When general contractors require subcontractors to purchase “additional insured” coverage endorsements to protect the general contractor from the subcontractor’s actions that could result in liability to the general contractor, subcontractors often turn to the most recent standard ISO language, which extends coverage to the additional insured for any bodily injury “caused, in whole or in part,” by the acts or omissions of the named insured subcontractor. Despite the broad wording of this endorsement, however, and the lack of any limiting language in the specific provision, some courts have improperly restricted the scope of additional insured coverage by adding requirements that would only extend coverage if the bodily injury was “proximately caused, in whole or in part” by the “negligent acts or omissions of the named insured.” By reading words into the additional insured endorsement that are not there, and that further operate to limit the plain meaning of the coverage provision, these courts are ignoring long-standing rules of insurance contract construction. In the face of such decisions, and to ensure that additional insured coverage is provided as intended by the parties to the contract, subcontractors and their intended additional insureds should turn to other available endorsements in the market or negotiate express policy wording affording coverage consistent with the parties’ expectations.

In early June, New York’s highest court limited a government contractor’s ability to obtain insurance coverage as an “additional insured” under a subcontractor’s insurance policy. See Burlington Insurance Co. v. NYC Transit Auth., No. 57 (N.Y. June 6, 2017). In Burlington, the Court of Appeals of New York interpreted standard ISO language regarding additional insureds to limit insurance coverage only to those incidents that are (legally) proximately caused by the primary policyholder’s negligent acts or omissions. The practical result could be an unintended and unjustified limitation on the coverage available to additional insureds in New York.

In Burlington, the Burlington Insurance Company issued an insurance policy to cover work undertaken by a subcontractor — Breaking Solutions Inc. (BSI) — on a NYC Transit Authority (NYCTA) subway project. Specifically, BSI contracted with NYCTA to provide equipment and personnel for a tunnel excavation project, and added NYCTA (as was required by NYCTA) as an additional insured under its general liability insurance policy issued by Burlington. Burlington Insurance Co. v. NYC Transit Auth., No. 57, slip op. at 3 (N.Y. June 6, 2017). During the excavation work, a BSI machine touched a live electrical cable buried in concrete, causing an explosion, and an NYTCA employee was subsequently injured.

NYTCA later acknowledged that it was solely responsible for failing to identify, mark or protect the live cable during BSI’s work. Id. at 5.

The employee sought to recover damages from BSI and NYCTA on account of the accident. NYCTA tendered its defense to Burlington in its capacity as an additional insured under the BSI policy. Burlington denied coverage to NYTCA on the grounds that NYTCA, not BSI, was solely responsible for the accident, and as a result, NYCTA was not an additional insured under the BSI policy. At issue was the scope of Burlington’s policy, which had been drafted using standard ISO language that defined NYTCA’s additional insured status as applying “only with respect to liability for ‘bodily injury’, ‘property damage’ or ‘personal and advertising injury’ caused, in whole or in part by: 1. [BSI]’s acts or omissions; or 2. The acts or omissions of those acting on [BSI’s] behalf.” Id. at 3. The trial court granted summary judgment to Burlington, concluding that “the policy limited liability to instances where BSI, as the named insured, was negligent.” Id. at 6. The Appellate Division reversed, finding that, while BSI was not negligent, BSI had touched the live wire with its machine and “the act of triggering the explosion ... was a cause of [the employee's] injury” within the meaning of the policy. Id. (quoting Burlington Insurance Co. v. NYC Transit Auth., 132 A.D.3d 127, 14 N.Y.S.3d 377 (N.Y. App. Div. 2015)). Thus, the named insured’s acts were, legally, a cause of the liability being asserted against NYCTA. 

In a 4-2 decision, New York’s highest court reversed, concluding that “by its terms, the policy endorsement is limited to those injuries proximately caused by BSI.” Burlington Insurance Co. v. NYC Transit Auth., No. 57, slip op. at 7 (N.Y. June 6, 2017) (emphasis added). Significantly, the policy contained no reference to “proximate” causation as a test applicable to a party’s status as an additional insured. In its attempt to interpret and apply the additional insured coverage provision, the majority discussed the difference between proximate (legal) causation and “but-for” causation, emphasizing how “not all ‘but-for’ causes result in liability.” Id. at 9. The court explained:

[T]he Burlington policy endorsement states that the injury must be “caused, in whole or in part” by BSI.

These words require proximate causation since “but for” causation cannot be partial. An event may not

be wholly or partially connected to a result, it either is or it is not connected. Stated differently, although

there may be more than one proximate cause, all “but for” causes bear some connection to the

outcome even if all do not lead to legal liability. Thus, these words — “in whole or in part” — can only

modify “proximate cause.” 

Id. at 10. The Court of Appeals reached this decision despite acknowledging that the Appellate Division, in granting additional insured status to the NYCTA, “concluded that the named insured [BSI] was not negligent, but ‘the act of triggering the explosion ... was a cause of [the employee’s] injury” within the meaning of the policy.” Id. at 6. 

The court also emphasized that its ruling limiting the additional insured coverage only to liability proximately caused by the acts of the named insured, and removing any coverage for the additional insured’s sole negligence, was consistent with decisions from other courts, citing opinions from the Texas and Pennsylvania Supreme Courts, as well as federal courts in both New York and Pennsylvania. Id. at 14-15.

