In First-mercurty-ins-co-v-shawmut-woodworking-supply-inc, the Second Circuit had the opportunity to analyze a common Additional Insured Endorsement, and the court issued two pertinent reminders relating to additional insured endorsements:  (1) a “written contract or agreement” need not be a single document, and (2) vicarious liability limitations must be explicitly stated.

The additional insured endorsement at the heart of this matter provided coverage to “any person or organization for whom you are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization should be added as an additional insured on your policy.”  Coverage was limited,  “with respect to liability for ‘bodily injury’, ‘property damage’, or ‘personal and advertising injury’ caused, in whole or in part, by” the insured or someone acting on the insured’s behalf in the course of the insured’s “ongoing operations for the additional insured.”

In its contract with Shamut (the construction manager), Shepard (the subcontractor) promised to name Shawmut as an additional insured and secure similar promises from any of its subcontractors.  Fast Trek (the sub-subcontractor) never entered into an agreement with Shawmut, but did execute a subcontractor agreement with Shepard whereby Fast Trek agreed to name Shepard, and “the Project owner and construction manager” as additional insureds.  The subcontractor agreement further incorporated by reference the contract between Shepard and Shawmut.  First Mercury, the carrier for Fast Trek argued that Shamut was not entitled to coverage because the additional insured endorsement required a single agreement between parties in direct privity.  The Second Circuit rejected First Mercruy’s argument, holding that the policy did not require a single agreement and, further, that Shepard was in direct privity with Shamut, the construction manager.  In addition, the Court reasoned that there was a single document as a result of the incorporation by reference language in the subcontractor agreement.

The Second Circuit also held that the additional insured endorsement did not limit coverage on a vicarious liability basis.  According to the Court, the “in whole or in part” language “clearly contemplates that additional insureds might also be tortfeasors.” To limit coverage to claims of vicarious liability, the insurer would have to be more explicit.

The factual and contractual circumstances of this matter are often seen in cases arising out of construction projects, and similarly worded additional insured endorsements remain common.  This case serves as a crucial reminder to insurers to be specific in drafting endorsements if the intention is to limit coverage.

Thanks to Chris Soverow for his contribution to this post.