Automatic additional insured endorsements to a commercial general liability insurance policy typically cover a third party as an additional insured when the named insured and the third party "have agreed in writing in a contract or agreement" that the policy will do so. Many construction projects are based on written contracts, so there should be no problem with the coverage, right? Well, maybe. A Manhattan trial court issued a decision last month on the question of whether a written contract actually included an agreement that a subcontractor would cover a building owner.
It's the same old contractual risk transfer love story. Building owner hires general contractor to do some work. GC hires subcontractor to restore the building's exterior facade. Subcontractor's employee slips and falls due to ice and snow on the building's roof and gets hurt. Employee sues building owner. Building owner looks to GC's insurer for liability coverage. GC's insurer looks to subcontractor's insurer to cover the building owner. Sub's insurer sees things differently. GC's insurer sues, seeking a court order for the sub's insurer to:
- Cover the owner as an additional insured under the CGL policy
- Hold the owner harmless under the exception to the contractual liability exclusion in the CGL policy
- Reimburse the CG's insurer for its defense costs.
The sub's CGL policy provided additional insured coverage to entities as "required by written contract." The court noted that the contract between the GC and the sub required the sub to provide additional insured coverage for the GC. "However," the judge wrote, "nowhere in the (subcontract) does it expressly or explicitly state that (Sub) shall provide additional insured coverage to (Owner). Indeed, (Owner) is not mentioned at all." The GC's insurer argued that the subcontract referred to an American Institute of Architects model contract. The model stipulates that the subcontractor shall cover the owner as an additional insured. The judge concluded that the AIA document was not a "written contract," even if that's what the two parties intended. Apparently, she felt that a reference in the main contract to it was not enough to make it part of the contract. Because the contract did not require the sub to provide the coverage, the judge ruled that the sub's insurer had no obligation to defend the owner.
The court also declined to make the sub's insurer provide contractual liability coverage. Because the owner and the sub were not parties to the lawsuit before the court (which was, after all, between two insurance companies), the judge held that the question of the sub's obligations to the owner should be determined in a separate action. Because the court found no obligation to provide either additional insured or contractual liability coverage, the judge also rejected the GC insurer's demand that the sub's insurer reimburse its defense costs.
The moral for insurance agents? Simply be aware that automatic additional insured endorsements require a written contract that specifically requires additional insured coverage. A contract referring to a generic document that mentions additional insured coverage will not cut it. These endorsements pick up a lot of exposures, but they don't cover everything. I don't see anything that the subcontractor's agent did wrong here. The problem is that the GC believed that the requirements in the AIA document would be binding, and they weren't.
The GC's beef might be with its own contract attorney, assuming it had one. (Side note: A lot of IIABNY members contact me to get sample contracts. I provide samples if I can find them, but I always caution members to have qualified attorneys look them over. It's not hard for me to imagine that this GC created its contract without a proper legal review.)
This decision is less than a month old. It's possible that the GC's insurer will appeal. For now, though, the sub's insurer is off the hook for this loss.
David Adams reports in the latest issue of Labor Law Pointers on a Jan. 27 scaffold law court decision that may prove to be very significant. The decision is from the New York State Supreme Court Appellate Division, Second Department, which encompasses Brooklyn, Queens, Staten Island, Long Island, and areas north to Orange County.
The injured worker was using a six-foot-tall A-frame ladder on a construction project. The ladder was apparently in good condition, as he had performed the same tasks with the same ladder in four rooms before the accident. Pieces of sheetrock were stacked on the floor in the fifth room, preventing him from placing the ladder under the location where he needed to work. Instead, he placed the ladder three or four feet to the left of the location. It was on level ground and did not move or shake as he climbed to the third rung. He leaned to the right to do his work, whereupon the ladder tipped over. The court’s opinion does not describe his injuries.
The worker and his spouse sued the project owner and the general contractor, claiming violations of New York Labor Law Sections 200, 240(1) and 241(6). The trial court ruled in favor of the defendants, and the worker appealed. The Second Department upheld the trial court’s ruling, saying, “(Defendants’) submissions demonstrated, prima facie, that the injured plaintiff improperly positioned and misused the ladder, which was the sole proximate cause of his injuries … (S)ince the plaintiffs failed to demonstrate that the injured plaintiff's injuries were proximately caused by a violation of Labor Law § 240(1), the Supreme Court properly (ruled against them).”
