Expert Commentary

Additional Insured Endorsement Should Cover a Tenant's "Operations"

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.


May 2011

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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