On September 15, 2016, the New York Supreme Court, Appellate Division, First Department found that an additional insured endorsement provided additional insured coverage only to the entity in direct contractual privity with the named insured. This decision reinforces the law in New York that the policy language controls entitlement to additional insured coverage, rather than the contract.
In Gilbane Bldg. Co./TDX Const. Corp. v. St. Paul Fire & Marine Ins. Co., No. 653199/11, 2016 WL 4837454 (1st Dep’t, Sept. 15, 2016), the Dormitory Authority of New York (DASNY) was managing a construction project in New York City. As part of that project, DASNY contracted with Gilbane Building Co./TDX Construction Corp., a Joint Venture (JV), to act as the construction manager. The contract between DASNY and the JV required that all prime contractors retained by DASNY name the construction manager as an additional insured under its liability policies.
DASNY contracted separately with Samson Construction Company (Samson), retaining it to perform services as the prime contractor for all foundation and excavation work. In that contract, Samson agreed to name the construction manager as an additional insured on its commercial general liability insurance. Samson procured a commercial general liability insurance policy from Liberty Insurance Underwriters (Liberty) that contained the following additional insured endorsement:
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. (emphasis added)
Samson’s work at the job site allegedly caused property damage to adjacent buildings. DASNY filed suit against Samson and the architect, and the architect commenced a third-party action against the JV, as well as Gilbane and TDX, individually. The JV, Gilbane, and TDX each sought coverage as additional insureds under the Liberty policy based on Samson’s contract with DASNY. After Liberty denied coverage, the third-party defendants brought a declaratory judgment action against Liberty. Liberty moved for summary judgment, arguing that its additional insured endorsement required direct contractual privity with Samson, its named insured.
The trial court denied Liberty’s motion, finding that the policy required only a written contract to which Samson is a party, and that this written contract requirement was satisfied by the DASNY-Samson contract. On appeal, the First Department reversed, holding that the additional insured endorsement “clearly and unambiguously requires that the named insured execute a contract with the party seeking coverage as an additional insured.” The court focused on the phrase “with whom” in the endorsement, which it held referred back to the “person or organization” immediately preceding it. Thus, Liberty was not obligated to provide additional insured coverage to any entity “with whom” Samson had not contracted directly.
Although the Samson-DASNY contract was evidence that Samson had agreed to provide additional insured coverage to the JV, Gilbane, and/or TDX, this had no impact on the coverage Liberty had agreed to provide. Rather, it meant that the JV, Gilbane, and/or TDX could pursue Samson for breach of contract as a third-party beneficiary. It did not change the plain meaning of the additional insured endorsement.
The concept that New York courts closely read additional insured endorsements to determine whether privity is required is not new. The Gilbane court relied on two prior decisions that interpreted similar language. See 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, Gilbane, and TDX attempted to distinguish the language in the Liberty policy from the language in the endorsements at issue in AB Green and Linarello, but the court disagreed, holding that the substance of the Liberty policy language was indistinguishable from the substance of the policy language in those decisions; i.e., for an organization to be added as an additional insured, there must be a written agreement between the named insured and the organization seeking coverage.
The court rejected earlier trial court decisions that had interpreted similar endorsements as not requiring contractual privity. Compare Plaza Const. Corp. v. Zurich American Ins. Co., No. 112070/08, 2011 WL 1212719 (N.Y. Cnty. Mar. 23, 2011); Am. Home Assur. Co. v. Zurich Ins. Co., 26 Misc. 3d 1223(A), 907 N.Y.S.2d 435 (Kings Cnty., Feb. 17, 2010).
The Gilbane decision provides clarity and settles the split among trial courts, at least in the First Department, with respect to whether this additional insured language requires privity between the named insured and the purported additional insured. It is important to note, however, that there are many additional insured endorsement forms; some require privity and others do not. The Gilbane decision demonstrates that New York courts will analyze these endorsements closely and enforce their plain language.