Insurer’s Duties Defined by Its Policy Not by Its Insured’s Contracts Says NJ Appellate Division

In construction venues, contracts requiring subcontractors to name owners and general contractors as additional insureds on liability policies are common. But what happens when the terms of the contract do not match the express language of the subcontractor’s general liability policy additional insured endorsement?

The answer boils down to whether the terms of the insurance policy are clear and unambiguous. If so, the insurer’s duty to the additional insured is defined by its policy language rather than the contract language between its insured and the party with whom it contracted. Only when there is an ambiguity in the insurance policy language will the court turn to extrinsic evidence such as the insured’s contract to clear up the gray areas of coverage.

In Jeffrey M. Brown Associates, Inc. v. Interstate Fire & Casualty Company, — N.J.Super. – (App. Div. 2010), New Jersey Appellate Division clarified this position in a coverage dispute between insurers of a general contractor and a subcontractor. The subcontractor’s insurance policy included a blanket endorsement naming as an additional insured “any entity the Named Insured is required in a written contract to name as an additional insured” for liability arising out of work performed by the named insured. However, the policy clearly stated that the insurance provided was “excess over any other insurance.” In contrast, the general contractor’s policy other insurance provision specified that it was primary except when other primary insurance was available.

The court concluded that regardless of contractual language between the general contractor and subcontractor requiring the subcontractor’s policy to be primary, the plain and unambiguous language of the policies would govern the respective duties of the insurers. Thus, the subcontractor’s policy was excess to that of the general contractor’s primary coverage, and the settlement of $750,000 in the underlying action was covered entirely by the GC’s $1million policy.

If you have any questions or comments about this post, please contact Denise Ricci at dricci@wcmlaw.com.

Jeffrey M. Brown Associates, Inc. v. Interstate Fire & Casualty Company, — N.J.Super. – (App. Div. 2010), http://www.judiciary.state.nj.us/opinions/a2325-08.pdf