Executed Contract Language and Additional Insured Coverage
A contractor and a subcontractor brought an action against the sub-subcontractor's commercial general liability insurer, alleging a breach of duty to defend and indemnify in an underlying action by an employee of the sub-subcontractor. This case is Suffolk Construction Company v. Illinois Union Insurance Company, 951 N.E.2d 944 (2011).
Suffolk Construction served as the general contractor for a construction project in Boston . Suffolk subcontracted the concrete work to S&F Concrete which subcontracted with Hallamore Corporation for the rental and operation of two cranes. The contract between Suffolk and S&F obligated S&F to require its lower tier subcontractors to maintain commercial general liability insurance and to name Suffolk as an additional insured on all liability policies. The written purchase order between S&F and Hallamore made no reference to the addition of insureds, although the president of Hallamore considered it a contractual duty to include Suffolk and S&F as additional insureds under its policy.
The insurance policy issued by Illinois Union to Hallamore did not identify Suffolk or S&F as additional insureds. In fact, the additional insured endorsement set out a scheduled space for identification of added insureds and this space remained blank. Beneath this space the schedule contained the following language pertaining to listing an entity as an additional insured: as required by contract, provided the contract is executed prior to loss.
McLaughlin, an oiler for Hallamore's cranes, fell off a wooden gang ladder and sustained serious injuries. He sued Suffolk and S&F for negligent maintenance of an unsafe work site. Suffolk and S&F sought coverage from Illinois Union and the insurer refused. The underlying lawsuit was settled and then, Suffolk and S&F sued Illinois Union for breach of contract. The trail court ruled in favor of the insurer and this appeal followed.
The appeals court found that under Hallamore's policy with Illinois Union, the additional insured endorsement covered other parties “as required by contract, provided the contract is executed prior to loss”. Suffolk and S&F argue that the term “executed” permits an oral executory agreement to create the predicate contract for added coverage. The insurer insists that the term unambiguously contemplates a written, signed agreement. The court said that a decision in the case rests with the interpretation of the word “executed”.
The court looked to Black's Law Dictionary and found two definitions of an executed contract: a contract that has been fully performed by both parties; and, a signed contract. Similarly, the dictionary furnished two definitions for the word “executed”: signed; and done, given, or performed. In the court's view, these meanings reduced to the alternatives that the contract requiring additional insured status for Suffolk and S&F must have been signed before the accident, or that the contract must have been fully performed before the accident. Since the second alternative cannot logically apply in the face of the facts in this accident, the court said that the contract had to be signed in order to make it executed.
The court fortified its decision by reviewing statutory language and decisions from other jurisdictions that found that the verb “execute” means a signed contract. Treatises upon construction and insurance law similarly held that additional insured provisions usually require a writing. Moreover, the court said that the requirement of a prior written agreement serves important practical purposes in that a written and dated instrument furnishes certainty, and its definiteness acts as a safeguard against mistaken and fraudulent claims.
The conclusion of the court was that the phrase “as required by contract, provided the contract is executed prior to loss” means that the contracting parties must have signed a written contract to create additional insureds. Because Hallamore and S&F did not accomplish a signed, written agreement requiring Hallamore to include Suffolk and S&F as additional insureds, Illinois Union did not owe Suffolk or S&D a defense or indemnity against the claims of the injured worker. The judgment of the trial court was vacated and remanded for entry of a new judgment.
Editor's Note: Insurance policies often refer to an “executed contract” or “the execution of the contract”. While many terms and phrases are defined in the insurance policy, “executed” is not one of those terms. The Appeals Court of Massachusetts, Suffolk , researched case law and legal writings to find that the word “execute” in reference to a contract means the contract must be signed in order to be in force. Since there was no signed contract in this instance, the contractor and subcontractor were not additional insureds under the general liability policy of the sub-subcontractor.