Appellate Division Enforces Additional Insured Clause Requiring Contractual Privity with the Named Insured

Commercial general liability insurance policies issued in the context of construction projects generally contain clauses providing coverage to additional parties other than the named insured. Questions of the interpretation of such "additional insured" clauses arise frequently.

In Gilbane Bldg. Co./TDX Constr. Corp. v. St. Paul Fire & Mar. Ins. Co., ___ A.D.3d ___, 2016 NY Slip Op 06052 (1st Dep't Sept. 15, 2016), the Appellate Division, First Department interpreted an additional insurance clause which provided that an additional insured included "any person or organization with whom you [the insured] have agreed to add as an additional insured by written contract."

In Gilbane, the Dormitory Authority of New York ("DASNY"), which was financing and managing a construction project, retained Gilbane Building Co./TDX Construction Corp. ("Gilbane") to provide construction management services pursuant to a written agreement. The agreement required that any prime contractor, whether retained by DASNY or otherwise, was required to name Gilbane as an additional insured under its liability insurance policy.

DASNY entered into a separate contract with Samson Construction Company ("Samson") to perform foundation work on the project. In its contract with DASNY, Samson agreed to procure liability insurance with an endorsement naming Gilbane, among others, as an additional insured. Samson obtained a policy from Liberty Insurance Underwriters ("Liberty"), which contained the above-quoted additional insured clause.

During the project, Samson's work allegedly caused an adjacent building to sink, and DASNY sued Samson and an architect, which commenced a third-party suit against Gilbane and its individual members. Gilbane in turn sued Liberty seeking a declaration that Liberty was obligated to defend and indemnify Gilbane in the third-party suit under the additional insured clause in the Liberty policy. Liberty moved for summary judgment declaring that it was not obligated to provide coverage to Gilbane, and the trial court denied Liberty's motion, holding that Gilbane and its members qualified as additional insureds under the policy.

On appeal, the Appellate Division, First Department reversed, holding that the unambiguous terms of the additional insured clause required that the named insured execute a contract with the party seeking coverage as an additional insured. Since Samson did not enter into a written contract with Gilbane, Samson's agreement in its contract with DASNY to procure coverage for Gilbane was insufficient to afford Gilbane coverage as an additional insured under the policy. Accordingly, Liberty was entitled to a judgment that Gilbane was not an additional insured under the policy.

The Gilbane decision provides some clarity with respect to these types of additional insured clauses, which have been interpreted differently by various trial courts in New York. Of course, courts first will look to the clause at issue in a particular policy, and careful review of such clauses is necessary to determine whether additional insured coverage is triggered. Parties to construction contracts and their attorneys should be aware of the impact of such clauses.

New York Regulatory Update:

Insurance companies in New York should be aware of a recent decision by the New York State Appellate Division, Third Department, which upheld the legality of assessing insurance companies to pay for certain expenses of the New York State Department of Financial Services. The Court further upheld the legality of transferring some of the insurers' assessments to the state's general fund. Individuals in the insurance industry in New York should read the entire decision carefully: New York Insurance Association, Inc., et al. v. State of New York, et al., __ A.D.3d __, 2016 NY Slip Op (October 27, 2016).