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ConstructionRisk.com Report
http://www.ConstructionRisk.com
Vol. 5, No. 9, Oct 03
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Inside This
Issue:
Broad
Additional Insured Endorsement Entitles Contractor to Recover Damage
under its Subcontractors’ Primary and Umbrella Policies
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To read this newsletter in HTML format go to:
http://www.constructionrisk.com/newsletter/articles/newsletter03-09.htm.
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Management Workshop –
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– October 16
ConstructionRisk.com Report is presenting a design professional risk
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mitigating and defending contractor claims and claims against the design
professional.
The course is registered with the AIA for three (3) AIA continuing
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A charge of $79.00 will cover course materials and continental
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Environmental and
Design Professional Liability Insurance:
Arch Insurance Website: Brokers Can
Download Applications for Design Professional and Environmental
Liability Policies. Go to: http://www.ArchInsurance.com
=======================================
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ARTICLE
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Broad
Additional Insured Endorsement Entitles Contractor to Recover Damages
under its Subcontractor's Primary and Umbrella Policies
Contractor was entitled to recover as an “additional insured”
under its subcontractor’s primary and umbrella policies for damages
suffered by a roofer who fell through roof opening that had been cut by
the subcontractor because the court found there was sufficient causal
connection between the named insured’s work and the situation that
gave rise to the liability.
In this case of Vitton
Construction Co., Inc. v. Pacific Insurance, Co, (
California
Superior
Court, No. H205190-7,
July 18, 2003
), the general contractor, Vitton Construction Company (Vitton), entered
into a subcontract with Pacific Erectors, Inc. (PEI), for “cutting and
installation of roof opening frames.”
PEI
was required by the subcontract to carry general liability insurance
“covering all operations by or on behalf of [
PEI
] ... and including coverage for: (1) premises and operations; (2)
products and completed operations; (3) contractual liability ...; (4)
broad form property damage (including completed operations); (5)
explosion, collapse and underground hazards; and (6) personal injury
liability.”
PEI
was further required by the contract to have its general liability
policy name Vitton and the project owner as additional insureds.
One of the CNA Insurance Companies’ divisions issued the
primary policy to
PEI
, containing a “Blanket Additional Insured” endorsement.
The endorsement defined “additional insured” as any person or
organization PEI was contractually obligated to add as an additional
insured, provided that such a party would only be considered an
additional insured “with respect to liability arising out of ...’ [y]our
work’ for that additional insured by or for you.”
Another endorsement of the primary policy named Vitton and the
project owner as additional insureds with respect to “liability
arising out of”
PEI
’s work on the project.
When an employee of a roofing subcontractor fell through one of
the holes that had been cut by
PEI
, his claim for injuries was settled by the primary insurance carriers
for both Vitton and PEI – both paying out their full policy limits.
The balance of the settlement was paid by the AIU Insurance
Company, Vitton’s excess insurance carrier. The insurance company
(Pacific Insurance) that provided an umbrella policy to
PEI
did not participate in the settlement and refused to contribute anything
to the other carriers for their costs of the settlement.
AIU and Vitton then sued Pacific Insurance Company for
subrogation and contribution on the ground that Vitton was an additional
insured entitled to coverage under
PEI
’s insurance policy with Pacific Insurance.
Pacific argued in its defense that Vitton was not an additional
insured because its liability did not “arise out of” work performed
by
PEI
.
Key to the determination of whether Vitton was an additional
insured under the Pacific policy was the Pacific policy language itself.
It defined an insured as “any ... person or organization who is
an insured under any policy of ‘underlying insurance’ ..., subject
to all the limitations upon coverage and all other policy terms and
conditions of such ‘underlying insurance’ and this policy.”
Unless Vitton was an additional insured under the underlying
policy, it would not by definition be an insured under the Pacific
policy. The question in this instant case was whether the damages
sustained arose out of work performed by
PEI
. If they did Vitton would
be an additional insured.
