Additional Insured Endorsement Should Cover a Tenant's "Operations"
May 2011
A recent federal case shows that, when
arranging additional insured (AI) coverage for a landlord, it would be a
good idea to obtain an endorsement covering liabilities arising out of the
tenant's "operations" in the leased space. That may provide better coverage
than an AI endorsement applying only to the tenant's "use" of the leased
space.
by
Rich Scislowski
IRMI
In UPS Freight v. National Union Fire Ins. Co.,
Nos. 08–4350, 08–4421, 08–4422, 2011 U.S. App. LEXIS 9075 (3d Cir. May 3,
2011), UPS leased 12 contiguous loading docks at its terminal in Erie,
Pennsylvania, to a trucking company. Under the lease, the trucking company
was required to maintain "broad form general comprehensive public liability
[insurance]" covering "the business operated by [the trucking company] and
to [the trucking company]'s occupancy of the Premises." It was also to name
UPS as an AI.
To comply, the trucking company purchased a commercial general liability
(CGL) policy with an AI endorsement extending coverage to UPS for "liability
arising out of [the trucking company's] operations or premises ... by or
rented to [the trucking company]."
During the policy term, an employee for the trucking company parked his
truck at
the terminal and was heading to the office when the loading
dock on which he was walking separated from the wall. He fell off and was
injured. He filed suit against UPS and the trucking company, but he did not
specify whether the defective loading dock was one of the 12 docks that were
subject to the lease. After discovery, it was revealed that he fell at
loading dock #10, which was not one of the 12 leased docks. Because the
trucking company had no legal duty to maintain dock #10, the trucking
company was dismissed from the underlying suit.
The question in this case was the extent to which the CGL insurer owed a
defense to UPS. The district court read the AI endorsement as limiting
coverage to the 12 docks that were the subject of the lease. Because the
complaint initially did not identify the defective dock that gave way under
the employee, it was possible that it was one of the 12 leased docks, so the
district court held that the insurer owed a provisional duty to defend UPS.
However, when it was discovered that the defective dock was outside the
scope of the leased premises, the district court held that the insurer's
duty to defend UPS terminated.
On appeal, the Third Circuit Court of Appeals reversed, holding that the
insurer's duty to defend UPS continued after the identity of the defective
dock was revealed. It distinguished the AI endorsement in this case from the
AI endorsement in Minges Creek LLC v. Royal Ins. Co.
of Am., 442 F.3d 953 (6th Cir. 2006). In that case, the AI
endorsement extended coverage "only with respect to liability arising out of
[] Premises ... used by [the tenant]." There was only coverage for the
tenant's "use" of the leased space. There was no AI coverage for the
tenant's "operations."
Here, the AI endorsement was broader. It extended coverage to claims
arising out of [1] the trucking company's "operations" or [2] "premises ...
rented to" the trucking company. The appellate court read that language as
meaning that the AI coverage applied to claims arising anywhere at the UPS
terminal, even to other loading docks that were not the subject of the
lease, as long as the claim arose out of the trucking company's operations
as a tenant.
Clearly, the employee was acting in the furtherance of the trucking
company's business at the time he fell from dock #10. He parked his truck
somewhere at the terminal and was walking to the trucking company's office.
"But for the fact that [the employee] was engaged in activities that
supported [the trucking company's] operations," wrote the appellate court,
"he would not have been injured on [dock #10]." Therefore, the court held
that the CGL insurer had a continuing duty to defend UPS.
Conclusion
If the trucking company had purchased a CGL policy with a narrow AI
endorsement that only applied to its "use" of the leased premises, it
arguably would have been in breach of the insurance requirements stated in
the lease. Furthermore, UPS may not have had any AI coverage for claims
arising from the trucking company's operations that happened to occur
somewhere at the terminal outside the 12 leased docks. Fortunately, the
broad AI endorsement it obtained applied to
both the trucking company's "operations" anywhere at the terminal
and to the 12 leased docks. Next time
you are looking for AI coverage for a landlord, you might want to make sure
your AI endorsement does the same.
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