Although the written contract or agreement requirement in most blanket
additional insured endorsements seems straightforward, courts have identified a
variety of contractual arrangements that can satisfy the obligation. Entities
seeking and/or providing additional insured status should carefully consider
relevant precedent in evaluating their position.
Acknowledgment
The author would like to acknowledge and thank
coauthor Ling Drew Ly, an attorney with Saxe Doernberger & Vita, P.C., in Hamden,
Connecticut for his contributions to this commentary.
The blanket additional insured endorsement was introduced as a more
expedient way of adding additional insureds to an insurance policy. Prior to
its introduction, entities were generally granted additional insured status by
endorsements identifying each entity (assuming the named insured remembered to
notify its broker of the additional insured request). To ward against a mistake
in the naming process and mitigate the risk of an entity later discovering that
it does not have the promised additional insured coverage, as well as a
subsequent breach of contract suit against the named insured, the blanket
additional insured endorsement (aka the automatic status additional insured
endorsement) is intended to grant additional insured status to any entity for
which the named insured agreed to provide such coverage.
Thus, the basis of most blanket additional insured endorsements is a
contract or agreement evidencing the promise to name the entity as an
additional insured. The reference to an agreement extrinsic to the policy,
however, can give rise to other issues.
A "Contract" May Not Be Needed
Most blanket additional insured endorsements use the phrase "contract
or agreement," rather than stating one or the other. The terms
are often used interchangeably, and it can be easy to presume that both terms
require a formal contract. However, multiple words used in conjunction with
another in this manner cannot be interpreted to have the same meaning. Indeed,
use of the word "agreement" in contrast to "contract"
suggests a more expansive interpretation of the former.
Recent cases from California and Arizona confirm this conclusion. In
Naylor v. Navigators Ins. Co., 2013 U.S. Dist.
LEXIS 35038 (S.D. Cal. Mar. 12, 2013), the court considered an endorsement that
granted additional insured status where the named insured "agreed in
writing in a contract or agreement" that such entity be added as an
additional insured. There was no dispute that the endorsement required a
written instrument. The insurer argued that the only contracts, three signed
bid sheets and a change order, contained no promise to add any entity as an
additional insured. The entity seeking additional insured status (Naylor)
proffered a letter and facsimile that listed several items that were
"required for initial invoice," including the requirement that Naylor
be named as an additional insured. The letter and facsimile did not qualify as
a "contract," but the court concluded that they could constitute an
"agreement," noting that "agreement" has a broader meaning
than "contract" that includes the mere "manifestation of mutual
assent by two or more persons to one another."
In KB Homes Tucson, Inc. v. Charter Oak Fire Ins.
Co., 2014 Ariz. App. LEXIS 228 (Nov. 25, 2014), the court considered an
endorsement that granted additional insured status to any entity the named
insured was "required to include as an additional insured on this policy
by a written contract or written agreement." The entity seeking additional
insured status (KB) had a subcontract with the named insured (GRG), which
provided that all work must comply with all of KB's requirements but did
not otherwise specifically address insurance requirements.
Subsequently, KB sent annual letters to GRG describing KB's insurance
requirements, including that KB be named as an additional insured. The court
reasoned that a fact-finder could conclude that the letters constituted a
"written agreement" or were incorporated in the original subcontract
with GRG. The court further noted that the manner of the arrangement (the
annual letters) did not change, in any way, the mechanics of the additional
insured trigger because the wording of the additional insured endorsement
evidenced the insurer's understanding that GRG would agree to name entities
as additional insureds via extrinsic contracts or agreements.
Although both cases were subject to further fact-finding on whether there
was a "written agreement," they laid the groundwork for an entity
that was promised additional insured status in some form less than a formal or
singular contract to obtain that status.
