Case in Point: When the “Additional Insured” Isn’t Covered

Posted by Noff Colabella on Tue, Jun 27, 2017 @ 11:14 AM

construction-insuranceWhen you’re a construction contractor, there are a lot of “moving parts” to your operation, and a successful project requires that those parts work in sync. Your insurance coverage can be one of the most complex of those parts. And since it’s likely one of your biggest costs, it pays to get it right.

But sticky coverage issues can trip up even the most prepared contractors. Take the case of The Burlington Insurance Co. v. NYC Transit Authority et al. Back in 2009, the New York City Transit Authority contracted with a company called Breaking Solutions to perform tunnel excavation work for a subway project. To comply with the transit authority’s insurance requirements, Breaking Solutions secured GL coverage through Burlington that named the New York City Transit Authority and the Metropolitan Transit Authority as additional insureds.

During the project, a NYC Transit Authority employee fell off an elevated platform while trying to avoid an explosion after Breaking Solutions’ equipment touched a live electrical cable buried in concrete. The employee eventually sued the city for negligence, and internal Transit Authority memos show that it accepted sole responsibility for the accident.

Additional insured status = coverage? Not so fast

Since the Transit Authority was named as an additional insured on Breaking Solutions’ policy, it would seem the injured employee would be covered, right? But after defending the suit and settling for $950,000, Burlington later sought a declaration that it didn’t owe coverage to the transit authorities. A trial court ruled in favor of Burlington on the coverage dispute, but an appeals court overturned the ruling. However, in a 4-2 ruling, New York’s Court of Appeals overturned the lower court’s ruling.

So why no coverage? During the course of discovery in the injured worker’s lawsuit, it was determined that the NYC Transit Authority “failed to identify, mark, or protect the electric cable,” and that it failed to turn off power to the cable. Further documentation showed that the Breaking Solutions machine operator couldn’t have known the location of the cable or the fact that it was electrified.

The transit authorities argued that the policy endorsement applies to any act or omission by Breaking Solutions, regardless of an additional insured’s negligence. But Burlington maintained that coverage didn’t apply in situations such as this, where the additional insured was the sole proximate cause of the injury. The New York Court of Appeals sided with Burlington, concluding that no coverage applied because the policy endorsement was limited to injuries proximately caused by Breaking Solutions.

An all too familiar dilemma

additional-insuredAdditional Insured coverage and endorsements have been at the heart of many contract disagreements, misunderstandings, and lawsuits in the construction industry. These endorsements are usually worded in broad terms and often have conditional limitations on coverage, and often contain assertions that they will be excess to other policies. When conflicts arise between various contractors and their policy provisions, it’s often in regard to who’s responsible for causing an accident and which insurance company is liable – and it all too often ends up in a costly court battle. And that means added costs and project delays.

How do you avoid these costly conflicts?

Construction insurance involves a complex web of additional insureds, excess policies, and other contractual risk transfer strategies. It’s mission critical that on each and every project, you understand any coverage issues ahead of time. For that, you need to work closely with a construction insurance professional who understands the complexities and can steer you clear of the pitfalls.

At BNC, construction insurance is one of our specialties. Contact us today, and we’ll make sure your insurance coverage is working for you, not against you. Also, check out our BNCSubshield service – one of the most powerful risk transfer and certificate tracking systems in the industry!

Tags: construction insurance, additional insured