Appellate Court Reminds Contractors to Understand the Difference Between “Additional Insured” and “Named Insured”

With insurance claims (and costs) skyrocketing thanks to New York’s infamous scaffold law, it is more important than ever to be sure to understand the insurance coverage afforded to you under the various insurance policies you rely on to protect you. While you may have a thorough understanding of your own insurance policy, contractors frequently obtain insurance coverage from their subcontractors, and contractors routinely also provide insurance to other entities, such as upstream contractors and owners. In that regard, it is also important that you understand the terms of the policies of others which are affording you coverage. A federal appellate court, in the recent case of BCC Partners, LLC v Travelers Property and Casualty Company of America, reminds us of the importance of understanding the language of the applicable policy; here, the differences between being an “additional insured” and a “named insured”.

Background

BCC Partners was the owner of a project to build an apartment complex. BCC contracted with Ben F. Blanton Construction to be the general contractor for the project. Blanton, as required by its contract with BCC, procured insurance with Travelers; Blanton was the “named insured” on the policy, and BCC was the “additional named insured”.

During the construction, a retaining wall failed, causing significant property damage, as well as delays to the project. BCC placed a claim under Blanton’s policy with Travelers, as an “additional named insured”, to recover its lost rental income and other soft costs arising out of the collapse and resulting delays. Travelers denied the claim, noting policy language that only the “named insured” is covered against such losses. BCC sued Travelers for breaching the policy, and Travelers moved for summary judgment dismissing the lawsuit, arguing that the policy language was clear that such losses were only covered for the “named insured”.

Decision

The lower court granted Travelers’ motion, finding that the policy language was clear that only the “named insured” qualified for loss of income coverage under the policy. BCC appealed, and the appellate court affirmed. In doing so, the appellate court noted that the policy’s coverage extends to “the actual loss of ‘rental value’ you sustain” and “your ‘soft costs’” that result from certain construction delays, but that the policy explicitly states twice that “the words ‘you’ and ‘your’ refer to the Named Insured shown in the Declarations” (i.e.: Blanton). As to the “additional named insured”, the appellate court noted that the policy specifically limited the available coverage to: “Owners of Covered Property”; “Mortgagees or loss payees”; “Contractors, sub contractors and sub-sub contractors”; and “Lessors or lessees” of “Covered Property”, which the policy defined as the sum of: “Permanent Works,” such as construction equipment and materials, and “Temporary Works,” such as scaffolds, fencing, trailers, or other “temporary buildings or structures incidental to completion of the project”, but only “to the extent of their financial interest in the Covered Property”. Given this specific definition of “additional named insured”, BCC’s argument that it was an additional “named insured” under the policy (and, therefore, the “named insured” coverage should also be afforded to it) was rejected.

Comment

Many owners and upstream contractors are content to allow construction to proceed merely upon a downstream party’s provision of a certificate of insurance showing that an insurance policy is in force which shows that a required entity may be afforded coverage under the policy. Not only are these certificates specifically provided “for informational purposes only” (meaning that they are legally unenforceable), they do not go into same detail as the terms of the actual policy itself, and can easily leave someone believing that there is insurance coverage when there is not. An insurance policy is a contract, and will be interpreted as such.  In order to remedy the issue, contractors would be well advised to review the terms of not only their own insurance policy, but any other policy on which they (or any other person or entity for whom they are providing coverage) will rely in the event of a loss. Here, simply comparing the policy’s definitions of “named insured” and “additional named insured” side by side would have revealed the significant gap in coverage. Accordingly, while the property damage itself was covered under the policy, after Blanton’s bankruptcy BCC was left to shoulder a $1.4 million dollar loss without the prospect of recovery.

About the authors: Thomas H. Welby, an attorney and licensed professional engineer, is General Counsel to the CIC and the BCA, and is the Founder of, and Senior Counsel to the law firm of Welby, Brady & Greenblatt, LLP, with offices located throughout the Tri-State Region. Gregory J. Spaun, General Counsel to the Queens and Bronx Building Association, and an attorney and a partner with the firm, co-authors this series.

If you would like more information regarding this topic please contact Thomas H. Welby at twelby@wbgllp.com or call (914) 428-2100