The new Insurance Services Office, Inc. (ISO), additional insured forms were
scheduled for filing in July 2004. It can be anticipated that the lag time between
the introduction of the new forms and litigation involving them will be substantial.
Thus, no one will know for at least a couple of years how the courts will construe
these forms. Nonetheless, insurers and insureds need to know now what to expect.
This article attempts an educated prediction.
Is Fault Material?
Of particular note is the substantive change in the basic coverage language
used in all or most of the forms. Up until now, ISO additional insured endorsements
provided coverage to the additional insured, "but
only with respect to liability arising out of your ongoing operations performed
for that insured," or variations on that theme, such as "arising out
of the use of your premises." Of course, "you" and "your" refer to the named
insured as a result of the definition of those terms contained in the preamble
to the ISO CG 00 01 commercial general liability (CGL) policy coverage form.
The case law throughout the country has been pretty consistent in imparting
a broad reading to this language, with most courts holding that only a minimal
connection, or at least one falling short of proximate cause, need be established
between the named insured's work and the additional insured's liability in order
to satisfy this condition. In other words, the named insured's work or operations
need not be the proximate cause of the loss in order to satisfy the coverage
condition. "But for" causation is enough.
Additionally, courts have been clear in distinguishing between "your work"
and "your negligence," holding that because the endorsement uses "your work,"
there need not be any showing that the named insured was negligent in any way.
As the New York appellate court succinctly put it 7 years ago, "fault is immaterial
to this determination." Tishman Interiors Corp. of New
York v Fireman's Fund Ins. Co., 653 NYS2d 367, 369 (NY App 1997).
With the new forms, however, fault will no longer be immaterial. The operative
coverage language now provides coverage to the additional insured, "but
only with respect to liability for bodily injury, property damage or personal
and advertising injury caused in whole
or in part, by your acts or omissions or the acts or omissions of those acting on your behalf." The first underlined
passage represents ISO's attempt to tighten the required causal connection between
the named insured's acts or omissions and the additional insured's liability.
It is doubtful that many courts will deem this change as unambiguously requiring
something more than "but for" causation, but that remains to be seen.
The second underlined passage is more likely to work a sea change in the
way courts will decide additional insured coverage disputes. Numerous courts
have already discussed the difference between "your work (or operations)" and
"your negligence." Coverage lawyers and courts will no doubt rediscover these
mainly older cases as a possible guide to construing the new forms.
A Construction Illustration
Let's begin with what is probably the most common scenario to which additional
insured coverage applies: a subcontractor's employee is injured on a construction
project and brings an "action over" against the general contractor for failure
to provide a safe work place. Courts construing the old forms mostly held that
the "arising out of" language equated with "but for" causation, and that "but
for" the injured plaintiff's employment with the named insured, the accident
would not have happened. The employment relationship itself, therefore, satisfies
the coverage condition. Clearly, the employment relationship by itself will
no longer be enough under the new forms, however. Instead, that general contractor
will have to establish that there is at least a possibility that his liability
to the subcontractor's employee arises out of his employer's (the named insured's) acts or omissions.
How is the general contractor going to establish that? At the duty to defend
stage, the courts in most states will, at least initially, look only at the
tort complaint. That complaint will, of course, contain no allegation that the
employer's acts or omissions caused the loss, because the employer is not a
defendant; the general contractor is the defendant. The employer cannot be a
defendant, because it is immune from suit under the exclusive remedy provision
of the workers compensation statute.
How Will Courts Respond?
Many insurers will no doubt take the position that their duty to defend the
additional insured general contractor is not triggered, because there are no
allegations in the tort complaint that the named insured employer was negligent.
In strict "8 corners" jurisdictions, like Texas, where the court will not look
beyond the tort complaint and the subcontractor's policy to determine whether
there is potential coverage, this could make it difficult if not impossible
for the additional insured general contractor to obtain even a defense from
the subcontractor's policy.
In more liberal jurisdictions, like California and Indiana, where the insurer
has a duty to investigate facts extrinsic to the tort complaint to determine
if there is a potential of coverage, the additional insured general contractor
will not be so easily thwarted, however, because the subcontractor's insurer
will be required to investigate whether its named insured subcontractor/employer
was negligent. That investigation is likely to turn up at least some evidence
of employer negligence, and that would be enough to require the subcontractor's
insurer to defend the general contractor.
In intermediate jurisdictions, like Illinois, which follow the 8 corners
rule and do not require the insurer to investigate, but do require the insurer
to defend if it knows of extrinsic facts creating a potential for coverage,
the additional insured general contractor can probably obtain a defense by providing
any information it has obtained through discovery and investigation to the subcontractor's
insurer, assuming of course that the information indicates possible negligence
on the part of the employer.
Casualty Insurance v Northbrook P&C
One case that will no doubt be cited often is Casualty
Ins. Co. v Northbrook Prop. & Cas. Ins. Co., 501 NE2d 812 (Ill App 1986). Casualty involved the classic scenario for additional
insured coverage litigation: the action over by the subcontractor's employee
against the general contractor. The additional insured endorsement in that case
was the old CG 20 09 form, which contained the same basic coverage grant as
the old CG 20 10, but also contained an exclusion for:
bodily injury or property damage arising out of any acts or omission
of [the additional insured general contractor] or any of his employees,
other than general supervision of the work performed for [the additional
insured general contractor] by [the named insured/subcontractor/employer].
