Commercial construction projects necessarily involve many moving parts, including multiple parties from the owners to the construction managers to the project financiers to the contractors and to the sub-contractors. These moving parts generally result in a web of interrelated insurance policies covering the project. Typically, when there is no controlled insurance program, contractors and sub-contractors are required to obtain liability insurance covering their potential negligence and very often are also required to add others, like the property owner or construction manager, as additional insureds onto those insurance policies.

But not all additional insured clauses are the same. In this post, we discuss what a New York appellate court recently called an “additional insured by written contract” clause. The language of an additional insured clause may make all the difference as to whether a party is covered as an additional insured or not.

In Gilbane Building Co./TDX Construction Corp. v. St. Paul Fire and Marine Ins. Co., No. 653199/11 (N.Y. App. Div. 1st Dep’t Sept. 15, 2016), the contract between the manager/financier of a large construction project in New York City and a prime contractor required that the prime contractor, as insured, procure insurance naming as additional insureds, among others, the construction manager retained by the manager/financier of the project. The prime contractor obtained an insurance policy, which contained an “Additional Insured-By Written Contract” clause. The clause 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 by you (emphasis added).

A loss was incurred and the prime contractor and the project architect were sued. The prime architect brought a third-party action against the construction manager, who tendered the claim to the prime contractor’s carrier. The carrier denied coverage and the construction manager brought an action seeking coverage. The carrier moved for summary judgment and the motion court denied the motion.

On appeal, a 4-1 majority reversed the motion court and granted summary judgment to the carrier declaring that the carrier did not have any defense or indemnity obligations to the construction manager under the prime contractor’s policy. In ruling for the carrier, the appellate court noted the conflicting case law at the trial court level. The majority interpreted the language of the additional insured clause as clearly and unambiguously requiring the named insured to execute a contract with the party seeking coverage as an additional insured. Because there was no contract between the prime contractor and the construction manager, the majority held that the contract between the prime contractor and the manager/financier was insufficient to afford coverage as an additional insured under the policy. The majority provides a detailed analysis of the additional insured clause and the relevant case law that it cited to support its interpretation.

Essentially, the court held that where an additional insured clause has language similar to that above, the clause only covers those parties that have written contracts with the named insured. A contract with another party agreeing to provide the additional insurance is insufficient. The dissent disagreed, based in part on the expectations of the parties to a complex commercial construction project.

What this case demonstrates is that courts in New York will interpret insurance policies based on the plain meaning of the words used by the parties and will not alter the contracts for equitable reasons if the language is clear and unambiguous. Given the dissent, however, an appeal may be brought, although a single dissent no longer allows for an automatic appeal. Leave will have to be granted by either the Appellate Division or the Court of Appeals itself.