Why it matters

The companies involved in a workplace accident are additional insureds pursuant to a sub-subcontractor’s policy and the insurer must provide coverage for underlying litigation resulting from a death and injuries on the jobsite, a Connecticut federal court judge has determined. The general contractor and a subcontractor were sued after a structure collapsed on a worksite and they sought to have the insurer for one of the sub-subcontractors provide a defense. The insurer balked, arguing that its insured wasn’t even named in the complaints and that the general contractor didn’t have contractual privity with the policyholder. Rejecting both arguments, the court found that the insurance policy did not require a direct contractual relationship between the insured and an additional insured and that even if it had, the contract between the insured and the subcontractor incorporated the terms of the general contractor’s contract. Therefore, defense and indemnification were required, the judge ruled, granting summary judgment to the general contractor and subcontractor on the insurer’s duty to defend.

Detailed Discussion

Shawmut Woodworking & Supply was the general contractor and designer for a construction project at Yale University. Shawmut subcontracted steel fabrication and construction work to Shepard Steele Company, who in turn subcontracted erection work to Fast Trek Steel.

In September 2010, a steel web structure collapsed during installation, injuring three workers and causing the death of one. The injured parties and the estate filed suits alleging negligence on the part of Shawmut and Shepard.

Liberty Mutual Insurance Company, Shepard’s insurer, provided a defense under a reservation of rights to Shepard and Shawmut. But the two companies demanded that First Mercury Insurance Company, Fast Trek’s insurer, defend and indemnify them as additional insureds. As required by its contract with Shepard, Fast Trek obtained a general liability policy from First Mercury with a $1 million occurrence limit (as well as an excess policy with up to $10 million of coverage).

First Mercury refused to provide a defense to Shawmut and Shepard for three reasons: First, that Shawmut did not meet the definition of an additional insured because it did not contract with Fast Trek. Second, even if the companies did qualify for coverage, it should only extend to Shawmut and Shepard for vicarious liability of Fast Trek, and because no claims were asserted against the insured in the complaints, no coverage existed. Finally, the insurer pointed to a policy exclusion that it claimed barred coverage.

The Additional Ensured Endorsement in Fast Trek’s policy provided coverage to “any person or organization for whom you are performing operations 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. Such person or organization is an additional insured only with respect to liability for ‘bodily injury,’ ‘property damage’ or ‘personal and advertising injury’ caused, in whole or in part, by:

  1. Your acts or omissions; or
  2. The acts or omissions of those acting on your behalf; in the performance of your ongoing operations for the additional insured.”

Based on the subcontract between Fast Trek and Shepard, which required Fast Trek to “name Shepard as additional insured,” there was no dispute Shepard was an additional insured. But the court said a lack of contract between Shawmut and Fast Trek did not preclude coverage for the general contractor.

Shawmut’s contract with Shepard required any subcontract agreements to be bound by the original contract. Shepard did so, and the agreement with Fast Trek expressly incorporated the Shawmut-Shepard contract and separately stated that Fast Trek assumed the same obligations and responsibilities.

“[N]othing in the text of the Additional Insured Endorsement explicitly requires a direct contractual relationship between Fast Trek and an additional insured,” U.S. District Court Judge Janet Bond Arterton wrote. “Although the text of the Additional Insured Endorsement requires that Fast Trek and Shawmut ‘have agreed in writing in a contract’ that Shawmut will be an additional insured, no language requires that both parties agree in the same writing.”

Both Fast Trek and Shawmut have “agreed in writing in a contract” for Shawmut to be named as an additional insured, the court explained. Shawmut did so in its subcontract with Shepard and Fast Trek explicitly agreed in its sub-subcontract with Shepard.

First Mercury’s reading of the policy “would require the court to read into the Additional Insured Endorsement terms such as ‘direct’ or ‘between’ in contravention of the rule that courts will not read terms into a contract,” the judge added. And if the insurer wanted to limit its coverage to extend up only one level from Fast Trek to Shepard, “it could have readily done so with explicit contractual language to that effect.”

The fact that Fast Trek was not named as a defendant in any of the underlying complaints also was not a problem for Judge Arterton. The allegations of the complaints established that the injuries arose out of operations performed by Fast Trek employees for Shawmut, the court said, which triggered coverage on the basis of the complaint alone.

Additionally considering the report of the accident from the Occupational Health and Safety Administration, the judge found the report “unquestionably suggests the possibility of coverage because of the evidence that the accident was at least potentially attributable to Fast Trek’s failure to properly secure the beams.”

As for the Endorsement limiting coverage to vicarious liability, “First Mercury’s policy lacks language to connote the limitation it now urges,” Judge Arterton wrote. The language of the policy itself belied the insurer’s position by including “liability . . . caused, in whole or in part” by the named insured. “The inclusion of this language is inconsistent with ‘liability’ meaning ‘vicarious liability,’ because vicarious liability is an all or nothing proposition and thus a party could not be vicariously liable ‘in part’ for Fast Trek’s acts,” the court said.

First Mercury’s reliance upon a policy exclusion for “any professional engineering, architectural or surveying services” also failed. Identified as a “general contractor” and “subcontractor for steel fabrication” in the complaints, Shawmut and Shepard, respectively, were not designated as professional architects, engineers, or surveyors.

Although the complaints contained allegations of negligent design, “they also contain general allegations of failure to warn, failure to ensure a safe work area, and failure to properly install the steel beams,” the judge explained. “Thus, the professional liability policy exclusion does not apply to all of the allegations of the underlying complaints and does not absolve [First Mercury] of its duty to defend Shawmut and Shepard.”

To read the opinion in First Mercury Insurance Co. v. Shawmut Woodworking & Supply, Inc., click here.