I’ll let David describe the import of this decision:
Why is this important you may ask? The answer is simple; this is the first time I have seen a court, any court, award Summary Judgment to a defendant when the plaintiff fell because a ladder tipped, shook, shimmied or slipped. They did so specifically because it was the plaintiff who placed the ladder. In countless decisions, the courts have held that when a ladder is improperly placed, even when placed by the plaintiff, that the improper placement is a violation of the statute and thus a proximate cause, precluding any other proximate cause from being the sole proximate cause of the plaintiff’s fall and subsequent injury. Without the ability to have the plaintiff’s actions in placing and misusing the ladder be the sole proximate cause, the defendant is without the ability to defend the 240(1) claim. …
While we do not expect the Second’s view of the sole proximate cause defense in ladder placement cases to make its way across the state quickly, or even make the very short trip to the First Department quickly, we are ever hopeful that this will make its way to the Court of Appeals.
Some of you may recall that I taught a continuing education course two years ago titled Absolute Liability: New York’s Scaffold Law and the Courts. With the help of several back issues of Labor Law Pointers, I was able to cite in the course several court decisions that held the owner and general contractor liable when the injured worker placed a ladder himself. If the Second Department’s decision in this new case passes muster with the Court of Appeals, owners and contractors’ ability to successfully defend scaffold law suits will greatly improve. Stay tuned.
Photo by Douglas Palmer. Used under a Creative Commons
Attribution 2.0 license.
Lots of interesting things happening in New York’s courts lately. To keep this post short, I'll just cover two of them for now. Here’s a quick rundown:
The Associated Press reported Monday about a Nassau County man who has been charged with vehicular homicide, despite the fact that he was not driving at the time of the October 2012 fatal accident. The man allegedly was intoxicated when the car he was driving struck a car on the Long Island Expressway. He stopped the car down the road in the high occupancy lane, where it was struck by another car. This turned his car sideways. An SUV driver failed to spot the sideways car and hit it, then struck and killed a police officer who had arrived to investigate. The guy who started it all was allegedly leaning against a guardrail at the time the officer was killed.
Prosecutors claim that the man is culpable because a fatal accident was a foreseeable result of his actions. His blood alcohol level at the time of the accidents as 0.13; the New York State threshold for intoxication is 0.08. He has been indicted on 16 counts, including aggravated vehicular homicide, manslaughter, DWI and other charges. He faces up to 25 years in prison if convicted. His attorney says the prosecutors have overreached.
An appellate court in New York City upheld a claim denial against a contractor two weeks ago. The contractor’s Commercial General Liability insurance policy included an endorsement that limited coverage only to losses arising out of the classifications listed in the Declarations – “Carpentry – interior”; “Dry Wall or Wallboard Installation”; and two classifications for subcontracted work. One of the contractor’s employees was injured while demolishing a chimney in a Long Island City building. The employee sued the general contractor, who was an additional insured under his employer’s policy.
The contractor’s insurer denied coverage for both the GC and the contractor because demolition work was not within any of the classifications on the policy. The court agreed with the insurer, despite the fact that two months elapsed before the insurer denied coverage. If the determining policy provision had been an exclusion, New York law would have forced the insurer to cover the claim because of the delay. Because the loss did not fall within the policy’s coverage without an exclusion, the court ruled that the delay did not matter.
To sum up, you can be prosecuted in New York for a vehicular offense if your conduct with a vehicle led to a serious accident. Also, classification limitation endorsements on contractors' CGL policies are a real thing. Insurance producers should be concerned about them. They might be on your clients' policies.
More cases to report on soon.
Photo by Gwydlon M. Williams. Used under a
Creative Commons Attribution 2.0 license.
Insurance policies must be written and read carefully. There's a reason why your high school English teacher, whom you fondly referred to as Mrs. GrammarNazi, obsessed about punctuation. As Chris Amrhein explains, the presence or absence of a semi-colon can make the difference between a claim being covered or denied.
And you thought semi-colons were just for emojis. ;)
If you pay strict attention to the rules of grammar, you just might get a claim denial reversed, as the agent in this story did. Think that might win you some customer loyalty?
