NY Court of Appeals Enforces Additional Insured Clause Requiring Contractual Privity With the Named Insured

As we previously reported in 2016, a New York State intermediate appellate court strictly enforced an additional insurance clause which provided that an additional insured included "any person with whom you [the insured] have agreed to add as an additional insured by written contract" (Gilbane Bldg. Co./TDX Constr. Corp. v. St. Paul Fire & Mar. Ins. Co., 143 A.D.3d 146 (1st Dep't 2016)). Leave to appeal to the Court of Appeals was granted, and the high court recently affirmed the decision (Gilbane, ___N.Y.3d___, 2018 N.Y. Slip. Op. 02117 (March 27, 2018)).

In Gilbane, the Dormitory Authority of New York ("DASNY"), which was financing and managing a construction project, retained Gilbane Building Co./TDX Construction Corp. to provide construction management services pursuant to a written contract. The contract required the prime contractor, whether retained by DASNY or otherwise, to name Gilbane as an additional insured. DASNY entered into a separate contract with Samson Construction Company 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 then obtained a policy from Liberty Insurance Underwriters that contained the above-quoted additional insured clause.

Suffice it to say, there was no written contract between Samson and Gilbane.

When Samson's work caused damage to an adjacent building, DASNY sued Samson and an architect, which commenced a third-party action against Gilbane. In turn, Gilbane sued Liberty seeking a declaration that Liberty was obligated to provide a legal defense and indemnification under the additional insured clause. Liberty then moved for summary judgment, declaring it was not obligated to provide coverage to Gilbane on the grounds that there was no written contract between Gilbane and Samson, as presumptively required by the additional insured clause. The trial court denied Liberty's motion. The Appellate Division, First Department reversed, holding that the additional insured clause unambiguously required a written contract between the named insured and the party seeking coverage, but granted Gilbane leave to appeal to the Court of Appeals.

In affirming the First Department's decision, the Court of Appeals rejected Gilbane's assertion that a written contract with Samson was not a requirement for additional insured coverage and that such a condition would defeat the parties' reasonable expectations as set forth in the contract between DASNY and Samson (requiring the latter to obtain additional insured coverage for Gilbane). The court held that the plain and ordinary meaning of this unambiguous clause operated to deny coverage to Gilbane. Specifically, the term "with" was read to require a written contract with the party seeking coverage before the additional insured clause was triggered. As the court explained, "the 'with' can only mean that the written contract must be 'with' the additional insured."

The court's decision in Gilbane should provide some clarity to parties regarding construction contracts (and their insurers) with respect to these types of additional insured clauses, which have been interpreted differently by various trial courts in New York. It should be noted, however, that such cases turn closely upon the particular policy language at issue.