In September 2016, the Appellate Division, First Department decided a case that has significant ramifications on insurance coverage on construction projects between construction managers and contractors. What should not be overlooked is that the crucial holding in this case also has substantial implications on the impact of insurance issued by an owner/developer to a neighboring property in connection with access to that property during the owner/developer's project.
The Appellate Division held in Gilbane Bldg. Co./TDX Constr. Corp., v. St. Paul Fire & Mar. Ins. that the additional insured clause on the contractor's policy only covered those that have written contracts directly with the named insured. The general contractor signed a contract with the project owner that required them to name the construction manager as an additional insured and the contractor obtained a certificate that stated that the construction manager was an additional insured and a blanket additional insured endorsement from their carrier.
However, the blanket endorsement contained the commonly used phrase that additional insured coverage is provided for "any person or organization with whom you [the insured] have agreed to add as an additional insured by written contract." (emphasis added). The language of the blanket endorsement, which is commonly used, creates a gap in the coverage where the endorsement requires a direct written contract between the named insured and the additional insured, and, all too frequently, such a contract does not exist. It should be noted, that the Insurance Services Office, Inc. (ISO) Blanket Additional Insured Endorsement contains the same language at issue in the Gilbane case. Some insurers use their own forms and language, which may not conform to the ISO standards.
So what does this mean in the adjoining property access situation? The result is the same. If the owner/developer and the adjoining property owner enter into a written agreement for access that requires the owner/developer's contractor to name the adjoining property owner as an additional insured and that contractor issues a blanket endorsement with wording similar to the above; and the contractor is not a party to the license/access agreement between the contractor and the adjoining owner, the contractor's insurer can deny coverage. While this is an obvious problem for the adjoining owner, they presumably still have an indemnity from the owner/developer in the access agreement, so it becomes a problem for the owner/developer as well.
Best practices to avoid this lapse in coverage:
- have the contractor issuing the insurance be a party to the access agreement;
- get an additional insured endorsement that expressly names the adjoining owner (non-blanket) and be sure that language does not require the written contract; or
- where possible, if the owner/developer has their own coverage that covers that construction, obtain the additional insured coverage from the owner/developer.