HNRK Coverage Corner

On January 31, 2019, Justice of Engoron of the New York County Supreme Court issued a decision in Southwest Mar. Gen. Ins. Co. v. Main St. Am. Assur. Co., 2019 NY Slip Op 30240(U), holding that a blanket additional insured endorsement to a subcontractor’s CGL policy required that the subcontract be executed prior to the underlying injury in order to establish coverage.

This case involves a frequently-litigated coverage issue in construction-related matters:  determining who qualifies as an additional insured under a blanket additional insured endorsement to a contractor’s CGL policy.  Property owners, construction managers and general contractors typically require “downstream” parties on a construction project (i.e., subcontractors) to provide CGL coverage to them.  This is usually accomplished by means of a blanket additional insureds endorsement on the contractor’s policy. Here, a general contractor (ADC) sought defense coverage as an additional insured under the CGL policy of a subcontractor (Northstar) for a lawsuit by an injured Northstar employee.  Northstar’s CGL policy, issued by Main Street America Assurance Company (MSA), provided that “Any person(s) or organization(s) for whom you are performing operations is . . . an additional insured, 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.”. Northstar disclaimed coverage and a lawsuit followed.

Justice Engoron denied summary judgment, finding that there was an issue of fact as to whether ADC’s subcontract with Northstar was executed prior to the date of the underlying injury.  The Court explained:

Contrary to the argument advanced by ADC, this Court finds that that clear and unambiguous language of the policy issued to Northstar by MSA requires that ADC and Northstar had to have executed a written subcontract agreement prior to the date of the underlying accident in order to trigger coverage for "[a]ny person(s) or organization(s) for whom you are performing operations." We reject MSA's reliance on Travelers Indemnity Co. of America v Royal Insurance Co. of America, 22 AD3d 252 (1st Dep't 2005), as persuasive on this issue. The policy language at issue in Travelers is distinguishable in that it had a comma between the phrase "written contract" and the word "agreement," leading the First Department to find ambiguity in the coverage requirements. This Court finds, as a majority of other jurisdictions have found, that use of the words "written contract or agreement" unambiguously requires a written document. Persuasive on this issue is Quincy Mutual Fire Ins. Co. v. Imperium Ins., 636 F. App’x 602, 605 (3d Cir. 2016) (holding that "to read it otherwise would render 'written' meaningless").

However, an issue of fact remains as to when the written agreement between ADC and Northstar was executed, and accordingly, an issue of fact as to whether the additional coverage of Northstar's policy applies to ADC. MSA met its initial prima facie burden of demonstrating that the contract was executed after the underlying accident, by providing the deposition testimony of Mr. Barcelos, shifting the burden to ADC. However, ADC sufficiently rebutted such a showing by submitting the affidavit of its administrative assistant, Ms. Mehl, who asserts it was her custom and practice to date the documents on the date the subcontractor signs.

This decision highlights the need for would-be additional insureds to ensure that their relationship with the named insured is structured to meet the requirements of the additional insured endorsement.  Here, the court concluded that the language in the additional insureds endorsement requiring that the parties have “agreed in writing in a contract or agreement” means that an executed agreement is a necessary condition of coverage.  However, other courts have distinguished between policy language requiring a “written agreement” and an “executed agreement.”  See, for example, our previous post on J.T. Magen & Co., Inc. v. Atlantic Cas. Ins. Co., 2018 NY Slip Op 31584(U) (Schecter, J.) (unsigned purchase order could be sufficient to trigger additional insured coverage where the policies “merely require a written agreement, not an executed agreement”).