I've been writing a lot about how policies are not all alike. I can't stress it enough: Insurance policies are contracts, contracts are collections of words, and how those words are spelled, arranged and separated determines how they should be understood. Those who pay close attention will have a tremendous competitive advantage over those who just sell price. No one cares about the price when a claim is denied.
So, dust off your grammar books and your copies of policy forms (you do have them, right?) and have them ready next time one of your clients is denied coverage. These infinitely dull tools may just make you a hero.
Sure, I haven’t been blogging lately, but nothing gets the ol’ creative juices flowing like a “gotcha” denied claim. Today’s example in 151 Reasons Why People Hate Insurance Companies comes to us from a trial court in Manhattan. The man owned a home. He lived in the home. He insured the home. His insurance covered fire damage. He had a fire. He didn’t have insurance.
Just a bit of background and refresher: If you have read this blog for any length of time, you have probably read my discussions of the “where you reside” issue with Homeowners insurance. In a nutshell, some carriers have taken the position that, when a homeowner moves out of the home with no intention to return, all coverage on the dwelling, other structures, loss of use, liability and medical payments vanishes. This is the problem that ISO’s new “residence premises” endorsements (not available yet in New York) are designed to address.
The unendorsed ISO Homeowners policy defines “residence premises” as:
“a. The one-family dwelling where you reside;
b. The two-, three- or four-family dwelling where you reside in at least one of the family units …”
Back to our story. A man in New York owned a home. From July 2004 until April 2013, he insured that home with Castlepoint Insurance Co. Castlepoint was a subsidiary of the now-defunct Tower Insurance Group. It is now a subsidiary of AmTrust, which purchased Tower’s business last year after Tower ran into serious financial trouble.
The definition of “residence premises” in the Castlepoint policy was not the same as ISO’s. It said:
"8. ‘Residence premises' means:
a. The one family dwelling, other structures, and grounds; or
b. That part of any other building; where you reside and which is shown as the ‘residence premises' in the Declarations.
‘Residence premises' also means a two family dwelling where you reside in at least one of the family units and which is shown as the residence premises' in the Declarations."
So, while the ISO form covers dwellings with up to four family units, the Castlepoint policy covered dwellings with up to only two. Can you see where this is going yet?
In February 2013, a fire occurred, damaging the home. The insurer investigated the claim. It was then that they learned that the homeowner lived on the first floor, his daughter lived on the third floor, and a family friend and her son occupied the second floor. Also, each living space had its own entrance, bedroom, bathroom and kitchen. The insurer concluded that this was a three-family dwelling. Its policy defined “residence premises” as either a one- or two-family dwelling. The policy covered the dwelling on the residence premises. If there was no residence premises, than there was no coverage for the dwelling.
The insurer denied all coverage for the fire damage. This may or may not have had something to do with the cancellation of the policy two months after the fire.
The homeowner, as you might imagine, sued the insurer for breach of contract. Last November 16, the court rendered its verdict:
“It is undisputed, and the Policy is clear, that coverage under the Policy is limited to a ‘residence premises,’ which is defined under the Policy as … a two family dwelling where you reside in at least one of the family units and which is shown as the ‘residence premises' in the Declarations.’ … the affidavits from defendant's investigator and independent adjuster are sufficient to establish as a matter of law that the structural configuration of the Premises was arranged to consist of three dwelling units … Based on the foregoing, it is hereby … ORDERED that defendant Castlepoint Insurance Company's motion for summary judgment is granted and the complaint is dismissed…”
The insurer won, and the homeowner has a fire-damaged home that he has to repair with his own money. An ISO policy would have covered this loss; the policy he bought didn’t.
By now, readers may be sick of reading these words, but there is no substitute for reading the policy and understanding where the coverage gaps may lie. The opinion does not mention who the agent was, nor does it say whether the agent knew there were three households in the home. I feel confident is my assumption that lawyers for the homeowner have been asking the agent and the affiliated E&O carrier that question.
As I wrote in the first post in this series, don’t ask whether a policy will cover a loss; ask whether this policy will cover it.
Okay, it's more like three minutes. Sue me. Unless you're a member of my extended family. Please. I discuss the strange case of an aunt who sued her 12 year-old nephew, and why his parents' homeowners insurance didn't come through.
