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ConstructionWebLinks.com
The
U.S. District Court in New York City recently handed down
a very significant decision on insurance coverage for additional
insureds. In First Financial Insurance Co. v. Jetco Construction
Corp., 2000 WL 1013945, 2000 U.S. Dist. LEXIS 10229
(S.D.N.Y. July 21, 2000), the court ruled that even though
a contractor's certificate of insurance names a third party
as an additional insured, the insurer is not required to
provide coverage to the third party when the insurance policy
itself is not endorsed to specifically name the third party
as an additional insured.
Background
The
term "additional insured" signifies a person or
entity for whom a named insured is required to provide a
certain degree of insurance protection under its liability
policies. In the context of construction projects, an owner
usually requires (by contract) its contractor to name the
owner as an additional insured under the contractor's CGL
policy. A general contractor, in turn, often requires its
subcontractors to name the general contractor (and the owner)
as additional insureds under the subcontractors' CGL policies.
There
are a variety of reasons for one party to require that it
be added as an additional insured on another's liability
policies. For example, it gives the additional insured direct
rights under the named insured's liability insurance, it
may substantially increase the limits of insurance available
to the additional insured for a specific project and it
provides a partial safety net in the event an indemnity
agreement is invalidated by the courts or statute.
Facts
On
March 19, 1998, New York University awarded Jetco Contracting
Corp. a contract to perform construction work. Pursuant
to the NYU/Jetco contract, Jetco was required to indemnify
and defend all claims against NYU that arose from the work
done at the construction site. Based on this requirement,
Jetco's insurance broker issued a certificate of insurance
naming NYU as additional insured on Jetco's general liability
policy issued by First Financial Insurance Company.
Jetco
entered into a subcontract with Rockledge Scaffolding to
erect and dismantle scaffolding. An employee of Rockledge
was injured when a piece of scaffolding hit him in the face.
Suit was filed by the employee against NYU and Jetco.
NYU
sent a tender letter to Jetco demanding that Jetco's insurance
company assume indemnity and defense obligations for all
claims arising from the action. The insurance company denied
coverage because NYU had never been added, by endorsement,
to Jetco's general liability policy.
Thereafter,
the insurance company brought a declaratory judgment action
seeking a ruling that the policy did not provide coverage
to NYU. NYU, relying on the insurance certificate issued
by Jetco's broker, argued that relief should not be granted
because the certificate named NYU as an additional insured.
Coverage for the Additional Insured
The
court granted summary judgment to the insurance company,
relying on the language of the insurance certificate, which
stated that it did not "amend, extend or alter the
coverage" provided by the insurance policy. The court
concluded that it had to look to the insurance policy itself
to determine whether a third party was afforded coverage.
In other words, the language of the policy was held to control,
and the insurer was not required to cover a third party
when the actual policy did not explicitly name that third
party as an additional insured.
The
court also addressed NYU's argument that the certificate
of insurance was binding and should be enforced. The court
held that the fact that a certificate of insurance was issued
by an insurance broker does not result in coverage because,
generally speaking, a broker works for and is legally considered
to be a representative of the insured, not the insurer.
Only when there is evidence that a broker acted with authority
granted by the insurer can a broker be viewed as the insurer's
agent. In this instance, the court found that NYU had offered
no evidence that the certificate of insurance was issued
through an agent working on behalf of the insurance company.
Finally,
the court addressed NYU's contention that the insurance
company should be estopped to deny coverage. The court rejected
this argument, holding that a third party cannot claim that
an insurer is estopped from denying coverage when that third
party is not covered by the insurance policy at issue. The
only exception to this general rule is when the insurer's
conduct causes the third party to rely on coverage to its
prejudice. No such conduct was found to have occurred here.
Conclusion
While
the decision was not officially published and, therefore,
may not be binding precedent in all courts, it does serve
as a potent reminder that a party seeking the protection
of additional insured status cannot rely on a certificate
of insurance unless it has been issued by an agent for the
insurer. Although certificates of insurance often are sent
to a party to confirm or verify a party's status as an additional
insured, the certificate does not, in and of itself, confer
or guarantee coverage for a third party. It is the policy
or an endorsement to that policy that confers such rights.
Therefore,
in order to secure additional insured status, an owner or
contractor should obtain evidence that it has in fact been
named as an additional insured on the CGL policy of another.
Thus, one seeking additional insured status should obtain
either a certified copy of the actual insurance policy or
applicable endorsement or confirmation from the insurer
or its own agent that additional insured status exists.
Issues
relating to additional insured status are not limited to
the construction industry. Examples outside the construction
industry include owners or lessors of real estate on the
policies of lessees or tenants; lessors of leased equipment
on the policies of lessees; and retailers and distributors
on the policies of manufacturers.
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