Property owners that allow access to their property for environmental work often seek to be included as “additional insureds” on insurance policies held by those doing the work. For example, this routinely occurs when a prospective buyer conducts due diligence on a seller’s property, or when a previous owner or other responsible party is required to return to the property to remediate contamination. Typically, sale contracts and access agreements require the purchaser or the remediating party to ensure that its consultants and contractors/subcontractors name the property owner as an additional insured on their insurance policies, which in the event of an incident, would give the property owner the ability to make a claim under the policy for damages if those accessing the property do not make the property owner whole. Blanket additional insured language that is common in many general liability, auto and contractor’s liability insurance policies includes as an additional insured any entity that is required to be named an additional insured by written contract. But if the property owner and the named insured (i.e., the consultant and/or contractor/subcontractor) do not have a direct written agreement between them that requires the owner to be included as an additional insured, this arrangement may not be enough. Buyers and sellers in these situations must carefully review additional insured policy language and consider their contractual arrangements with environmental consultants and contractors/subcontractors to ensure that they actually obtain additional insured status.

The Need for Privity of Contract

Courts in New York, Illinois, and Louisiana have denied coverage in instances where owners and contractors/subcontractors lacked privity of contract and instead relied on multiple agreements, such as between the owner and general contractor and then between the general contractor and subcontractor, to establish the owner’s additional insured status. In Gilbane Bldg. Co./TDX Constr. Corp. v. St. Paul Fire & Mar. Ins. Co., 31 N.Y.3d 131 (2018), New York’s highest court held that although the general contractor agreed with the owner to require all subcontractors to list the owner as an additional insured, the lack of a written contract between the owner and subcontractor precluded coverage for the owner.

In each case where coverage has been denied, courts have emphasized that the particular wording of the insurer’s additional insured endorsement makes all the difference when determining whether privity of contract is required. For example, in Westfield Ins. Co. v. FCL Builders, Inc., 407 Ill. App.3d 730 (2011), the Supreme Court of Illinois concluded that because the policy at issue used the phrase “such person or organization” as opposed to “any person or organization,” privity of contract between the general contractor and subcontractor was required.

There are cases decided in Maine, Connecticut, and Texas where courts have not required contractual privity in like situations. But even in these cases, the outcomes have turned on subtle and unpredictable interpretations of the policies’ endorsements. This can be seen in Pro Con, Inc. v. Interstate Fire & Cas. Co., 794 F.Supp.2d 242 (D. Me. 2011), where the United States District Court for the District of Maine distinguished the endorsement at issue from one analyzed by a Louisiana court merely because the Maine endorsement did not include the phrase “with you” or “with each other” after the phrase “agreed in writing in a contract or agreement.” The Maine case demonstrates that the privity of contract requirement is not a jurisdictional rule-of-law issue, but rather a case-by-case, policy-by-policy one.

Because courts unpredictably require privity of contract on a case-by-case basis, an owner would be wise to enter into direct written agreements with every consultant and/or contractor/subcontractor requiring the property owner be named as an additional insured. Although it may seem redundant, establishing privity of contract directly with the policyholder is the best method to obtain coverage.

Certificates of Insurance Not Enough

Lastly, many property owners have wrongly assumed that receiving a certificate of insurance is enough to prove their coverage. However, courts in many jurisdictions have disregarded such certificates, finding them extrinsic to the interpretation of the policy endorsement’s requirements and therefore not sufficient evidence that a party is an additional insured. See Gilbane, 31 N.Y.3d at 1137 (2018); see also Pro Con, 794 F.Supp.2d at 253 (D. Me. 2011). Therefore, property owners should not rely solely on certificates of insurance and should seek to obtain a specific endorsement to the policies held by those accessing their property to ensure that owner obtains coverage as an additional insured.

Best Practices for Confirming Insurance Requirements

In light of the foregoing, property owners should consider the following when confirming insurance requirements:

  • Entering into a direct written agreement with each entity providing insurance to the property owner, including all consultants and contractors/subcontractors;
  • Requesting and reviewing relevant policy endorsements, rather than relying on certificates of insurance; and
  • Carefully reviewing the insurance information and endorsements with your professional advisors.