To Be or Not To Be an Additional Insured?

Legal Alert

March 11, 2020

It is the question many in the industry have asked in light of the 2018 New York Court of Appeals decision in the Gilbane case. (Gilbane Bldg. Co./TDX Constr. Corp., et al. v. St. Paul Fire & Marine Ins. Co., et al., 31 N.Y. 3d 131 (2018)). In Gilbane the court held that a party was not entitled to coverage as an additional insured when such party did not have a written contract with the policy holder requiring such status. Additional insured status may be very important in that, in addition to affording an additional insured a legal defense, it may provide coverage against risks that are not adequately covered by the additional insured’s own insurance.

Gilbane involved a project manager who was listed as an additional insured on a general contractor’s insurance policy, but did not have a written agreement with the general contractor obligating it to insure the project manager as an additional insured. When a claim arose and the project manager sought coverage from the general contractor’s carrier, coverage was denied because the language of the contractor’s policy required that there be a written contract between the parties in order for additional insured status to be afforded. This policy provision, which is extremely common, was deemed to be enforceable.

Gilbane involved sophisticated commercial parties in connection with a large-scale construction project, but the ruling affects anyone seeking coverage as an additional insured in New York. Property owners, both commercial and residential, commonly require any contractor working on their property to deliver a “certificate of insurance” naming the property owner as an “additional insured.” This often arises when a resident owner wishes to renovate his/her apartment in a co-op or condo building or an adjacent owner is performing construction, and in connection with the construction, requires access to the neighboring co-op or condo. The co-op or condo typically reviews an insurance certificate provided by the contractor’s insurance broker to confirm the covered parties as well as the limits and types of coverages that are in place. However, even after this due diligence is completed, the reality is that the listing of the additional insureds on the certificate of insurance may be ineffective to actually confer that additional insured status. In fact, the industry standard ACORD forms used for certificates of insurance contain disclaimers specifically intended to defeat claims that their issuance creates any rights in favor of the parties to whom they are issued.

Additional insured requirements and endorsement review have always been essential in New York, but Gilbane caused those in the industry to reconsider what had long been accepted as standard practice. In order to effectuate additional insured status, many insurance companies now require a separate contract under which the insured has agreed with the relevant parties to add them as additional insureds to the subject policy. This can be accomplished with a simple agreement, but it still needs to be carefully drafted and reviewed and it must be entered into before the incident giving rise to the claim takes place. A standard indemnification or hold harmless clause will not suffice. Insurance policies may also require that additional insureds be added to policies by special endorsement.

In short, be wary of any certificate of insurance purporting to convey “additional insured” status from a party with whom you are not in direct contractual privity or whose insurance policy has not been reviewed as to how an additional insured is to be designated. When in doubt, it is always best to double-check with your insurance broker, managing agent’s risk manager, or counsel.