The tension between the scope of coverage for an additional insured and the terms of an underlying contract reared its head when a youth group sought coverage as an additional insured in a zip-line accident case.

In Great American Alliance Ins. Co. v. Windermere Baptist Conference Center, Inc.., the Searcy Baptist Church youth group leased camp grounds from Windmere Baptist Conference Center.  The camp grounds included a ropes course, dubbed “the Edge.”  The lease agreement memorialized numerous benefits, including lodging and recreational activities.  Under typical circumstances, a guest camper would have to pay an additional premium for activities at the Edge.  No such additional premium appeared in the lease agreement between the Church and Windmere.  While leasing the property, one of the Church’s youth group members was injured while zip-lining at the Edge.

The Windmere policy provided coverage to the Church as a lessee under a blanket additional insured endorsement, but only for “liability arising out of the ownership, maintenance or use of that portion of the premises leased to [the Church]” by Windermere. Great American argued the Edge was not listed in the agreement and, therefore, coverage was not triggered.  The Church argued the lease included any and all recreational activities on the grounds.

The Western District of Missouri ruled in favor of the Church, finding ambiguity first in the insurance policy, and then in the underlying contract.  With respect to the policy, the court held the additional insured endorsement’s use of “lease premises” conflicted with a layman’s understanding, and resolved the ambiguity in favor of the insured seeking coverage.  As for the contract, the court referred to parole evidence showing the Edge was offered as part of the included services.

Great American made the correct call based on the information provided.  Having been set off from the standard camp grounds and recreational activities, the Edge arguably was not part of the premises leased.  Further investigation into the negotiations, though, may have led to a different interpretation at the outset.  Insurers are often at the mercy of the information the insured can think to provide.  As a result, in-depth investigation by a third-party can uncover critical facts relevant to a coverage determination, saving time and litigation costs down the road.

Thanks to Chris Soverow for his contribution to this post.