In reviewing this question, the appellate court stated. “The
California
courts have consistently given a broad interpretation to the terms
‘arising out of’ or ‘arising from’ in various kinds of insurance
provisions.... [I]t broadly links a factual situation with the event
creating liability, and connotes only minimal causal connection or
incidental relationship.” Pacific
argued that the facts of the case did not satisfy even this minimal
level of causation.
In disagreeing with Pacific, the court stated the facts were not
complicated and that it seemed fairly clear that the worker’s fall
arose out of
PEI
’s work in cutting roof openings.
It did not matter, said the court, whether or not it was
PEI
’s responsibility to make the holes safe.
The only relevant fact was that
PEI
’s work created the condition that gave rise to the accident.
It also did not matter whether or not
PEI
’s work had been satisfactorily or negligently performed. “The fact
that an accident is not attributable to the named insured’s negligence
is irrelevant when the additional insured endorsement does not purport
to allocate or restrict coverage according to fault.”
The court stated that if the insurance company had wanted to
limit its coverage to damages that resulted from negligent performance
of work it could have written its endorsement to so limit the coverage.
Furthermore, the court concluded that “when an insurer chooses
not to use such clearly limited language in an additional insured
clause, but instead grants coverage for liability ‘arising out of’
the named insured’s work, the additional insured is covered without
regard to whether injury was caused by the named insured or the
additional insured.” Since
the endorsement was not limited in this case, the general contractor,
Vitton, was an additional insured under the various policies including
the Pacific policy.
________________________
Risk
Management Note: By J. Kent Holland. It
is important to note the significant difference in the availability of
additional insured status on a general liability policy versus a
professional liability policy. Whereas
additional insured status is routinely granted on general liability
policies, it is seldom, if ever, granted under design professional
liability policies. When, on
those rare occasions, additional insured status is given to a project
owner under the professional liability policy of its architect or
engineer, the insurance company should certainly heed this court’s
observation about crafting specific language to clearly limit the
coverage to damages caused by the negligent performance of the named
insured of professional services on the particular project of the
project owner who is the additional insured.
The best solution, however, is for design professionals and their
professional liability carriers to refuse to name project owners as
additional insureds under professional liability policies.
Project owners need to be consistently reminded and educated
concerning the myriad reasons why it is inappropriate to name them as
additional insureds.
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ON-LINE RISK MANAGEMENT COURSES by KENT HOLLAND
Currently available risk management courses written by Kent Holland for
RedVector, (http://www.redvector.com/instructors/view_related_courses.asp?id=195)
include the following: Risk Management for the Design Professional;
Contract Guide for the Design Professional, Design Build Professional
Liability Risk Management and Insurance; Site Safety Risk and Liability;
Managing Communication, Documentation and Reports; Insurance for
Design-Build and Complex Projects; Construction Contract Law; Contract
Claims against Design Professionals; Insurance Coverage Disputes; and
Environmental Claims.
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ABOUT THIS NEWSLETTER & A DISCLAIMER
This
newsletter Report is published and edited by J. Kent Holland, Jr.,
J.D., a construction lawyer and risk management consultant for
environmental and design professional liability. The Report is
independent of any insurance company, law firm, or other entity, and is
distributed with the understanding that ConstructionRisk.com, LLC, and
the editor and writers, are not hereby engaged in rendering legal
services or the practice of law. Further, the content and comments
in this newsletter are provided for educational purposes and for general
distribution only, and cannot apply to any single set of specific
circumstances. If you have a legal issue to which you believe this
newsletter relates, we urge you to consult your own legal counsel.
ConstructionRisk.com, LLC, and its writers and editors, expressly
disclaim any responsibility for damages arising from the use,
application, or reliance upon the information contained herein.
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Copyright
2003, ConstructionRisk.com, LLC
Publisher
& Editor: J. Kent Holland, Jr., Esq.
8596 Coral
Gables Lane
Vienna, VA
22182
703-623-1932
Kent@ConstructionRisk.com
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