Finally, the majority explained that its interpretation “should come as no surprise to the industry” (without identifying whether it meant the insurance industry or the construction industry) because the ISO drafters intended the language “to mean proximate causation.” Id. at 16. The court discerned this “industry intent” through a citation in a 2010 Pennsylvania federal district court decision and a 2005 industry publication purporting to explain the motivation for changes to ISO’s additional insured coverage provision. Id. at 16-17 (quoting Coverage for Additional Insured–Vendors: Recent Markdowns by ISO and New York's High Court, 19-36 Mealey's Litig. Rep. Insurance 11 [2005]).

In their 19-page dissent, two justices strongly criticized the majority’s reasoning. They explained that there was “no basis” to apply a legal meaning — rather than a plain and ordinary meaning — to the text, which should be read on its face as extending coverage to any act (not just “negligent” acts) causally related to the policyholder, and that, if the parties wanted to limit coverage to “proximate cause” only, the policy would have expressly reflected that wording. Burlington Insurance Co. v. NYC Transit Auth., No. 57, slip op. at 6, 9 (N.Y. June 6, 2017) (Fahey, J., dissenting) [hereinafter “dissenting op.”]. The dissenting justices further asserted that, even if “cause” meant proximate cause, the actual scope of proximate causation is ambiguous, and rules of interpretation dictate that “ambiguous policy language is interpreted in favor of the insured.” Dissenting op. at 15. Finally, the dissent warned that “[t]he majority's approach could threaten the stability and sureness of our bedrock rules of insurance policy interpretation” by “depart[ing] from … long-held precepts of policy construction” such as canons dictating that “[i]nsurance contracts are to be viewed through the eyes of the average consumer and deciphered not through “’legalese’” and that “where there is uncertainty with respect to the existence of coverage, we fall on the side of the insured and conclude that coverage exists.” Dissenting op. at 18- 19. The dissent correctly pointed out that the accident was caused by BSI’s drilling operations, even if the NYCTA was itself negligent in failing to warn BSI of the existence of the live cable. Thus, NYCTA could not have been the sole cause of the employee’s injuries. 

Whether or not this troubling — and arguably wrongly decided — opinion constitutes a “trend” has been the subject of other articles. One states that the Burlington decision is “part of a growing trend of courts restricting independent coverage for additional insureds,” noting that the “caused, in whole or in part” language found in the 2004 ISO revisions is “increasingly interpreted by state courts ... to restrict coverage for additional insureds to situations in which the injury was caused, at least in part, by the primary policyholder.” See Thompson and Leavy, Your Contract Requires You To Be Named as an Additional Insured: Are You?, Lexology (Jun. 13, 2017). This article describes how “courts in Pennsylvania, Texas, Maine, Maryland, North Carolina, and New Hampshire have held that the ‘caused by’ language in an ISO-template insurance policy necessitates liability on the part of the primary policyholder in order to trigger coverage for the additional insured.” Id. 

While courts in these states, plus Tennessee, see Place v. P.F. Chang's China Bistro Inc., No. 2:12-CV- 2656-SHL-CGC, 2015 WL 11145058 (W.D. Tenn. Mar. 23, 2015) have interpreted this ISO additional insured language to require liability on the part of the primary policyholder to trigger additional insured coverage, all of these decisions (except one in Texas) have been handed down by federal courts ruling on matters of first impression and attempting to apply state law. Like the majority in Burlington, several courts have looked to representations of industry intent that purport to reflect ISO’s drafting history. For example, in Dale Corp. v. Cumberland Mut. Fire Insurance Co. No. CIV.A. 09-1115, 2010 WL 4909600, at *5–6 (E.D. Pa. Nov. 30, 2010), Judge O’Neil, like the Burlington majority, purported to rely on the drafting history of the 2004 ISO language as laid out in “Bruner and O’Connor on Construction Law.” See 4 Philip L. Bruner & Patrick J. O’Connor, Bruner & O'Connor on Construction Law § 11:338 (2016) (internal references omitted). But these decisions, as well as the Bruner & O’Connor treatise, leave open the question of whether the complete extent of the drafting history was, indeed, made available by ISO and subsequently reviewed, and whether there was a clear desire on the part of the ISO drafting committee to limit coverage in the way the industry is now suggesting in resisting coverage for damages arising from the sole negligence of additional insureds. Moreover, none of these decisions, nor the Bruner & O’Connor treatise, discusses how additional insured coverage has been marketed and promoted by insurers, or as to how this coverage provision has been represented to state insurance commissions. More work needs to be done to determine if this interpretation of the drafting history — based on second-hand descriptions of what it contains and the “industry intent,” as the Burlington majority sought to characterize it — is, in fact, accurate.

In the meantime, and if courts believe the plain meaning of the additional insured language does not clearly afford coverage for an additional insured’s sole negligence, then a deeper investigation into the relevant ISO drafting history and the “intent” of the insurance industry must be undertaken (through, for example,depositions of the underwriters who are including this coverage provision in subcontractors’ policies and insurance company personnel who market additional insured coverage). Until courts consistently apply the existing wording in the ISO additional insured coverage, however, and refrain from adding limiting requirements to the language of that provision, subcontractors and their general contractor additional insureds, should seek to find more appropriate policy wording in the market, or negotiate policy language that grants the additional insured coverage consistent with the expectations of the parties to the contract.