Project owner entered into a general construction contract with a GC for construction services.  The GC then entered into a subcontract requiring the subcontractor to indemnify and hold harmless the GC and the Owner, and also required the subcontractor to maintain a CGL policy naming the GC, the Owner and other noncontractor entities as additional insureds under the policy.

When a subcontractor’s employee was injured on the job, he sued the GC, project owner and other noncontractor entities.  The CGL carrier refused to defend and indemnify any of the noncontractor entities. Those entities then sued the carrier, and the trial court denied the carrier’s motion for summary judgment to dismiss the suit.  On appeal, this was reversed with the court holding that only the GC who was in contract with the subcontractor was an additional insured.  New York City Housing Authority v. Harleysville Worcester Insurance Company, 226 A.D. 3d 804 (2024).

The insurance carrier established its prima facie entitlement to judgment as a matter of law dismissing the noncontractor plaintiff’s complaint.  It was not obligated to defend and indemnify the noncontractor plaintiffs as additional insureds in the underlying action.  The court explained that:

 “[W]hether a third party is an additional insured under a policy is determined ‘from the intention of the parties to the policy, as determined from the four corners of the policy itself’ [citations omitted]. Here, the plaintiffs were not named insureds on the policy issued to the subcontractor by Harleysville, nor were they listed as additional insureds thereon….

Furthermore, the noncontractor plaintiffs do not qualify as additional insureds under an endorsement to the policy entitled “ADDITIONAL INSURED—OWNERS, LESSEES OR CONTRACTORS—AUTOMATIC STATUS WHEN REQUIRED IN CONSTRUCTION AGREEMENT WITH YOU—ONGOING OPERATIONS,” which provides, in relevant part, that “Who Is An Insured is amended to include as an insured any person or organization for whom you are performing operations only as specified under a written contract . . . that requires that such person or organization be added as an additional insured on your policy.”

This policy language is properly interpreted to require privity of contract between the named insured and the party seeking additional insured status. As only the general contractor contracted directly with the named insured, i.e., the subcontractor, only the general contractor qualifies for additional insured status under the terms of the policy.

The court further concluded that:

Language in the subcontract incorporating the terms of the prime contract between the general contractor and [Owner], which lists [Owner], as the owner and requires the general contractor to add the owner as an additional insured under its policy, is insufficient to confer additional insured status on [Owner] with respect to the subcontractor’s policy.

Risk Management Comments:

The endorsement to the CGL only makes the party with whom the Insured is contracting with an additional insured.  Any other entity that the Insured wants to have included as an additional insured needs to be expressly added to the policy as an additional insured by a separate endorsement.

NOTE:  This New York court decision explains an important aspect of New York law with regard to the principles of flow down clauses via incorporation by reference of prime contract provisions.  As explained by the court:

Moreover, “incorporation clauses in a construction subcontract, incorporating prime contract clauses by reference into a subcontract, bind a subcontractor only as to prime contract provisions relating to the scope, quality, character and manner of the work to be performed by the subcontractor

Because of this interpretation of New York law, it is advisable to specify the specific prime contract clauses that parties intend to be flowed down into subcontracts if they intend to flow down provisions other than those relating to scope, quality, character and manner of the work to be performed by the subcontractor.

 

 

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. 27, No. 1 (Jan 2025).

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