Note to “Additional Insureds” Relying on Builders’ Risk Insurance: Federal Court Decision Evaluates Extent of Coverage
The United States District Court for the District of Massachusetts has provided construction project owners, developers, general contractors, sub-contractors, suppliers, and vendors with a helpful reminder about obtaining effective additional insurance coverage on construction projects.
In Factory Mut. Ins. Co. v. Skanska United States Bldg., No. 18-cv-11700-DLC, 2020. U.S. Dist. LEXIS 95403, the District Court held that a construction project’s general contractor and sub-contractor were not additional insureds under the construction project’s owner’s Builders Risk insurance policy (“the Policy”). The construction project’s general contractor and its sub-contractor contended they were additional insureds as a defense based on Massachusetts’ anti-subrogation doctrine, which prevents insurers from subrogating against their own insureds for the type of risk the insurer provided to such insureds. The two contractors moved for summary judgment in the subrogation recovery action brought against them claiming they were both additional insureds under the Policy. The District Court, in dismissing the project’s general contractor’s and its sub-contractor’s motions for summary judgment based on their anti-subrogation defenses, determined that the project’s general contractor and its sub-contractor did not qualify as additional insureds under the Policy because: (1) additional insureds under the Policy are those whose liability would be purely vicarious “to the extent of the insured’s legal liability for insured physical loss or damage,” which the District Court determined was not applicable to the undisputed facts pled in the subrogation recovery action and (2) the language of the policy itself seemed to indicate that it applied to only one (and not multiple) insureds, which, in the District Court’s opinion, applied only the construction project’s owner. As a result, the subrogation lawsuit against both the project’s general contractor and its sub-contractor may proceed as the anti-subrogation rule did not apply.
The facts, circumstances, and result of Factory Mutual are unique to the dispute among the matter’s construction project owner, general contractor, and sub-contractor, but its lesson is universal to any party to a construction project. When it comes to securing additional insurance coverage under another party’s insurance policy, interested parties should proceed with care, including insisting on a receiving a copy of the underlying insurance policy, having that insurance policy reviewed by a professional (e.g., an insurance broker, a risk manager, and/or an attorney), and obtaining an opinion as to whether such additional insurance coverage shall be afforded. Parties interested in assuring that they are in fact additional insureds pursuant to another’s insurance policy are not well-served by merely accepting a Certificate of Insurance in which that party is listed as an “additional insured” or relying on language within a contract, agreement, or purchase order in which a party obligates itself to provide such additional insurance.
As we see from Factory Mutual, failing to confirm insurance coverage in advance of an otherwise insurable event may leave a party exposed to having its additional insured coverage determined by a judge instead of among the construction project participants and their respective insurance carriers, as intended.