On November 4, 2015, the Second Circuit reminded the Southern District of New York that the rights of an “additional insured” depend on the explicit language of the policy.

Endurance American Specialty Insurance Company v. Century Surety Company, was a declaratory judgment action where an insurer was seeking coverage for its insured under a subcontractor’s policy in an underlying personal injury action. In the underlying personal injury action, an employee of a subcontractor was injured and sued the general contractor.

The Southern District ruled that the general contractor was an additional insured under the subcontractor’s policy, and assessed judgment and defense costs. The Second Circuit reversed, finding that the “Action over Exclusion” clause of the subcontractor’s policy excluded coverage for injuries to “An “employee” of the named insured. . . .”

The general contractor and its insurer argued that due to the Separation of the Insureds provision the Action Over Exclusion must be read from the perspective of the particular insured seeking coverage. Since the general contractor’s employee was not injured, the exclusion should not apply to it. The Second Circuit stated that that logic would have applied if the exclusion used the language “the insured,” but since it used “the named insured,” it specifically excluded coverage to any insured when the named insured’s employee was injured.

This case should serve as a cautionary tale for general contractors and their insurers. Notwithstanding a general contractor’s intention to be covered by a subcontractor’s policy, those policies often contain exclusion that would bar coverage in almost every scenario where coverage would be sought.

Thanks to Christopher Soverow for his contribution to this post.