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An insurance company was held bound by its agent’s written representation-made in a certificate of insurance—that a particular corporation was an additional insured under a given insurance policy. The certificate turned out to be inconsistent with the policy that only extended additional insured status to entities in privity of contract with the named insured. The carrier argued that the certificate contained language broadly disclaiming the certificate’s ability to “amend, extend or alter coverage afforded under the policy,” and, therefore couldn’t create coverage where it didn’t exist under the policy.

In deciding against the insurance company, the court concluded that the agent acted with apparent authority in issuing the certificate and the carrier was bound by the agent’s representation. It held that the specific typed words of the certificate that listed the name of the additional insured took precedence over the more general boiler plate wording of the broad disclaimer that attempted to disavow anything stated in the certificate. The carrier was, therefore, required to indemnify the party that was incorrectly listed on the certificate as an additional insured. T-Mobile USA, Inc. v. Selective Insurance Company of America, 194 Wash. 2d. 413 (Supreme Court of Washington, 2019).

This case has a long history through the courts. It started as state court action and was removed to federal district court at the request of the insurance company. The district court granted summary judgment for the carrier. It then denied a request for reconsideration. The matter was then appealed to the U.S, Ninth Circuit Court of Appeals, which certified a question to the Washington state supreme court asking whether an insurance company is bound by its agent’s written representation in a certificate of insurance under these circumstances. The Washington court answered “Yes: an insurance company is bound by the representation of its agent in those circumstances. Otherwise, an insurance company’s representations would be meaningless and it could mislead without consequence.”

The facts are these: T-Mobile NE (“NE”) hired a contractor to construct a cell phone tower on a rooftop. Its contract required the contractor to obtain a commercial general liability (CGL) policy and to annually provide T-Mobile NE “with certificates of insurance evidencing [that policy’s] coverage,” and to name T-Mobile NE as an additional insured under the policy. T-Mobile USA (“USA”), a parent company, although not a party to the contract, was aware of it, and approved it as to form.

By virtue of its written contract with the contractor, NE automatically became an additional insured under the contractor’s CGL policy. This is because the CGL policy provided that a third party would automatically become an additional insured under the policy if the contractor and the third party entered into their own contract and that contract required the contractor to add the third party to its insurance policy as an additional insured.

The USA company, however, was not under contract with the contractor and therefore didn’t become an additional insured under the policy. Nevertheless, the insurance agent over the course of about seven years issued a series of certificates of insurance to “T-Mobile USA, Inc., its Subsidiaries and Affiliates,” which stated that that those entities were “included as an additional insured under the CGL policy. In this regard the court states,

“The agent explained that it “began issuing the T-Mobile Additional Insured [certificates of insurance] because [the contractor] informed us that its agreements with T-Mobile required that T-Mobile be named as an additional insured under [the contractor’s] insurance policies and that T-Mobile qualified as an additional insured per the standard terms of Selective’s policies for that reason.” Id. Selective never objected to the agent’s issuance of the certificates. Id. at 826 (declaration of agent’s principal).”

The parties apparently failed to make the distinction between the USA and the NE T-Mobile corporate entities.

It was based on these facts that the Ninth Circuit Court of Appeals held that the agent acted with apparent authority in issuing the certificate that listed USA as an additional insured. A key question for the state Supreme Court to decide however, was what was the affect of the disclaimer language in the certificate, and would that prevent the representation concerning coverage to be of no consequence since the policy itself didn’t provide coverage.

The certificate stated in bold capital letters that the certificate “is issued as a matter of information only and confers no rights upon the certificate holder,” “does not affirmatively or negatively amend, extend or alter the coverage afforded by the” insurance policy, and “does not constitute a contract between the issuing insurer(s), authorized representative or producer, and the certificate holder.”

The certificate also stated in bold, “If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed. … A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s).” Id. (boldface omitted).

The carrier, in arguing that the certificate of insurance didn’t obligate the carrier to grant coverage where none was otherwise provided in the policy itself, the carrier argued that “the preprinted disclaimers made all the specific, written-in, additional statements about coverage completely ineffective. It points outs that the certificate of insurance stated that it was issued as a matter of ‘information only’.”

In opposition, USA argued that the preprinted disclaimers were ineffective because they were general boilerplate, whereas the addition insured statement had been specifically written into the certificate. The court agreed with USA because “A basic rule of textual interpretation is that the specific prevails over the general.”

Comment: A lesson learned from this decision is that serious attention needs to be given to certificates of insurance to determine that the intent of the parties is accurately reflected by the certificate and also the insurance policy and its endorsements. This is not this first time I have reported on a court decision that addressed the question of whether a certificate of insurance bound the carrier to provide insurance to party that was not in privity of contract with the named insured. In the case of Gilbane Bldg. Co./TDS Construction Corp. v. St. Paul Fire and Marine Insurance and Liberty Insurance, 38 N.Y.S. 3d, 143 A.D.3d 146 (2016), the court found a construction manager was not additional insured under the contractor’s CGL policy despite the fact that the owner/prime contract required the contractor to name the CM as an additional insured. Our ConstructionRisk Report article can be viewed here.  

As explained by the court in the T-Mobile decision, if a party that is not in privity of contract with the named insured is to become an additional insured under a policy with wording like the one at issue here, the insurance policy itself should be endorsed to provide that coverage.

 

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 Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk Report, Vol. 22, No. 2 (Feb 2020).

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