A Divided Court Finds Additional Insured Coverage is Enforceable Across New York
On March 27, 2018, the New York Court of Appeals, in a matter of first impression for the state’s highest court, held that a direct contract was required to confer automatic additional insured status under common policy language. Gilbane Bldg. Co./TDX Constr. Corp. v. St. Paul Fire & Marine Ins. Co., 143 A.D.3d 146 (1st Dep’t 2016), aff’d, __N.Y.3d__, 2018 WL 1473553 (Mar. 27, 2018).
Many standard blanket additional endorsements often confer additional insured status on entities “with whom” the named insured has agreed in contract to name as additional insured. The Court of Appeals found that the contract must be directly between the named insured and the entity seeking coverage to create additional insured status. In practice, the problem is that general contractors often require subcontractors to name the project owners as additional insureds, but the owners rarely contract directly with the subcontractors regarding additional insured status. So, contrary to the parties’ intent, the owner does not qualify as an additional insured because it did not have a direct contract with the named insured subcontractor. And under the Court of Appeals decision in Gilbane, it is going to stay that way.
The disputed portion of the policy’s additional insured provision reads:
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.
On appeal to the Court of Appeals, a 5-2 majority of the court found that the provision was clear and unambiguous, despite arguments to the contrary, and that well-settled rules of contract interpretation require it to be enforced as written. The majority emphasized that in a coverage dispute the language of the insurance policy is the touchstone of the analysis. In dissecting the provision, the majority explained that to achieve the interpretation argued by Gilbane, the word “with” from the phrase “with whom” would have to ignored. But, relying on the principle that a court must apply a “fair meaning to all of the language” used by the parties, no single word can be merely discarded for a more favorable interpretation.
Of course, various other additional insureds endorsements contain broader automatic additional insured language, which when applied according to their plain language would not require contractual privity. The takeaway is not just that automatic insured status cannot be assumed when a contract requires it, it cannot be automatically discounted either. The specific language of the additional insured endorsement must be considered.