NYS Appellate Court Holds That Whether Provision in Construction Contract Required Additional Insured Coverage Presented Question of Fact

Contracts entered into by contractors and subcontractors generally contain a requirement for the downstream party to procure liability insurance and to include the upstream party as an additional insured on the policy. Such contractual language must be clear and unambiguous to be enforced.

In a recent decision, the NYS Appellate Division, First Department, reversed a grant of summary judgment in favor of an insurer, holding that the contractual provision at issue was ambiguous. See M & M Realty of New York, LLC v. Burlington Insurance Co., ____ A.D.3d ___, 2019 N.Y. App. Div. LEXIS 1507 (1st Dep’t Mar. 5, 2019).

M & M Realty hired L & M Restoration to perform work at M & M’s building. Lucero, an L & M employee, was injured on the job and sued M & M. Tower, M & M’s general liability insurer, defended M & M and ultimately settled the Lucero claim. Tower then brought an action against Burlington, L & M’s general liability insurer, to recover its defense and indemnification costs.

The Burlington policy provided additional insured coverage to any entity that L & M agreed in writing to name as an additional insured. The contract between L & M and M & M, however, provided only that L & M was to procure “all necessary insurance.” Both the trial court and the appellate court agreed that the contract was ambiguous and that the question of whether M & M was to be an additional insured on L & M’s general liability insurance could only be resolved by reference to extrinsic evidence.

The trial court reviewed the extrinsic evidence and found the parties had, indeed, intended to provide additional insured status for M & M on L & M’s policy. The appellate court reversed, however, holding that resolving a contractual ambiguity by reference to extrinsic evidence was a question of fact for the jury, not a question of law for the court. The appellate court further concluded that, assuming M & M qualified as an additional insured under the Burlington policy, there was at least a reasonable possibility of coverage since the policy provided coverage for “bodily injury” caused “in whole or in part” by L & M’s acts or omissions or the acts or omissions of those acting on L & M’s behalf.

Loss transfer issues—whether by contractual indemnification between parties or between the parties’ liability insurers—are an ever-present concern for construction companies and their liability insurers. The decision in M & M Realty serves as a reminder that project owners, general contractors, and subcontractors as well as their insurers are best served if the parties’ insurance expectations are set out clearly and unambiguously.