Insurance policies, like most contracts, are only valid between the persons or entities who entered into the agreement. In some cases, other parties can be covered under an insurance policy as an additional insured. But that coverage depends on the wording of the endorsement, state contract and insurance laws and how close the relationship is between the various parties.
One workers’ compensation case recently decided by the U.S. Court of Appeals for the Second Circuit highlights these issues. The appeals court has ruled that a building owner was not an additional insured on a subcontractor’s insurance policy where the owner was not in contractual privity (that is, a close enough relationship or party to the contract) with the subcontractor.
Jumall Little, an employee of The Kimmell Company, Inc., allegedly was injured while repairing an HVAC system at a building owned by the University of Rochester Medical Center / Strong Memorial Hospital (UR). Little sued:
— UR, the owner of the building where Little allegedly was injured;
— LeChase Construction Corp. and LeChase Construction Services LLC (together, LeChase), the general contractor for the HVAC repair project; and
— J.T. Mauro Co., Inc., LeChase’s subcontractor for the project.
The HVAC repair project giving rise to that lawsuit involved three separate construction contracts:
- The Prime Contract between UR and LeChase
- The LeChase-Mauro Subcontract between LeChase and Mauro
- The Mauro-Kimmel Subcontract between Mauro and Kimmel
Kimmel was the named insured under a policy issued by Harleysville Insurance Company and Mauro was the named insured under a policy issued by Cincinnati Insurance Company.
Cincinnati alleged that the Mauro-Kimmel Subcontract required Kimmel to add Mauro, UR, and LeChase as “additional insured[s]” under the Harleysville policy, which addressed “additional insured[s]” in two separate endorsements: the Privity Endorsement (Endorsement CG 20 33) and the Declaration Endorsement (Endorsement CG 20 10).
The U.S. District Court for the Western District of New York held that the Declaration Endorsement did not provide additional insured status to either UR or LeChase, but that the Privity Endorsement did provide additional insured status to UR. Thus, it ruled, Harleysville had to defend and indemnify UR, but not LeChase, as an additional insured.
The dispute reached the Second Circuit.
The Harleysville policy
The Privity Endorsement stated: THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY. (All caps and bold were in the original document.)
The language at issue in the case said that such coverage would be provided “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.”
The Declaration Endorsement pointed to the Declaration section for a schedule listing additional insured, including the Rochester Institute of Technology under the heading “Additional Insured — Owners, Lessees Or Contractors — Scheduled Person Or Organization.”
Beneath the Declaration heading was another heading titled “Additional Insured — Owners, Lessees Or Contractors — Automatic Status When Required in Construction Agreement With You”
The appeals court ruling resolved the issue of coverage for an additional insured, but the underlying personal injury claim continued. (Photo: Shutterstock)
The Second Circuit’s decision
The Second Circuit, applying New York law, ruled that the Privity Endorsement did not confer additional insured status on UR or LeChase because the Privity Endorsement required contractual privity, and Kimmel had not entered into a contract with UR or LeChase directly.
The circuit court explained that New York courts had consistently interpreted language identical to the Privity Endorsement to require contractual privity, so that “there must be a written agreement between the insured and the organization seeking coverage to add that organization as an additional insured.”
The circuit court noted that the district court had ruled that the Privity Endorsement conferred “additional insured” status on UR because “[a] plain reading of the [Mauro-]Kimmel subcontract reveal[ed] that Kimmel agreed to name . . . UR as [an] additional insured. . . .” According to the circuit court, even if the Mauro-Kimmel subcontract could give rise to a breach of contract claim (assuming Kimmel had a contractual duty to obtain insurance for UR or LeChase as “additional insured[s]” but failed to do so), the validity of such a claim did not mean that the Harleysville policy should be rewritten to name UR as an additional insured.
Kimmel had not entered into a contract with UR, the circuit court observed, and, as a result, there was no contractual privity between Kimmel and UR and the Privity Endorsement did not confer “Additional Insured” status on UR.
Finally, the Second Circuit affirmed the district court’s decision that the Declaration Endorsement did not confer “additional insured” status on either UR or LeChase.
Meaning of ‘Automatic Status’ language
The circuit court rejected Cincinnati’s contention that the “Automatic Status” heading in the Declaration section negated the Privity Endorsement’s contractual privity requirement so that owners, lessees or contractors were “automatically entitled to additional insured status when required in a construction agreement with Kimmel.”
The Second Circuit ruled that the fact that the words of the Automatic Status heading mirrored the heading of the Privity Endorsement indicated that the Automatic Status heading was “a reference” to the Privity Endorsement, “not a designation of a blanket category of unspecified additional insureds.”
If it were interpreted to designate additional insureds, “then the entire Privity Endorsement would be rendered meaningless,” according to the Second Circuit.
The circuit court concluded that the Privity Endorsement modified the Automatic Status heading language in the Declarations, “not the other way around.”
The case is Cincinnati Ins. Co. v. Harleysville Ins. Co.
Steven A. Meyerowitz, Esq., is the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc. Email him at firstname.lastname@example.org.