They don’t. Unless the subcontract is carefully drafted, that is. So where the prime contract required the owner to be named as an additional insured, and the subcontract flow-down clause passed along the GC’s obligations to the owner, as the sub’s obligations to the GC, this did not by itself result in a requirement that the sub name the owner as an additional insured. That is one lesson from a New York court decision.

An injured worker (employee of the sub) sued the owner and GC, and the GC’s insurance carrier, Navigators, undertook to defend them, since the prime contract required the owner to be named as an additional insured on the GC’s policy. Navigators then brought a declaratory judgment action against the sub’s carrier, Merchants, with two arguments. First, that the subcontract flow-down clause required the sub to also name the owner as an additional insured. Second, that the sub’s insurance, which did name the GC as an additional insured, was primary and non-contributory for the injured worker’s claim.

The prime contract had a “Schedule of Insurance Requirements” which included the requirement that the owner be an additional insured. The subcontract had a flow-down clause that stated, in part:

The Contractor and Subcontractor shall be mutually bound by the terms of this Agreement and, to the extent that provisions of the Prime Contract apply to the Work of the Subcontractor, . . . the Subcontractor shall assume toward the Contractor all obligations and responsibilities which the Contractor, under the Prime Contract, assumes toward the Owner and Architect.

The Merchants policy included the following, relative to defining additional insured parties:

Any person or organization, when [the sub] and such person or organization have agreed in writing in a contract, agreement or permit that was executed prior to the 'bodily injury', . . . that such person or organization be added as an additional insured on [the sub’s] policy.

Navigators argued that the flow-down clause, coupled with the insurance schedule, meant that the sub was to include the owner as an additional insured. The court did not agree. It held, first, that the reference in the Merchants policy to a contract in writing meant a contract between the sub and another party. And the incorporation by reference was “not an agreement” between the sub and the owner.

Second, the court noted that the flow-down clause applied to the sub’s “Work” and, as such, applied only to “the scope, quality, character and manner of the work to be performed by the subcontractor.” Thus, it did not apply to the insurance requirements. The owner was not entitled to additional insured status on the sub’s policy.

As for the competing claims of the carriers, each that the other policy should be primary, the court noted that this issue is to be resolved by examining the “other insurance” clauses in each policy. The court also noted: “The coverage required for an additional insured is presumed to be primary unless unambiguously stated otherwise.” The GC was an additional insured on the Merchants policy. That fact, coupled with the “other insurance” clause in the Merchants policy, resulted in the court holding that the Merchants policy would be primary to the Navigators policy. The case is Navigators Ins. Co. v Merchants Mut. Ins. Co., 2017 N.Y. Misc. LEXIS 899 (March 15, 2017) (LEXIS subscription required).

Two lessons arise. First, identifying the owner as an additional insured on any subcontract should be done deliberately, and not by reliance on a flow-down clause. Second, a prime contractor should review its own GL policy to ensure that the policy language will not conflict with subcontract terms calling for a sub’s policy to be primary to the GC’s policy, if the GC must pursue coverage for a claim under the sub’s policy.