The Massachusetts Court of Appeals recently issued a decision on the parameters of additional insured coverage called Suffolk Construction Corp. v. Illinois Union Insurance Company, No. 10-P-1336 (Mass. App. Ct. Aug. 15, 2011). A copy of the decision can be found here by searching for "Appeals Court" and writing "08/15/2011" in the date field.
The case concerned a general contractor ("GC") that subcontracted concrete work on a commercial construction project. The subcontractor, in turn, contracted with another company to operate cranes at the project site. During construction, one of the crane contractor's workers was seriously injured in a fall. The worker sued the GC and the subcontractor for negligent maintenance of a work area.
The contract between the GC and the subcontractor obligated the subcontractor to require its lower-tier subcontractors to maintain CGL coverage naming the GC as an additional insured (“AI”). The crane contractor's owner believed he had done so. Moreover, prior to the worker’s injury, the crane contractor's insurance agent provided the subcontractor with a certificate of insurance describing both the GC and the subcontractor as AIs under the crane contractor's policy. The actual policy, however, did not name either the GC or the subcontractor as AIs. Instead, the AI endorsement stated that it covered other parties only “as required by contract, provided the contract is executed prior to loss.
”The crane contractor's insurer refused to defend or indemnify the GC or the subcontractor in the injured worker’s suit. It reasoned that there was no actual “executed” (i.e., written and signed) contract obligating the crane contractor to provide AI coverage. After settling the claim with the worker for $210,000, the GC and the subcontractor brought a declaratory judgment action against the crane contractor's insurer. The trial court granted summary judgment in favor of the insurer. It first found that the insurance agent had no authority to bind the insurer; thus, the certificate of insurance did not accomplish the addition of insureds. It next held that the parties’ oral agreement to add the GC and the subcontractor as AIs on the crane contractor’s policy did not constitute an “executed” contract. The appellate panel affirmed. It followed precedent from New York and Illinois in concluding that the word “executed,” as found in the AI endorsement, required a pre-loss, signed contract obligating the primary insured to grant AI status to the GC under its CGL policy.
This decision demonstrates that courts will follow carefully drafted policy language, even where the outcome does not comport with the shared understanding of the policyholder and the purported additional insureds.