by Kenneth A. Sherman
The scenario is this: A construction worker experiences an injury on an on-going construction project of yours. As the owner, you assume you are protected because prior to starting the construction project, you required your general contractor to obtain general liability, professional liability, or builders’ risk insurance for their work on the construction project and to add you as an additional insured under their insurance policies. Your general contractor provided you with a Certificate of Insurance listing you as additional insured, which you filed away for just such a circumstance.
Unfortunately, when you presented the Certificate of Insurance to your general contractor’s broker, they responded that, despite you being named on the Certificate of Insurance, in fact, no insurance coverage would be afforded to you because the insurance policy itself did not extend insurance coverage to additional insureds. Now you are stuck; you do not have the insurance coverage you negotiated at the start of the project. This scenario, unfortunately, is all too real, as a recent Federal Court decision from Boston reminds us – insurance coverage is afforded only by language of that insurance policy itself and not by contract, agreement, custom, practice, or factual circumstances.
In Factory Mut. Ins. Co. v. Skanska United States Bldg., No. 18-cv-11700-DLC, 2020. U.S. Dist. LEXIS 95403, the Federal Court in Massachusetts held that a construction project’s general contractor and sub-contractor were not additional insureds under the construction project’s owner’s Builders Risk insurance policy (Policy). They contended they were, based on Massachusetts’ anti-subrogation doctrine, which prevents insurers from subrogating against their own insureds for the very type of risk the insurer provided. In dismissing the contractors’ motion for summary judgment, the court determined they did not qualify as additional insureds because: (1) additional insureds under the Policy are those whose liability would be purely vicarious “to the extent of the insured’s legal liability for insured physical loss or damage,” which the District Court determined was not applicable to the undisputed facts, and (2) the language of the policy itself seemed to indicate that it applied to only one insured, which, in the District Court’s opinion, was the construction project’s owner.
The facts, circumstances, and result of Factory Mutual are unique to this matter, but its lesson is universal to any party to a construction project. As we see from Factory Mutual, failing to confirm insurance coverage in advance of an otherwise insurable event might leave a party exposed to having its additional insured coverage determined by a non-party to the underlying construction project, such as an insurance coverage analyst or a judge, should the question of insurance coverage end up in litigation. Construction business owners and executives would be well served to avoid the hypothetical scenario discussed above by insisting on, at the very least, a copy of the applicable insurance policy and, at best, an opinion from an insurance professional as to whether additional insured coverage has actually been obtained on the construction business owner’s behalf.
Kenneth A. Sherman
Kenneth A. Sherman is a construction attorney in Robinson+Cole’s Construction Law Group, assisting project owners, real estate developers, general contractors, construction managers, design professionals, sub-contractors, and suppliers with construction disputes, contract procurement, and project delivery.
