Inside This Issue:
Broad Additional Insured Endorsement Entitles Contractor to Recover Damage under its Subcontractors’ Primary and Umbrella Policies
Risk Management Workshop – New York – October 16
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The course is registered with the AIA for three (3) AIA continuing education learning units, including HSW. A charge of $79.00 will cover course materials and continental breakfast. There is limited space available as we are conducting this as a small group workshop. For additional information, including comments by attendees of earlier workshops, plus location address, and TO REGISTER, go to: http://www.constructionrisk.com/workshops.htm
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
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.
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.
Copyright 2003, ConstructionRisk.com, LLC
Publisher & Editor: J. Kent Holland, Jr., Esq.
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