Monday, May 24, 2010

Hold Harmless Indemnitee Found Not Entitled to Additional Insured Coverage

Hargob Realty Assoc., Inc. v. Fireman's Fund Ins. Co.
(2nd Dept., decided 5/18/2010)

Fireman's Fund issued a commercial general liability insurance policy to U.S.A. Interior, LLC (USAI), that contained an additional insured endorsement, which added to the insured persons covered under the subject policy
any entity the Named Insured is required in a written contract to name as an insured ... but only with respect to liability arising out of work performed by or on behalf of the Named Insured for the Additional Insured.  (Emphasis added.)
Plaintiff entered into a construction contract with USAI pursuant to which USAI was to perform demolition work at certain premises owned by the plaintiff. The only written agreements between USAI and the plaintiff pertaining to the project were a one-page proposal from USAI specifying the bid price and work to be performed and a hold harmless agreement.  Pursuant to the hold harmless agreement, USAI, as the subcontractor, agreed to indemnify and hold harmless the plaintiff, as the owner, "from and against any and all claims, suits, liens, judgment, damages, losses and expenses arising in whole or in part ... from the acts, omissions, breach or default of [USAI] in connection with the performance of any work by or for [USAI]," except for claims arising from Hargob's own negligence.

Plaintiff commenced this declaratory judgment action for defense and indemnification coverage from Fireman's Fund in relation to an underlying personal injury action that presumably related to USAI's demolition work for plaintiff.  In AFFIRMING Nassau County Supreme Court's order granting Fireman's Fund's motion for summary judgment, the Second Department held:
  1. Hold Harmless Agreement:  Notwithstanding USAI's written agreement to indemnify the plaintiff, the hold harmless agreement did not contain any requirement that USAI name the plaintiff as an additional insured under the subject policy and, thus, the additional insured endorsement of USAI's policy with Fireman's Fund was not applicable.

  2. Certificate of Insurance:  The USAI certificate of insurance proffered in opposition to Fireman's Fund's motion, listing the plaintiff as an additional insured under the subject policy, was insufficient to alter the language of the policy itself, especially since the certificate recited that it was for informational purposes only, that it conferred no rights upon the holder, and that it did not amend, alter, or extend the coverage afforded by the policy.

  3. Timely Denial of Coverage:  Fireman's Fund's denial of coverage under the additional insured endorsement constituted a denial based upon a "lack of inclusion" rather than "by reason of exclusion" and, thus, it was not required to deny coverage where none existed.  Therefore, to the extent that the denial of coverage was based upon lack of coverage as an additional insured pursuant to the additional insured endorsement, a timely disclaimer was unnecessary.

  4. Supplementary Payments Provision:   The policy's supplementary payments provision, which obligated Fireman's Fund to defend an indemnitee of the named insured when certain specified conditions are met, did not also afford liability coverage. "Contrary to the plaintiff's contention, the supplementary payments provision did not demonstrate an intent by [Fireman's Fund] to afford the plaintiff coverage solely on the basis that it is an indemnitee of the named insured, in the absence of the plaintiff's addition as 'an insured' under Section II of the subject policy pursuant to the additional insured endorsement.   (see Stainless, Inc. v Employers Fire Ins. Co., 69 AD2d at 33).  Liability coverage under the policy is afforded by Section I, not the supplementary payments provision. Therefore, Hargob's status as an indemnitee does not operate to confer upon it status as an additional insured, and it is, thus, not entitled to liability coverage under the subject policy pursuant to the supplementary payments provision."


Kevin said...

What's the purpose of a certificate of insurance? It seems reasonable that a layman would understand the certificate to mean he's insured.

Roy A. Mura said...

It works much in the same way as an insurance card for your auto, Kevin. Usually issued by agents or brokers, it represents that there is coverage in place, but does not itself constitute an insurance contract or part of the contract. Owners and general contractors frequently request COIs to make sure: (1) that the subcontractor has certain types and amounts of insurance; and (2) if required, that the owner or GC has been named as an additional insured on a particular job or in relation to a particular location. Since the underwriting insurer rarely if ever issues the COI, however, it is informational only and presumes that someone, usually the subKor's agent has actually contacted the subKor's insurer to have the certificate holder added to the policy as an additional insured. COIs are also frequently used in real estate transactions to satisfy the mortgagee that the property subject to the loan is insured.

Kevin said...

The auto insurance card is issued by the insurer. A broker is the agent of the subK, so if the certificate comes from a broker, it's as if the subK is providing his own evidence of insurance. I can't see how anyone could rely on one of these. Are they generally ok and only turn up in the casebooks when they're not ok?

Roy A. Mura said...

Pretty much. See the COI label of this blawg.