The Contract or Agreement Could Be Oral
While a written, properly executed contract is certainly preferred, it could
be argued that the "contract or agreement" requirement does not
necessitate a written instrument at all—an oral contract or agreement to
provide additional insured coverage may be sufficient. Several courts agree and
sometimes even where the endorsement specifies a written contract or a contract
in writing. For instance, in Superior Ice Rink, Inc. v.
Nescon Contracting Corp., 861 N.Y.S.2d 362 (N.Y. App. Div. 2008), the
court considered a blanket additional insured endorsement that granted
additional insured status as required by a "written contract, agreement or
permit." The insurer argued that "written" applied to each type
of agreement, and thus, an oral arrangement for additional insured status did
not suffice. However, the court concluded that the term "written"
could be reasonably interpreted as modifying only the term
"contract," such that the endorsement was ambiguous and, because
ambiguities are generally construed against the insurer, a non-written
agreement or non-written permit could confer additional insured status.
Consequently, the court granted summary judgment for the additional insured
because there was no factual dispute that the named insured had orally agreed
to name the entity as an additional insured.
Interestingly, this case illustrates a situation where a certificate of
insurance proves useful. Certificates of insurance generally exist only for
informational purposes to identify the insurer(s) that should be providing
additional insured coverage and do not, on their own, confer additional insured
status. However, in situations where an entity is arguing that additional
insured status was promised via an oral or other agreement, a certificate of
insurance provides strong evidence of that agreement.
Beware the Prior Execution Requirement
Some blanket additional insured endorsements also require the contract or
agreement be executed prior to the loss. Unlike the contract or agreement
requirement, many courts are inflexible on the execution requirement. For
instance, in Empire Builders & Developers, Inc. v.
Delos Ins. Co., 910 N.Y.S.2d 548 (N.Y. App. Div. 2010), the court
considered an endorsement that conferred additional insured status as required
under "a written contract, agreement or permit which must be … executed
prior to [the loss]." Although the court concluded that an oral agreement
could constitute a "written contract, agreement or permit," it denied
additional insured coverage because the agreement was not executed prior to the
loss. The court explained that "execution" means that the agreement
must be reflected in a signed document or must have been fully performed by the
parties. Since an agreement to name an entity as an additional insured can only
be fully performed by actually having that entity named as an additional
insured, the court's explanation essentially means that a blanket
additional endorsement that contains the requirement for a contract or
agreement executed prior to the loss requires a written contract or written
agreement signed prior to the loss.
Nonetheless, this does not mean that a new contract or agreement needs to be
executed each time there is a new project or situation where an entity desires
additional insured coverage. In fact, entities that frequently request
additional insured status from the same set of named insureds (for example,
general contractors that hire the same subcontractors for multiple projects
over a period of time) may find it useful to execute "blanket"
contracts or agreements with those named insureds.
The blanket contract or agreement could state that it applies to all jobs
for which the named insured is hired or that it applies to all work that the
named insured performs for the additional insured. In other words, a blanket
contract or agreement would not identify a specific job, project, or time
period. An insurer may attempt to argue that "written contract or
agreement" requires some particularity as to the risk for which the entity
is seeking additional insured coverage (e.g., a specific project or location);
however, courts generally refuse to read this condition into the endorsement.
See, for example, Rodriguez v. N&S Bldg.
Contractors, Inc., 5 N.Y.3d 427 (2005) (court explained that the
insurer's argument that the blanket agreement should not apply because the
specific site was not mentioned would render it inapplicable to any site,
rendering the agreement meaningless, which is contrary to general contract
principles).
Magic Words May Not Be Necessary
Blanket additional insured endorsements generally do not specify the
insurance terms that a written contract or agreement should contain. Courts
take various stances on the issue. On the one hand, in Atofina Petrochemicals, Inc. v. Continental Cas. Co., 185
S.W.3d 440 (Tex. 2005), the court considered a named insured's written
construction proposal wherein the named insured agreed to furnish, among other
things, insurance for the project. Having found that the proposal was accepted
and there was a written contract, the court concluded that the agreement to
furnish insurance formed the material terms of the contract and was sufficient
to confer additional insured status. The court also noted that the entities had
a longstanding business relationship and that the named insured understood that
it was required to name that entity as an additional insured for any work it
performed for it.