The reason that this case is instructive is that, in effect, the CG 20 09
form conditioned coverage on the additional insured's liability arising out
of the named insured's negligence since, presumably, the additional insured
could not be liable for negligent supervision of the named insured unless the
named insured was negligent. The issue on appeal was whether Schal, the general
contractor, was entitled to a defense from the general liability insurer of
the subcontractor/employer, Mid-American, despite the absence from the tort
complaint of any allegation that Mid-American was negligent. The court held
that the absence of such allegations did not negate the duty to defend. The
court's reasoning is well worth quoting because it directly bears on how the
new forms will undoubtedly be construed:
Casualty's argument that, because the underlying complaint contains
no allegations of negligence against Mid-American, Schal's general supervision
of Mid-American's operations would not subject Schal to liability, ignores
Mid-American's inchoate immunity under the Workers' Compensation Act to
a suit by its employee, Krkljus. In addition, merely because Krkljus has
not sued Mid-American does not mean that Schal could not be held liable
by virtue of its general supervision of Mid-American. [501 NE2d at 815-16]
The key point of this case, then, is that the tort complaint's silence as
to any acts or omissions of the employer indicates not that the employer committed
no acts or omissions, but only that the employer is statutorily immune to suit.
U.S. Fire v Aetna
Another case that will be cited by additional insured general contractors
is U.S. Fire Ins. Co. v Aetna Life & Cas. Co.,
684 NE2d 956 (Ill App 1997). The manuscript endorsement at issue in that case
was remarkably similar to the new ISO form, providing coverage to the additional
insured, "but only with respect to acts or omissions
of the named insured in connection with the named insured's operations at the
applicable location designated." Like the Casualty case, U.S. Fire involved the classic additional
insured coverage litigation scenario: an injured employee of the subcontractor
brings an action over against the general contractor. The court said as follows:
First, USFI asserts that it has no duty to defend defendants in the Startz
action based on the plain language in the endorsement and the allegations
in the Startz complaint. USFI argues that, under the explicit terms of the
endorsement, defendants are additional insureds only where the claim arises out of Gateway's
operations and Gateway's acts or omissions and the Startz complaint is bereft
of any facts at all relating to Gateway's acts, omissions or operations.
Defendants contend that the facts asserted in the Startz action raise,
at a minimum, the potential that Gateway's acts or omissions caused Startz's
injuries, thus triggering, as a matter of law, USFI's broad duty to defend
additional insureds under the USFI policy.
* * * *
Startz was injured at the Argonne jobsite when he tripped on conduit
protruding from a concrete slab. The Startz complaint alleges causes of
action under the Structural Work Act and common law negligence. Gateway
was not named as a defendant. However, the complaint alleges that, at the
time of the accident: (1) Startz "was employed by Gateway" on the Argonne
premises in the furtherance of the Argonne project; (2) "the duties and
responsibilities of [Startz] required that he work on and about the aforesaid
conduit protruding from [a] concrete slab"; and (3) Startz "was working
on and about the aforesaid conduit protruding from [a] concrete slab when
[he] tripped on conduit protruding from [the] concrete slab while moving
re-bars [sic], thereby proximately causing
injuries to [him]."
A comparison of the allegations in the complaint and the endorsement
raises the potential for coverage and, in turn, a potential for coverage
is all that is necessary to trigger USFI's duty to defend. When injured,
Startz was an employee of Gateway (the named insured), was performing tasks
required of him ("in connection with the named insured's operations"), and
was working at the Argonne construction project ("at the applicable location
designated"). Defendants' alleged liability
to Startz potentially could have arisen from an act or omission on the part
of Gateway, whether or not the act or omission rises to the level of negligence. Such a possibility is sufficient to trigger the duty to defend on the part
of Gateway's insurer (USFI) under the additional insured endorsement. [684
NE2d at 960, 962-63]
This highlighted passage will no doubt generate a great deal of debate in
coverage litigation. What did the court mean? Did the court mean that acts or
omissions could trigger Structural Work Act liability without constituting negligence?
That is a dubious proposition. See Cox v Lumbermens
Mut. Cas. Co., 439 NE2d 126, 129 (Ill App 1982) ("We reject Lumbermens'
argument, however, that a cause of action can arise under the Structural Work
Act from conduct which is less than negligent. Fault of some kind is required
although it may range from passive negligence to willful misconduct.")
Did the court instead mean that the terms "acts and omissions" and "negligence"
are not synonymous? That is also a dubious proposition. Many other cases do,
in fact, use the terms synonymously. See, e.g., Schultz
v Northeast Illinois Regional Transp. Corp., 775 NE2d 964 (Ill 2002)
("contributory negligence is a "careless act or omission on the plaintiff's
part tending to add new dangers to conditions that the employer negligently
created or permitted to exist"). Apparently, this is what the court meant, however,
because the court cited the following proposition from an unpublished federal
decision in Pennsylvania: "[T]he plain and ordinary meaning of ‘act or omission'
is not ‘negligence.'" Id. at 962, citing Maryland Cas. Co. v Regis Ins. Co., 1997 WL 164268
(ED Pa 1997).
Conclusion
If acts or omissions not constituting negligence can satisfy the condition
of coverage under the new forms, then little has changed, and we are back to
the old no-fault forms. Only time will tell if other courts accept the argument
that "acts and omissions" does not necessarily mean negligent acts and omissions.