“I’m sure it’s fine. I don’t have to read it, right?”
You wouldn’t buy a car without knowing about its features and optional equipment. You wouldn’t want to find out after your purchase that it does not have key safety features or that the gas mileage is poor or that you don’t have the heated seats you thought you paid for. Likewise, you shouldn’t buy a liability insurance policy without knowing what it covers and what it doesn’t cover. For example, you wouldn’t want to find out after your purchase that it has exclusions for the type of work you do and that it does not cover the entities you assumed it would.
Liability insurance policies are contracts and while, at Rosenbaum & Taylor, we recommend that you read and understand any contract you sign, we are particularly emphatic that you have a full understanding of the insurance policies you are considering buying. An informed buyer is a wise buyer. At Rosenbaum & Taylor, our contract drafting lawyers review our clients’ businesses, business relationships, and insurance policies to assist them with strategizing to best protect themselves. Protecting your business is our business.
We also work with our clients to analyze their contractual relationships, to confirm that they have the insurance coverage and protection they contracted to have others provide. It is important that we review with our clients not only the contracts they have entered into, or are contemplating entering into, but the insurance policies implicated by those contracts.
Beyond setting out the scope of work, construction contracts are designed to transfer risk between the parties. Owners look for indemnification from construction managers and general contractors and to be named as additional insureds on their liability policies. In turn, construction managers and general contractors seek to require that subcontractors indemnify them and the owners. Too often, parties seeking to be indemnified and/or made additional insureds rely on the language of their contracts and assume that the parties they are contracting with will take the necessary action and that they have, or will obtain, the required, proper coverage. Unfortunately, without a proper review of the contracts and policies at issue, owners, general contractors, construction managers, and subcontractors often rely on certificates of insurance, believing, in error, that they confirm or create coverage. They fail to understand that certificates of insurance are only a statement of opinion from a broker, not an insurer, regarding coverage. They do not confirm, or create any coverage for anyone and do not bind the insurance company to provide coverage to anyone. Any entity seeking to confirm additional insured status must-see, review, and understand the full policy under which it expects to be afforded insurance coverage. Any owner, construction manager, or contractor seeking additional insured coverage or indemnification should not rely solely on a promise by parties it contracts with, should not rely on the contract and assume coverage is in place, and should not rely solely on a certificate of insurance, which has no binding effect.
Recently, in Bellet Construction Co. Inc. v. Tudor Insurance Co., in the Supreme Court for the State of New York, New York County (Manhattan), an insurance company sought dismissal of a complaint brought by a general contractor. The general contractor claimed that it is an additional insured on an insurance policy issued by the insurance company to one of the general contractor’s subcontractors. The insurance company argued that it had no duty to defend and indemnify the general contractor in an underlying wrongful death action because the general contractor was not a named insured or an additional insured under the subject insurance policy. In Bellet, the general contractor had contracted with an owner to perform certain exterior construction work, which the general contractor, in turn, subcontracted out. In the subcontract, the subcontractor agreed to defend, indemnify, and hold the general contractor harmless and agreed to procure general liability insurance naming the general contractor as an additional insured.
In the wrongful death case underlying Bellet, a worker for a non-party elevator company working on the subject construction project was injured and later died after being struck with falling debris. The worker’s estate sued the owner, the general contractor, and the subcontractor, among others. The general contractor brought its own, separate lawsuit (the Bellet action) against the subcontractor’s insurance company, asking the Court to declare that the subcontractor’s insurance company was obligated to defend and indemnify the general contractor in the action brought by the worker’s estate. In its suit against the subcontractor’s insurance company, the general contractor relied on a certificate of insurance which read that the subcontractor was issued a certain insurance policy by the insurance company and that the general contractor was listed as an additional insured. In its motion to dismiss, the insurance company argued that the subcontractor was a named insured on the insurance policy, but that the general contractor was not. The insurance company also asserted that the policy did not contain an additional insured endorsement and the general contractor did not qualify as an insured under the policy.
The Court in Bellet agreed with the insurance company, holding that the subject insurance policy clearly does not name the general contractor as an insured and that the policy does not contain an additional insured endorsement. The Court held further that the general contractor did not qualify as an insured under the policy. The Court ruled that the insurance company was entitled to a declaration that it is not obligated to defend or indemnify the general contractor in the wrongful death action brought by the worker’s estate as an additional insured, regardless of how the certificate of insurance reads.
What is the lesson to be learned from this case? Had the general contractor read and understood the insurance policy taken out by its subcontractor, it would have known, well in advance of the work and of the worker’s accident, and subsequent death, that the subcontractor’s insurance policy did not afford the general contractor the coverage it had contracted for and could have taken action to have that remedied. Unfortunately, the general contractor’s apparent reliance on the certificate of insurance and its failure to undertake a comprehensive review of the insurance policy left it exposed to liability and without the insurance it contracted for its subcontractor to provide. Buyer (and contracting party) beware. Make sure you work with an experienced attorney, like those at Rosenbaum & Taylor, who can help protect you and your interests. It is too potentially costly not to.