Last week, New York joined the ranks of several states that may limit a government contractor’s access to insurance coverage despite being added, as set forth in the contract, as an “additional insured” under a prime or subcontractor’s insurance policy. Generally, it is within the purview of a government contractor to add its prime or subcontractors, or a particular government agency, to its insurance policy as additional insureds, to cover injury resulting from contract performance. In last week’s ruling, New York’s highest court limited the practical effect of such coverage. Although contractors may be added as additional insureds to cover injury sustained during contract performance, insurance companies may restrict coverage to the additional insured for its acts or omissions, unless the primary policyholders are also found to be negligent for the injury. See Burlington Ins. Co. v. NYC Transit Auth., No. 57, 2017 WL 2427300 (N.Y. June 6, 2017).
In Burlington, a government contractor, Breaking Solutions, Inc. (“BSI”), contracted with the NYC Transit Authority to provide tunnel excavation work on a subway project in New York City. As required by its government contract, BSI added the NYC Transit Authority and MTA New York City Transit as additional insureds to its commercial general liability (“CGL”) insurance. After a BSI employee was injured on-site, he sought damages from BSI and the NYC Transit Authority. The NYC Transit Authority attempted to exercise its right to coverage as an additional insured under BSI’s insurance policy. The New York Court of Appeals, however, denied the extension of coverage to the NYC Transit Authority under BSI policy on the grounds that the acts and omissions of NYC Transit Authority, not BSI, caused the injury. Consequently, the insurer denied coverage on the grounds that coverage only extended to additional insureds when the primary policyholder was also found to be negligent. In particular, the court considered language in BSI’s policy, adopted from the standard form language drafted by the Insurance Services Office (“ISO”), which limited coverage for additional insured injury “caused, in whole or in part by: 1. [the primary policyholder’s] acts or omissions; or 2. The acts or omissions of those acting on [the primary policyholder’s] behalf.” The court interpreted this language to limit coverage for additional insureds to incidents proximately (legally) caused in whole or in part, by the primary policyholder’s acts or omissions. The court also rejected arguments that a mere causal link between the actions of the primary policyholder and the injury (“but for” causation) was sufficient for coverage to attach. Instead, relying on the language in the policy, the court explained that the parties could have negotiated language that would have allocated risk between the primary policyholder and additional insured parties, but as written, it did not allow coverage if the primary policyholder was not also legally negligent for the injury.
The Burlington ruling is part of a growing trend of courts restricting independent coverage for additional insureds. In 2004, the ISO modified its CGL “additional insured” template language from “arising out of” to “caused in whole or in part” – the language used in Burlington’s policy. As increasingly interpreted by state courts, this language is typically interpreted to restrict coverage for additional insureds to situations in which the injury was caused, at least in part, by the primary policyholder. For example, courts in Pennsylvania, Texas, Maine, Maryland, North Carolina, and New Hampshire have held that the “caused by” language in an ISO-template insurance policy necessitates liability on the part of the primary policyholder in order to trigger coverage for the additional insured. See, e.g., Gilbane Bldg. Co. v. Empire Steel Erectors, L.P., 664 F.3d 589, 598 (5th Cir. 2011) (citing Utica Nat’l Ins. Co. v. Am. Indem. Co., 141 S.W.3d 198, 201–02 (Tex. 2004) (“the Texas Supreme Court has defined ‘caused by’ as requiring proximate causation.”); Westfield Ins. Co. v. Nautilus Ins. Co., 154 F. Supp. 3d 249 (citing Capital City Real Estate, LLC v. Certain Underwriters at Lloyd’s London, 788 F.3d 375, 380 (4th Cir. 2015)) (under Maryland law “the purpose of the additional insured endorsement is to provide protection for the additional insured where the named insured is at least partially negligent.”); Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. NGM Ins. Co., Civ. No. 11-cv-303-JD, 2011 WL 6415484, at *4 (D.N.H. Dec. 21, 2011) (adopting reasoning in other cases that “caused by” refers to acts attributable to the named insurer and the additional insured); Pro Con, Inc. v. Interstate Fire & Cas. Co., 974 F. Supp. 2d 242, 256-57 (D. Maine 2011) (holding that “in whole or in part” language only intended for coverage to extend to “occurrences attributable in part to acts or omissions by both the named insured and the additional insured.”); Dale Corp. v. Cumberland Mut. Fire Ins., Co., Civ. No. 09-1115, 2010 WL 4909600, at *7 (E.D. Pa. Nov. 30, 2010) (same).
One way that government contractors can reduce the risk of coverage denial is to negotiate insurance policy language up front that clearly applies “but for” causation, rather than “proximate” causation as the hook to coverage. For example, the Burlington court explained that the “caused by” language used in the insurer’s policy is narrower than the “arising out of” language used in other policies, which provides broader coverage for additional insureds. See Burlington, 2017 WL 2427300 (“arising out of is not the functional equivalent of ‘proximately caused by’”). Other courts in New York have explained that language providing coverage for torts “arising out of” an additional insured’s own negligence is “ordinarily understood to mean originating from, incident to, or having connection with” – in other words, “but for” causation – the acts or omission of the additional insured. Id. (citing Maroney v. New York Cent. Mut. Fire Ins. Co., 5 NY3d 467, 472 (2005). Thus, contractors seeking to embrace broader coverage for additional insureds should avoid policy language suggesting that the act or omission must be “caused by” the primary policyholder to trigger coverage for additional insureds.