Question from an IIABNY member: Have a question about an 18 year old daughter of a divorced couple. She lives with her mother 70 percent of the time and her father 30 percent of the time. If she were involved in an accident as a passenger in another vehicle or as a pedestrian, would the coverage come from the mother’s policy? Would the coverage come from the policy where she was staying at the time of the loss? Would both policies respond proportionally? Any thoughts?
Answer: ISO endorsement PP 05 87 01 14, Personal Injury Protection Coverage – New York, states in relevant part:
Mandatory Personal Injury Protection
The company will pay first-party benefits to reimburse for basic economic loss sustained by an eligible injured person on account of personal injuries caused by an accident arising out of the use or operation of a motor vehicle or a motorcycle during the policy period and within the United States of America, its territories or possessions, or Canada.
Eligible Injured Person
Subject to the exclusions and conditions set forth below, an eligible injured person is:
(a) The named insured and any relative who sustains personal injury arising out of the use or operation of any motor vehicle;
(b) The named insured and any relative who sustains personal injury arising out of the use or operation of any motorcycle, while not occupying a motorcycle; …
When used in reference to this coverage: …
(g) "Relative" means a spouse, child, or other person related to the named insured by blood, marriage, or adoption (including a ward or foster child), who regularly resides in the insured's household, including any such person who regularly resides in the household, but is temporarily living elsewhere; …
Other Coverage. Where more than one source of first-party benefits ... is available and applicable to an eligible injured person in any one accident, this Company is liable to an eligible injured person only for an amount equal to the maximum amount that the eligible injured person is entitled to recover under this coverage, divided by the number of available and applicable sources of required first-party benefits. An eligible injured person shall not recover duplicate benefits for the same elements of loss under this coverage or any other mandatory first-party motor vehicle or no-fault motor vehicle insurance coverage issued in compliance with the laws of another state.
If the eligible injured person is entitled to benefits under any such mandatory first-party motor vehicle or no-fault motor vehicle insurance for the same elements of loss under this coverage, this Company shall be liable only for an amount equal to the proportion that the total amount available under this coverage bears to the sum of the amount available under this coverage and the amount available under such other mandatory insurance for the common elements of loss. However, where another state's mandatory first-party or no-fault motor vehicle insurance law provides unlimited coverage available to an eligible injured person for an element of loss under this coverage, the obligation of this Company is to share equally for that element of loss with such other mandatory insurance until the $50,000, or $75,000 if Optional Basic Economic Loss (OBEL) coverage is purchased, limit of this coverage is exhausted by the payment of that element of loss and any other elements of loss.
Based on this, we know that:
1) PIP coverage applies to “eligible injured persons”
2) An eligible injured person can be a “relative”
3) A child who regularly resides in the insured’s household and who temporarily lives elsewhere is a “relative”.
Therefore, it appears that the daughter you described could be an “eligible injured person” under both parents’ PIP coverage. If she were to be injured in a car accident, the Other Coverage condition would apply.
Assuming that both parents live in New York, the first paragraph of the condition would apply. That paragraph says that the insurer is liable “only for an amount equal to the maximum amount that the eligible injured person is entitled to recover under this coverage, divided by the number of available and applicable sources of required first-party benefits.” If there are two applicable policies (Mom’s and Dad’s), then the two insurers will share the loss 50-50. If the most she can collect under PIP is $30,000, and there are two sources of required first-party benefits, then each source pays $15,000 ($30,000 divided by two.)
Not long ago, a newsletter from an insurance agency landed in my email in box. The content in the newsletter appeared to be targeted at the agency’s personal lines clients. The article was all about coverage issues, which I think is a good thing. I’m all for trying to get insurance consumers to focus on the product they’re buying instead of how much they’re paying for it. The gecko and my gal Flo do plenty to emphasize the size of the premium. When independent insurance agents speak with their clients about coverage, they are doing the industry and the public a favor.
Unfortunately, this newsletter missed the mark. The more times I read it, the more I saw it as an example of what not to do. The author’s intentions were good; the execution was not. If your agency publishes a client newsletter, or regularly communicates with clients in some other way (which you should,) then here are some things to keep in mind:
Avoid using irrelevant terms. The article’s title was When is damage considered an act of God? It describes what it calls “Common Acts of God” exclusions. Are there common “acts of God” exclusions? I just did word searches in the following Homeowners policy forms:
The phrase “act of God” does not appear in any of them. In fact, the word “God” is not in any of them.
