The Seventh Circuit affirmed a ruling from the Northern District of Illinois that a subcontractor’s insurer must defend the general contractor in a negligence suit brought by an employee of the subcontractor for injuries suffered on the job.

The subcontractor’s general liability coverage extended to “any person or organization for whom [the subcontractor is] performing operations,” provided that there was a written agreement requiring inclusion of the party as an additional insured. Coverage for such an additional insured extended to liability for “bodily injury … caused, in whole, or in part, by [the subcontractor’s work] arising out of the [the subcontractor’s] ongoing operations performed for that additional insured.”

The insurer argued that the underlying claims did not arise out of the subcontractor’s operations performed for the general contractor. Emphasizing that the duty to defend is broader than the duty to indemnify, the court rejected that argument. Although the subcontractor’s employee did not explicitly allege any claims against the subcontractor, the underlying complaint did not foreclose—and instead actually supported—the possibility that bodily injury was caused by the subcontractor’s work. To reach this conclusion, the court was permitted to consider third-party complaints against the subcontractor. This evidence tended to show the potential that the bodily injury was caused by the subcontractor arising out of its operations for the general contractor. Thus, the claims against the general contractor potentially fell within additional insured coverage because they were potentially liable for bodily injury caused, in whole or in part, by the subcontractor’s work.

Policy language regarding additional insured coverage can be nuanced, and small differences in phrasing can be outcome determinative when deciding whether coverage exists. Insurance companies often incorrectly deny coverage for additional insureds. As the Seventh Circuit’s opinion in this case demonstrates, parties believing they have coverage as additional insureds should not simply accept an insurer’s coverage denial. In addition, contracting parties should consult insurance coverage counsel at the contract formation and policy placement stages to protect against costly exposure and litigation costs in the event that additional insured coverage is denied.

The case is Scottsdale Ins. Co. v. Columbia Ins. Grp., Inc., No. 19-3315, 2020 WL 5036095 (7th Cir. Aug. 26, 2020).

Matt Revis contributed to this article.