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Additional Insured Coverage Confirmed Limited to Contractual Privity in New York

Additional Insured Coverage Confirmed Limited to Contractual Privity in New York

The New York Supreme Court, Appellate Division, First Department decided that additional insured endorsement only provided additional insured coverage to an entity in direct contractual privity with the named insured. The decision reinforces the New York law, which controls policy language entitlement to added insured coverage.

Why the Confirmation?

The New York Supreme Court was forced to confirm this law due to a recent case. Brought to heed on Sept. 15, 2016, the case involved the Dormitory Authority of New York (DASNY), Gilbane Building Co. /TDX Construction Corp (a joint venture, or JV)., and Sampson Construction Company.

The contract between DASNY and the JV stated that all prime contractors retained by DASNY were to name the construction manager as an additional insured under the liability policies. This was a requirement.

Next, DASNY contracted with Sampson to retain its services as a prime contractor in all foundation and excavation labor. In this contract, Sampson agreed to name the construction manager as an additional insured on its commercial general liability policy. The company then purchases a commercial general liability insurance plan from Liberty Insurance.

The policy Sampson procured from Liberty contained the following information about additional insured endorsements:

WHO IS AN INSURED: (Section II) is amended to include as an insured any person or organization with whom you have agreed to add as an additional insured by written contract, but only with respect to liability arising out of your operations or premises owned by or rented to you.

Moving forward – the work Sampson did on the job site allegedly created property damage to the building adjacent. Thus, DASNY filed suit against Sampson and the architect. Then the architect bought a suit against the JV, too. The JV then sought coverage under the Liberty policy that Sampson procured for the DASNY contract as additional insured.

Liberty denied coverage. So the defendants opened a declaratory judgment action against Liberty. Then Liberty made a play for a summary judgment, claiming that additional summary judgment would require some direct contractual privity with the named insured, Sampson.

The court then denied Liberty’s motion on the basis that the policy only required a written contract in which Sampson is a party. This requirement was satisfied when DASNY and Sampson entered a contract. However, this was overturned on appeal based on the additional insured endorsement.

While the Sampson and DASNY contract was evidence that Sampson agreed to provide coverage, the court ruled that this has no impact on the coverage Liberty agreed to provide them. This opened the door for the JV to pursue Sampson on a breach of contract clause, as a third-party beneficiary.

Nothing Has Changed

The concept that New York courts read closely regarding additional insured endorsements determined whether privity was required is nothing new. The Gilbane Court relied on numerous prior decisions with similar language, including:

AB Green Gansevoort, LLC v. Peter Scalamandre & Sons, Inc., 102 A.D.3d 425, 961 N.Y.S.2d 3 (1st Dep’t 2013) (requiring contractual privity where additional insured endorsement stated that “an organization is added as an additional insured ‘when you and such organization have agreed in writing in a contract or agreement that such organization be added as an additional insured on your policy.’”); Linarello v. City Univ. of New York, 6 A.D.3d 192, 774 N.Y.S.2d 517 (1st Dep’t 2004) (same). See also Zoological Soc. of Buffalo, Inc. v. Carvedrock, LLC, No. 10-CV-35-A, 2014 WL 3748545 (W.D.N.Y. July 29, 2014) (requiring contractual privity where additional insured endorsement afforded coverage to “[a]ny person or organization with whom you have agreed, in a written contract, that such person or organization should be added as an insured on your policy, provided such written contract is fully executed prior to the ‘occurrence’ in which coverage is sought under this policy.”)

The JV and courts attempted to distinguish the language in each policy, but the Gilbane Court clearly stated that privity between named insured and additional insured is required. 

For more information about Additional Insured Coverage, contact Skyline Risk Management, Inc. at (718) 267-6600

What is a Certificate of Insurance?

What is a Certificate of Insurance?

If you have ever purchased a home or vehicle, you may have been asked to obtain a certificate of insurance. A Certificate of Insurance, or COI, is a document that shows that your insurance policy covers the vehicle or the property in question, without having to produce a copy of the entire policy contract. It lists essential policy details, such as the vehicle/property insured, the coverages, and any third party interests that the insurance policy names.

What makes a COI unique

A Certificate of Insurance differs from an ID card in that an ID card is typically used only for vehicle policies and is far less detailed than a COI. Certificates of Insurance are also different from a copy of your policy in that the policy is much more thorough than a COI. Certificates of Insurance are typically a more convenient size than your insurance policy, the size of a single page or smaller, and can be more easily produced. Certificates of Insurance are a happy medium between the ID cards and a copy of the policy in regard to the amount of information provided, but another significant difference is that most of the time they do not come directly from your insurance carrier. Insurance agents are authorized to issue COIs on behalf of the insurance carrier manually, and are often required to do so.

Purpose of a COI

Most often, a third party who wants to ensure that you have the coverage that you say you do will request a Certificate of Insurance. If you have a lienholder or additional insured on the policy, the document will list their names as well as yours. For those third parties with an interest in your property or vehicle, it is a way for them to quickly verify that your policy aligns with their requirements. A Certificate of Insurance may seem like a better alternative than relying on the numerous pages of your insurance policy to show your coverage. However, there is a caveat to its convenience.

COI Cautions

A Certificate of Insurance is meant to be informational only. It is not a legally binding document and does not guarantee what an insurance policy will or will not cover. Another downside to Certificates of Insurance is that individuals can easily fabricate them. Human error also plays a factor since the COIs are often manually created by an agent.

While a Certificate of Insurance is a fantastic tool when it comes to providing proof of your coverage, you should never rely on them as the sole method by which you review the specifics of your insurance policy. Instead, if you want to ensure that your coverage matches your needs, review your insurance policy first. If you have a good understanding of insurance, you should be able to find the information you are looking for just by reading your copy of the policy. If you can't locate the answer you're looking for, or don't understand the answer that you find, contact your Agent. They are licensed in insurance for that very reason and can clarify any questions you have about your policy. Don't let a lack of understanding keep you from the coverage that you need.

Not sure if you have a COI? Don't know how where your COI is? Call Skyline Risk Management, Inc. at (718) 267-6600 for help obtaining your COI.