In a recent New York appellate decision, the court considered whether an insurer must provide coverage to a purported additional insured for a claim involving breach of contract.  In J.W. Mays, Inc. v. Liberty Mut. Ins. Co., the Appellate Division, upheld the lower court’s dismissal in favor of the insurer.  J.W. Mays, Inc., the owner of a mall, hired Liberty Mutual’s insured, D. Owens Electric, Inc. for several construction projects, including work on the mall’s roof. Owens, the general contractor, subcontracted the roofing work to another party, which Mays alleged performed defective work.  Mays terminated the work and allegedly failed to follow the terms of payment under the contracts.  Owens filed an underlying lawsuit against Mays for breach of contract and unjust enrichment, and to foreclose on mechanic’s liens.  Mays then commenced the instant coverage action seeking a declaration that Liberty and Owens’ umbrella insurance carrier were obligated to defend it in the underlying action filed by Owens, as Owens had named Mays as an additional insured on its insurance policies pursuant to the terms of the construction contracts.

The Appellate Division held that, in keeping with the general rule, commercial general liability policies do not provide coverage for breach of contract.  Rather, they provide coverage for bodily injury, property damage, or personal and advertising injury.  That general rule was applicable to the instant action where coverage for additional insureds under the Liberty policy, as well as the umbrella policy, was only triggered with respect to liability from bodily injury, property damage, or personal and advertising injury caused in whole or in part by the acts or omissions of the purported additional insured or those acting on its behalf.  The court explained that to hold otherwise would essentially turn an insurance carrier into a surety for the performance of its insured’s work.  Here, Owens’ complaint against Mays sounded in breach of contract, and there were no claims for bodily injury, property damage, or personal and advertising injury.  Accordingly, the Second Department held that the insurer was not obligated to defend or indemnify Mays in Owens’ action.

This case serves as a reminder that the basic rules of insurance coverage under commercial general liability policies are as applicable as ever, and insurers should always verify the nature of the claims for which insurance coverage is sought.

Thanks to Rebecca Rose for her contribution to this post.