On the other hand, in A.F. Lusi Constr., Inc. v.
Peerless Ins. Co., 847 A.2d 254 (R.I. 2004), the court considered a
subcontract where the subcontractor agreed to obtain "required
insurance." The court noted that the section in the subcontract that was
reserved for the description of the "required insurance" was left
blank. The court thus concluded that the named insured did not agree to provide
additional insured coverage. The entity seeking additional insured coverage
attempted to utilize a certificate of insurance as evidence of the additional
insured agreement, but the certificate simply noted that the named
insured's general liability policy included a blanket additional insured
endorsement.
Direct Contractual Relationship Is Not Always Required
The contract or agreement requirement may suggest that the entity seeking
additional insured status must have a direct contractual relationship (i.e.,
contractual privity) with the named insured. However, the contractual privity
requirement is usually debated only if the endorsement contains language such
as "when you [the named insured] and such person or organization have
agreed in writing in a contract or agreement." See, e.g., Linarello v. City of N.Y., 774 N.Y.S.2d 517 (N.Y.
App. Div. 2004); Westfield Ins. Co. v. FCL Builders,
Inc., 407 Ill. App. 3d 730, 948 N.E.2d 115 (2011) (the court explained
that use of the term "such" instead of "any" in the
endorsement "necessarily requires that, in order to qualify as an
additional insured, an entity must enter into a direct written agreement with
[the named insured] listing them as an additional insured").
Some courts interpret this language as not requiring contractual privity.
See, e.g., Pro Con, Inc. v. Interstate Fire & Cas.
Co., 794 F. Supp. 2d 242 (D. Me. 2011) (the court concluded that the
language "such person or organization" did not plainly restrict
additional insured status only to those entities with contractual privity with
the named insured, noting that "'an ordinarily intelligent
insured,' without specialized training in law or insurance, would have no
reason to read such language as mandating privity of contract").
A recent decision from Connecticut reinforces the pro-additional insured
coverage interpretation. In First Mercury Ins. Co. v.
Shawmut Woodworking & Supply, Inc., 2014 U.S. Dist. LEXIS 134465 (D.
Conn. Sept. 23, 2014) (collecting authority), the court held that "when
you and such person or organization have agreed in writing" does not
require direct contractual privity. There, three iron workers were injured, and
a fourth was killed, while constructing a steel web structure at Yale
University. The workers were all employed by Fast Trek Steel, Inc., a
second-tier subcontractor.
First Mercury Insurance Company provided a primary general liability policy
to Fast Trek, which included a blanket additional insured endorsement. First
Mercury denied any duty to defend Shawmut Woodworking & Supply, Inc. (the
construction manager), and Shepard Steel Company (the first-tier
subcontractor). As to Shawmut, the court held that the additional insured
endorsement was satisfied by both the Shepard-Fast Trek contract (requiring
Fast Trek to name the construction manager as an additional insured) and the
Shawmut-Shepard contract (requiring Shepard to name Shawmut as an additional
insured and bind its second-tier subcontractors, like Fast Trek, to the same
terms). In concluding that contractual privity was not required, the court
refused to "read into" the endorsement terms such as
"direct" or "between" that were not explicitly
included.
Conclusion
Where an entity knows or suspects that it will be added as an additional
insured via a blanket additional insured endorsement, it is good business
practice to have a fully executed written contract with the named insured that
amply describes the requested additional insured coverage. However, as
described above, an entity seeking coverage under a blanket additional insured
endorsement without such written contract should not automatically presume that
it cannot be an additional insured. Note that being granted additional insured
status is the first step in obtaining additional insured coverage—whether the
additional insured coverage being afforded is the requested coverage is another
issue entirely.