Making Your Bed: "Blanket" Additional Insured Endorsements and the Underlying Agreement

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.