On construction projects, it is common for the owners, general contractors, and subcontractors to execute various contracts requiring the parties to procure insurance and have other parties designated as additional insureds under those policies. Recently, the Second Circuit Court of Appeals in Amerisure Insurance Co. v. Selective Insurance Group Inc. addressed the interplay between construction contracts and commercial general liability and umbrella policies.
The case concerned an accident that occurred during the construction of a theater for Movie Tavern Theaters LLC and Southern Theatres LLC on land owned by Hinsdale Road Group LLC and Cameron Group LLC (all collectively referred to as “owners”). Eilerson Development Corp. (EDC) was retained as the general contractor for the construction project. The general contract required EDC to obtain commercial general liability insurance, which named the owners as additional insureds for claims caused by EDC’s negligent acts or omissions.
EDC subcontracted the masonry work to C&D LaFace Construction Inc. The subcontract required C&D to procure commercial general liability insurance, which would name EDC as an additional insured and would be primary and non-contributing such that EDC’s policy would not respond until the limits of C&D’s commercial general liability policy were exhausted. EDC procured a commercial general liability policy and umbrella policy from Amerisure Insurance Co., and C&D procured a commercial general liability policy and umbrella policy from Selective Insurance Group Inc.
In November 2015, C&D employee Shaun Atkinson was injured at the construction site by a forklift operated by a C&D foreperson. Atkinson then sued EDC, Cameron, Movie Tavern, and Southern in New York Supreme Court. Selective defended EDC in the lawsuit but took the position that the owners did not qualify as additional insureds under the Selective commercial general liability policy. Selective also took the position that the Selective umbrella policy was excess over all other insurance available to EDC, including the Amerisure commercial general liability policy.
In December 2018, Cameron and Hinsdale brought a separate action seeking a defense and indemnity from EDC and Amerisure, after which EDC and Amerisure added C&D and Selective as third-party defendants. Thereafter, the insurers cross-moved for summary judgment as to the additional insured status of the owners and the priority of coverage issue. Following the trial court’s grant of summary judgment in Selective’s favor on both issues, Amerisure appealed.
As it relates to the additional insured issue, Amerisure argued that the owners qualified as additional insureds under the terms of the Selective commercial general liability policy because C&D agreed in the subcontract to name the owners as additional insureds. The text of the subcontract itself did not contain such a requirement, but, according to Amerisure, the subcontract incorporated all of EDC’s obligations under the general contract, including a certain section of the general contract that required EDC to have the owners named as additional insureds under its policy. Applying the subcontract’s choice-of-law provision, the court found Amerisure’s incorporation argument unpersuasive under Virginia law. The court reasoned that the incorporated clause in the subcontract did not require C&D to assume all of EDC’s obligations but only those relating to the nature or scope of the work performed by C&D. The court held that the insurance clause in the general contract did not directly relate to the nature or scope of the work performed by C&D and, as such, C&D did not assume the obligation to have the owners named as additional insureds under its Selective commercial general liability policy.
As it relates to the priority of coverage issue, the court found that the Amerisure commercial general liability policy was primary to the Selective umbrella policy. By its terms, the Amerisure commercial general liability policy provided primary insurance to EDC except if there was other primary insurance available to EDC for which EDC had been added as additional insured. The Selective umbrella policy, by contrast, provided that it was excess over any other insurance unless the other insurance was specifically written to be excess of the Selective umbrella policy. Based on a comparison of the policies’ plain language, the court found that the Amerisure commercial general liability policy was primary.
In so holding, the court rejected three arguments made by Amerisure. First, Amerisure argued that an endorsement to the Amerisure commercial general liability policy replaced the other insurance clause to render coverage excess to other insurance. The court disagreed, holding that the endorsement replaced the other insurance clause as it relates to coverage for additional insureds only, not EDC — the named insured under the terms of the Amerisure commercial general liability policy.
Second, Amerisure argued that, under the terms of the subcontract, C&D agreed to obtain umbrella coverage “as broad as” the primary commercial general liability policy. As such, Amerisure argued, the Selective umbrella policy must also be primary and non-contributing like the Selective commercial general liability policy. The court rejected this argument, reasoning that the “as broad” language concerned the scope of covered risks, not the priority of coverage.
Finally, Amerisure argued that because C&D agreed to indemnify EDC in the subcontract, that agreement should be transferred to Selective and required the Selective umbrella policy to provide insurance prior to the Amerisure commercial general liability policy. The court acknowledged that there is authority under New York law (which governed the priority of coverage issue) that holds an indemnity agreement in a trade contract between insureds can override the terms of an insurance policy concerning priority of coverage. The court, however, declined to disregard the plain terms of the policies because Amerisure did not raise the indemnity argument in the district court. Further, the court in the lawsuit filed by Atkinson found the indemnity provision in the subcontract was void under Virginia law.
As this case demonstrates, construction projects can involve the interplay of various contracts, insurance policies, and various state laws governing those contracts and policies. Accordingly, it is important to read policy language carefully and in tandem with the other operative contracts.