Why confuse the matter by using a phrase that’s not in the policy? It just makes people ask, “What do you mean by ‘act of God’?” Better to just say, “Your policy covers a lot of events, but it doesn’t cover everything. Here’s what you need to know.”
If it’s not something that will affect your clients, don’t bring it up. The article states:
"Losses from a hurricane or severe wind or hail storm are often covered by insurance (except for losses associated with flooding), but there may be wind damage deductibles to mitigate the high risk from these catastrophic events.”
This is true on its face. However, this agency is located not far from Rochester. Its geographic area is hundreds of miles from the Atlantic coast. Its clients do not have a hurricane exposure. In addition, the New York State Department of Financial Services has approved insurers’ use of windstorm deductibles only in the Long Island counties, New York City other than Manhattan, and Westchester County. In short, this agency’s clients have to worry about neither hurricanes nor windstorm deductibles. If that’s the case, why mention them at all?
Lay off the industry jargon. After telling the reader that a Homeowners insurance policy may not cover “acts of God,” the author wrote:
"This is why it is important to check which perils are covered and which are excluded from your homeowners policy. In certain instances, you may purchase additional coverage for an excluded peril.”
Quick – call a friend or relative who does not work in the insurance industry. Ask him what “excluded” and “peril” mean in the insurance world. I can wait.
He didn’t know, right? “Excluded” and “peril” have special meanings in the context of insurance policies. Most clients do not speak insurance jargon. An agency that wants to communicate effectively with clients must meet them where they are. The author should have said, “This is why it is important to find out what causes of damage your homeowners policy covers and which ones it does not. In some cases, you may be able to buy extra insurance to cover more causes of loss.” Those are words the average person can understand.
I suspect that the agency licensed this article from a company that publishes newsletter articles. That would explain the mention of windstorm deductibles in an upstate newsletter. If your agency licenses ghost-written articles, review them carefully. In the end, it’s your newsletter, and you have the right to modify the content to suit your audience. If the license for the article does not allow you to do that, find another source of newsletter articles or write the articles yourself.
Newsletters are a great way to build relationships with your clients. Well-written articles can educate and enlighten consumers about products that most of them find mysterious. Poorly-written articles may raise more questions than they answer. Keep your articles short, clear and easy for non-insurance people to understand. They might just prevent some confusion when someone makes a claim.
Photo by Katie Thebeau. Used under a Creative Commons Attribution 2.0 license.
Gather ‘round, young Jedis, for another lesson in why insurance is not a commodity. Today’s tale involves a Homeowners policy, a named insured who complicated matters by not living anymore, some stuff that went missing, and two words.
Our story begins and ends in the burg of Mineral Wells, Texas, where Mr. J.O. Spurlock owned and occupied a home. His Homeowners policy, issued by Beacon Lloyds Insurance Company, listed only him as a named insured. It identified his street address as the “residence premises/dwelling” and provided dwelling and personal property coverage. (Note: Beacon Lloyds dissolved at the end of 2012.)
Mr. Spurlock passed away in early 2009, midway through the policy term. A court appointed Kelly Spurlock as the representative of Mr. Spurlock’s estate. The month before the policy’s expiration, Kelly discovered that some of the personal property was missing from the house. Believing the items to have been stolen, he filed a claim with Beacon Lloyds. The insurer concluded that the insurance did not apply to the stolen property. It denied coverage.
Kelly then sued the insurer and the agent who obtained the policy for Mr. Spurlock. The trial court dismissed the case against both parties, and Kelly appealed. Here’s where the policy language gets interesting.
The ISO Homeowners 3 Special Form, HO 00 03 05 11, contains a “Death” condition which states:
“If any person named in the Declarations or the spouse, if a resident of the same household, dies, the following apply:
1. We insure the legal representative of the deceased but only with respect to the premises and property of the deceased covered under the policy at the time of death; and
2. ‘Insured’ includes:
a. An ‘insured’ who is a member of your household at the time of your death, but only while a resident of the ‘residence premises’; and
b. With respect to your property, the person having proper temporary custody of the property until appointment and qualification of a legal representative.”
