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Federal Court Denies Insurance Coverage to Building Owner Explicitly Named as an Additional Insured on Contractor's Certificate of Insurance


August 28, 2000


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Howrey LLP

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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For more information about the issues covered in this report, please contact Paul Berning in our San Francisco office at 415-848-4996 or at paulberning@howrey.com or contact your Howrey attorney. For more information about Howrey's Construction Practice Group, click here.





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