Project owners, designers, and contractors are often unaware of the extent of insurance coverage available to them under Commercial General Liability (“CGL”) policies. In recent years, courts in many states have construed the standard CGL policy to include broader coverage, especially with respect to the obligation of the insurer to defend lawsuits brought against them. Most of the “action” in these cases have involved coverage for lawsuits claiming that the contractors work was defective, which resulted in property damage. One recent case, however, took on the issue of coverage for injuries to a policy holder's own employees injured on the project. More specifically, the issue dealt with coverage as an additional insured that the contracts for construction required subcontractors to provide under their CGL policies.
Here are the facts: A mechanical contractor's employee on a project fell 22′ through an unguarded opening on a project resulting in serious personal injuries. The employee filed suit against the construction manager, developer, and project owner alleging negligent supervision and failure to monitor the work. The mechanical contractor was covered by the workers compensation laws and, so, was not named in the employees lawsuit against the owner and construction manager.
As with most construction contracts, the mechanical contractor was required to carry CGL insurance which named the owner and construction manager as additional insureds. When the employee filed the lawsuit, the owner's insurer demanded the mechanical contractor's insurer defend the owner against the lawsuit. The mechanical contractor's insurer declined, citing the CGL policy's additional insured provision which stated that the additional insureds were only covered with respect to liability arising out of the mechanical contractor's operations. Because the employee's lawsuit did not allege that the injuries were caused by the mechanical contractor, the mechanical contractor's insurer claimed it did not owe a duty to defend the lawsuit against the owner where the lawsuit claimed only that the injuries resulted from the owner failing to properly supervise or monitor the project.
The court (affirmed by the appellate court) disagreed with the mechanical contractor's insurer and, instead, found that the owner was owed a defense to the lawsuit. The court cited several key concepts in construing obligations under a CGL insurance policy:
- The duty to defend is broader than the duty to indemnify–meaning, even where there may end up being no ultimate duty to pay a judgment, the insurer may yet have to defend unless the allegations preclude the possibility of coverage.
- The court will look beyond the “four corners” of the injured person's allegations to determine the possibility that the injuries are covered.
- If there are questions about whether or not their is coverage, courts will almost always find a duty to defend.
The key issue in the case, according to the court after considering the above concepts, was whether the lawsuit foreclosed the possibility that the mechanical contractor had some fault in the injuries. If, for example, the owner's liability was determined to be because it failed to supervise or monitor the mechanical contractor, which resulted in the unguarded opening, then there might be coverage because the injuries would have “arose from” the mechanical contractor's negligence. Here, the lawsuit's allegations and third-party complaints did not foreclose this possibility. Therefore, according to the court, the mechanical contractor's CGL owed the owner a defense as an additional insured of the mechanical contractor.
As an additional insured, there is no doubt that you have less coverage than the policy holder. But you do have some. Just because the policy holder is not named in the lawsuit does not mean that you, as an additional insured, do not have that coverage. More specifically, where there is a possibility that the damages complained of in the lawsuit resulted from the negligence of the policy holder, an additional insured should typically tender the defense and be prepared to challenge any denial of coverage. Of course, coverage cases are always fact dependent and courts vary on how they construe coverage provided under a CGL. But if you have the right contracts in place on the project, counsel who understands insurance coverage issues, and find yourself in the majority of jurisdictions who construe CGL policies favorably, your chances of getting some protection under the CGL are better than many think.
Jones Law's attorneys have successfully obtained coverage for policy holders and additional insureds, even where the insurer initially denied coverage. If you have a coverage question, reach out to Jones Law to see if they can help.