However, the Beacon Lloyds policy did not use the ISO form. Its policy had a slightly different “Death” condition, as quoted in the appellate court’s opinion:
“If the named insured dies, we insure:
a. the named insured's spouse, if a resident of the same household at the time of death.
b. the legal representative of the deceased. However, if this legal representative was not an insured at the time of death of the named insured, this policy will apply to such legal representative only with respect to the premises of the original named insured.
c. any person who is an insured at the time of such death, while a resident of said premises.”
Did you catch the difference there? The ISO form covers the legal representative for “the premises and property of the deceased.” The Beacon Lloyds form covered the legal representative with respect to “the premises.” No mention of “the property.”
The appellate court checked dictionary definitions of “premises” and found that the term means “a house or building and the grounds upon which the house or building is located.” Using this as the starting point, the court said:
“None of the above definitions includes ‘personal property’ in the definition of ‘premises.’ Accordingly, we conclude that the plain meaning of ‘premises’ as used in the Beacon policy is unambiguous and does not include personal property. Based on its plain meaning, the undefined term ‘premises’ in the Beacon policy includes J.O. Spurlock's house and the grounds upon which it was located. The Beacon policy insured the legal representative of the named insured only with respect to the ‘premises’ of the original named insured. Given the ordinary meaning of ‘premises,’ we conclude that, upon J.O. Spurlock's death, the policy provided dwelling coverage to Spurlock but did not provide personal property coverage to him, whether the loss of personal property occurred on or off the premises.”
ISO covers “the premises and property”; Beacon Lloyds covered “the premises”. The deletion of two words made the difference between whether this claim was covered or denied. The court ruled that coverage did not apply to the stolen personal property, and it threw out the allegation of negligence against the agent.
I just did a word search of the court’s opinion. Two words that are conspicuously absent from the opinion are “premium” and “price.” That’s because, when a loss occurs, nobody cares about the price of the policy.
Two words. Without them, no coverage. Insurance policies are not all the same. Price is an important consideration, not the most important consideration.
I’ll have more examples in the near future. I don’t know what they are yet, but I know they’re out there. In the mean time, I strongly encourage you to study the products you’re offering. It’s best for you and for your clients.
Okay, so I unintentionally took September off from the blog, but I’m back now. This is a continuation of my series on how insurance policies are not alike (see my posts on May 5
and May 6
). The following is an email discussion I had with a Westchester County agent last August. I’ve edited it slightly to remove extraneous detail and to leave the insurer anonymous.
Question: One of our clients recently took delivery of some heavy equipment and asked if there would be coverage for his property if the floor collapsed. Our client is the tenant, not the building owner. The coverage form is the (insurer’s) Special Property Coverage Form, which we believe is the same or almost the same as the corresponding ISO form. I have attached a page from the (insurer’s) policy. Coverage is clear with respect to building damage for collapse caused by weight of people of personal property, but I can’t make sense out of the personal property wording. Do you feel that personal property owned by a tenant of a building would be covered if the building were to collapse due to weight of personal property?
Answer: I do not think this policy will cover damage to your client’s equipment caused by a collapse. There is a very significant difference between the language in this policy and the language in the ISO Causes of Loss – Special Form. Here is what this policy says:
"We will pay for direct physical loss or physical damage caused by or resulting from risks of collapse of a building or any part of a building that is insured by this policy caused only by one or more of the following…”
And here is what ISO says:
“We will pay for direct physical loss or damage to Covered Property, caused by abrupt collapse of a building or any part of a building that is insured under this Coverage Form or that contains Covered Property insured under this Coverage Form, if such collapse is caused by one or more of the following…”
ISO’s form will pay for damage to covered property caused by the collapse of a building that contains covered property insured under the form. The insurer's form does not say anything about insuring a collapse of a building that contains covered property. It states only that it covers damage caused by the collapse of a building insured by the policy. To me, this means the following:
If the insurer had intended the collapse coverage to be the same as the ISO form’s, it would have used ISO’s language in its entirety. Much of the rest of the wording is identical to ISO’s. I can only conclude that the intent is to not cover damage to property caused by the collapse of a building that is insured under another policy.
I hope the underwriter will consider endorsing the policy to remove this coverage gap. Your client is obviously concerned about it.