A subcontract required the second-tier sub to include the project owner and general contractor as additional insured parties. But the second-tier sub’s insurance policy had a “privity endorsement,” which allows additional insured status only for those in privity with the insured party, i.e., the first-tier sub.

When an injured worker sued the owner, GC and first-tier sub, the owner and GC demanded that the second-tier sub’s carrier defend and indemnify them from the injured worker claim. But the federal Second Circuit Court of Appeal, applying New York law, has held otherwise.

First, the appellate court noted that interpretation of the policy must come from the policy itself, and not from the subcontract. Thus, if the policy does not provide the coverage sought, it does not matter that the subcontract required the policy holder to furnish such coverage. Failure to provide the required coverage might be a breach of contract, but that situation would not effect a change in the insurance policy.

Second, the parties argued the meaning and effect of an “Automatic Status Heading” within the declarations section. The first-tier sub’s carrier argued that the Automatic Status Heading meant that the owner would automatically become an additional insured if required by contract. But the Court of Appeal held that, to construe the Automatic Status Heading as argued by the first-tier carrier, would entirely negate the privity endorsement. The standard rule in construing any contract, including contracts for insurance, is that courts must avoid construing the contract so as to “render meaningless” any particular portion. If the Automatic Status Header were to be read to automatically include the owner or any other party entitled by contract to additional insured status, then the privity endorsement would be totally negated.

This is a reminder to (a) understand the full scope of pertinent policies, and (b) ensure that certificates of insurance include all proper additional insured designations. (Item (b) effectively requires the insurance broker, having access to the policy and issuing the certificate, to verify the additional insured status.)

The case is Cincinnati Ins. Co. v. Harleysville Ins. Co., 2017 U.S. App. LEXIS 19275 (Oct. 4, 2017).