Does an Additional Insured under a contractor’s commercial general liability (CGL) policy have coverage for claims against the additional insured that aren’t based on allegations of negligent acts or omissions of the named insured contractor? In this decision the court concludes that although the CGL policy doesn’t expressly state that “negligence” must be alleged against the named insured in order for there to be a duty to defend or indemnify, that is, in fact, the legal requirement to find coverage. Bacon Construction Co., Inc. v. Arbella Protection Insurance Company, Inc., 208 A.3d 595 (Rhode Island Supreme Ct. 2019).
Bacon Construction was the prime contractor on a project for the University of Rhode Island and subcontracted structural work to U.S. Drywall. The subcontract required the subcontractor to obtain commercial general liability (CGL) insurance which included an endorsement naming Bacon as an additional insured.
An employee of the subcontractor was injured when he slipped on ice while performing work on the project and fell down a staircase. The employee filed suit against the prime contractor alleging that the injuries were caused by the prime contractor’s negligent acts and omissions. No allegations of negligence were made against the employee’s own employer, the subcontractor.
The prime sought to recover indemnity and defense costs under the subcontractor’s CGL policy – asserting that because the policy named it as an additional insured it was entitled to indemnification. The carrier declined coverage, however, stating that the Prime would only be an additional insured with respect to liability caused by the subcontractor. It argued that because the complaint “alleges negligence solely against Bacon, [insurance carrier] is not required to provide coverage….”
The Policy Language
The policy’s additional insured endorsement reads in pertinent part:
Who is An Insured is amended to include as an additional insured any person or organization for whom you are performing operations when you and such person or organization have agreed in writing in a contract or agreement, executed prior to an ‘occurrence’, that such person or organization be added as an additional insured on your policy. Such person or organization is an additional insured only with respect to liability for ‘bodily injury’; ‘property damage’ or ‘personal and advertising injury’ caused, in whole or in part, by:
1. Your acts or omissions; or
2. The acts or omissions of those acting on your behalf;
in the performance of your ongoing operations for the additional insured.” (Emphasis added.)
Court Interpretation of Language
The court explained why it concluded “negligence” was required to trigger the coverage, as follows:
Based on our review of the Arbella policy, we are satisfied that the clear and unambiguous additional insured endorsement provision contains limiting, fault-based language; thereby restricting Bacon’s entitlement to coverage to those situations where liability is attributable, at least in part, to the negligence of U.S. Drywall, the named insured.
Initially, we note that the endorsement contains a significant limitation on the availability of coverage. As expressly provided by the endorsement, “[s]uch person or organization is an additional insured only with respect to liability for ‘bodily injury’ * * * caused, in whole or in part, by: (1) Your [U.S. Drywall’s] acts or omissions; or (2) The acts or omissions of those acting on your [U.S. Drywall’s] behalf[.]” (Emphasis added.) Thus, pursuant to this unambiguous language, whether Bacon is entitled to coverage as an additional insured is restricted to those situations where liability is caused by U.S. Drywall’s acts or omissions.
The prime contractor pointed out that the endorsement does not include the term “negligence” and therefore argued that the additional insured coverage is triggered irrespective of negligence. It further argued that “because the endorsement utilized broad ‘in whole or in part’ language and the employee was injured while working for U.S. Drywall, which itself was working on behalf of Bacon, [Insurer] is obligated to provide coverage.” The court rejected these arguments.
The insurance policy didn’t have to include the word “negligence” in order for the negligence trigger to be required. The court explained,
We are satisfied that the endorsement is fault-based, and expressly provides that coverage as an additional insured is limited to “liability for ‘bodily injury’ * * * caused, in whole or in part, by” the acts or omissions of U.S. Drywall or its agents. Thus, the endorsement, by including the terms “liability” and “bodily injury caused by” one’s acts or omissions, includes a negligence trigger. The fault-based nature of the endorsement is further evinced by the fact that there must be a showing as to how the named insured’s acts or omissions caused the bodily injury at issue.
For these reasons, the court concluded hat that the endorsement is fault-based, meaning that additional insured protection is limited to that which was due, at least in part, to U.S. Drywall’s acts or omissions, and that the trigger for coverage is “negligence.”
Comment: When reviewing indemnification clauses in contracts, it is not uncommon to hear people argue that it is alright to indemnify for damages regardless of fault (i.e., negligence) because the CGL policy does not expressly contain a negligence trigger requirement for coverage. This court decision, however, should make people rethink that belief. It is good risk management practice to make the indemnification consistent with insurance coverage and that means adding a negligence trigger so that the Indemnitor does not contractually obligate itself to indemnify for damages not caused by its negligence – and thereby incur insurable losses.
About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk.com Report, Vol. 22, No. 1 (Jan 2020).
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