional insured. Thus, according to Gilbane JV, the contract between DASNY and Samson — under which Samson agreed in writing to procure a general liability insurance policy for the construction project and to name Gilbane JV as an additional insured — was sufficient to confer additional insured status upon Gilbane JV.”

But the New York high court agreed with Liberty that Gilbane JV was not entitled to additional insured coverage: “[T]he endorsement is facially clear and does not provide for coverage unless Gilbane JV is an organization ‘with whom’ Samson has a written contract.” 

To be more specific, the court held that “the endorsement would have the meaning Gilbane JV desires if the word ‘with’ had been omitted.  Omitting ‘with,’ the phrase would read: ‘. . . any person or organization whom you have agreed by written contract to add . . .’, and Gilbane JV’s position would have merit.  But Samson and Liberty included that preposition in the contract between them, and we must give it its ordinary meaning.  Here, the ‘with’ can only mean that the written contract must be ‘with’ the additional insured.”

The dissenting opinion reached the opposite conclusion by focusing on an alternative policy reading and concluding that the endorsement is ambiguous, or, at best, has two reasonable interpretations.

More importantly, the dissent argued, in vain, that Gilbane JV was an additional insured based on principles of risk transfer in the construction context: “Consistent with this risk transfer regime, a blanket additional insured endorsement generally provides coverage for any person or organization to whom or to which the named insured is obligated to name as an additional insured by virtue of a written contract or agreement.  The point of such a blanket endorsement is to furnish a means of providing such coverage that is more efficient than requiring either a separate contract between each subcontractor and each additional insured (which the majority finds to be necessary here) or that the policy list the identity of each additional insured (a list that would have to be amended whenever the named insured undertakes an obligation to add a new upstream entity, consistent with standard commercial practice).  In that regard, counsel for defendant conceded that underwriting considerations for a policy like the one before us are based, not on the number or identity of additional insureds that may be covered but, instead, on the nature of the insured’s work.  Thus, when Samson — a subcontractor on a major construction project, with a practical understanding of risk allocation in the construction industry — procured the policy here, it would reasonably expect that it had the right to add Gilbane JV, an  upstream entity, as an additional insured without the approval of, or even so much as a notification to, defendant, so long as such coverage was required by a written contract.  Seen through this lens, the interpretation proffered by Gilbane JV is consistent with the reasonable expectations of the average insured upon reading the policy and employing common speech.”  
The additional insured endorsement at issue here is quite common.  In addition, it is not usual for a construction contract to obligate a party to name an entity as an additional insured, but where such entity (the purported additional insured) is not a party to the contract.  This happens often in contacts between general contractors and subcontractors where the sub is obligated to name the general contractor AND the owner as additional insureds – but the owner is not a party to the GC-sub contract.

So as unlikely as it is for an additional insured decision to be included as one of the year’s ten most significant, Gilbane Building Co./TDX Construction Corp. v. St. Paul Fire and Marine Ins. Co. had the makings.



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