Risk Transfer 101 – Contractual Additional Insured Terms (NJ)

Contractual risk transfer terms usually include indemnification and insurance clauses in tandem. A party agrees to indemnify another and, for good measure, agrees name the other in its insurance policy as an additional insured. New Jersey courts have recognized that this type of risk transfer will supersede any potential workers compensation bar to joining an employer in an action for injuries by a worker against a third party.

In Finnegan v. Inductotherm v. Greentree Food Management Inc. v. The Dunhour Insurance Agency, the full gamut of risk transfer issues played out.  The plaintiff cafeteria worker was injured in a slip and fall at work.  Greentree, the plaintiff’s employer, provided cafeteria services to Inductotherm, the building owner.

In addition to her worker’s compensation claim, the plaintiff sued Inductotherm. In turn, Inductothem brought a third-party action for breach of contract against the plaintiff’s employer, Greentree citing insurance terms requiring it to be named an additional insured.  (Curiously, there was no indemnification term.)  Greentree then filed a fourth party action against its insurance broker for professional malpractice for failing to obtain the appropriate coverage for Inductotherm.

At some point, Inductotherm settled with the plaintiff and pursued its defense and indemnification claims against Greentree.  After the trial court dismissed its claims, it turned to the appellate division.

Although the contract did not include an express indemnification term, it indisputably required the plaintiff’s employer to name it as an additional insured on its commercial general liability insurance policy. The parties did not contest that there was no such endorsement in the policy.  Thus, there really was no question as to breach of the contractual term.

Rather, the appellate division framed the question as to whether this breach resulted in damages to Inductotherm, i.e. if it had been named as an additional insured, would the policy have provided coverage for this particular claim. If so, it would have been entitled to defense and indemnification from the insurer. As a breaching party to the contract, the employer would be liable for these damages.

This ultimate question could not be answered on the basis of the record. As the court noted many additional insured endorsements contain terms that define or limit the scope of the coverage.  Without evidence of what sort of endorsement would have been provided, the appellate court could not render an opinion as to whether or what damages might be attributed to the breach of contract.  Given this, the matter was remanded for further development on these issues as well as the revival of what had been a dismissed claim as to the insurance broker.

Thanks to Ann Marie Murzin for her contribution.

For more information, contact Denise Fontana Ricci at dricci@wcmlaw.com.