General Contractor Not An Additional Insured Under Sub-Subcontractor’s Policy Absent Direct Contract Between General Contractor And Sub-Subcontractor
April, 2011
The Illinois Appellate Court, First District holds that the absence of a direct contract between a general contractor and a sub-subcontractor negates general contractor's purported additional insured status under sub-subcontractor's policy, where additional insured endorsement required that "[named insured] and such a person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy." Westfield Ins. Co. v. FCL Builders, Inc., No. 1-10-0521, 2011 WL 855397 (Ill. App. 1st Dist. Mar. 8, 2011).
Facts
General contractor FCL was hired to work on a construction project. FCL subcontracted out the steel fabrication and erection work to Suburban Ironworks, Inc. (Suburban), which in turn subcontracted the steel erection to JAK Iron Works, Inc. (JAK). JAK employed Anwar Oshana.
FCL's subcontract with Suburban required Suburban to obtain a certain amount of commercial general liability (CGL) insurance, which would cover not only Suburban and its employees but also FCL as the general contractor. The contract mandated that any subcontractors Suburban might further subcontract with must also maintain the same level of CGL insurance and include FCL as an insured under the policy.
When Suburban subcontracted the steel erection work to JAK, Suburban and JAK executed a contract incorporating by reference a previously existing Master Subcontract Agreement between the two parties. The Master Agreement required JAK to obtain the same level of insurance coverage required by the FCL-Suburban contract, the terms of which were also incorporated by reference into the JAK-Suburban contract. In short, JAK was contractually required to purchase an insurance policy that would cover itself, Suburban, and FCL in the event of a mishap on the steel erection job. JAK duly purchased a CGL policy from Westfield. The policy contained an endorsement that amended the definition of "insured" under the contract as follows:
"A. Section II-Who Is an Insured is amended to include as an additional insured any person or organization for whom you are performing operations when you and such a person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy."
Approximately one month after JAK began erecting steel on the job site, JAK's employee Oshana was severely injured when he fell off of a steel beam. Oshana later filed a tort lawsuit against FCL and Suburban, alleging the breach of various duties of care allegedly owed Oshana regarding job site safety. FCL turned to Westfield for defense and indemnification of Oshana's lawsuit. Westfield refused to defend or indemnify, asserting that FCL did not qualify as an additional insured under its policy with JAK. Westfield subsequently filed this declaratory judgment action, seeking a declaration that it was not obligated to either defend or indemnify FCL in Oshana's underlying tort action.
On cross motions for summary judgment, the circuit court held that FCL was not an additional insured under the policy. The circuit court found that the additional insured endorsement was unambiguous and required what the court termed "direct priv[i]ty in order for an entity to qualify as an additional insured." The circuit court accordingly denied FCL's motion for summary judgment and granted Westfield's motion. FCL appealed.
Analysis
The Illinois Appellate Court, First District affirmed, finding that the additional insured endorsement clearly and unambiguously requires two conditions to be met in order for an entity to qualify as an additional insured under JAK's policy with Westfield. First, the entity must be one "for whom you [JAK] are performing operations." Second, JAK and that entity must "have agreed in writing in a contract or agreement" that the entity be added to the policy as an additional insured.
The second condition is dispositive here. Assuming arguendo that JAK was "performing operations" for FCL within the meaning of the policy, there is no evidence in the record that JAK had agreed in writing with FCL for FCL to be an additional insured. The policy explicitly and unambiguously requires a direct, written agreement to that effect in order to cover anyone other than JAK under the policy. Because no such written agreement ever existed between FCL and JAK, FCL cannot be an additional insured under the policy and Westfield is not obligated to furnish FCL with a defense or indemnification in Oshana's tort lawsuit.
The court addressed and rejected FCL's three arguments for coverage. FCL initially argued that the terms of the JAK-Suburban contract obligated JAK to include FCL as an additional insured in the CGL policy it purchased from Westfield, and that this contractual obligation is sufficient to satisfy the additional insured provision of the insurance contract. The court found this argument flawed for several reasons. First, FCL's position is not supported by the plain policy language, which defines an additional insured as "any person or organization for whom you are performing operations when you and such a person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured." (Emphasis added.) The plain and ordinary meaning of the term "such person or organization" in this provision is that it refers back to the same person or organization for whom JAK is performing operations, which was mentioned earlier in the same provision, and it does not encompass any other entity. Notably, the provision does not refer to any person or organization. By repeatedly using the term "such" instead of "any," the provision necessarily requires that, in order to qualify as an additional insured, an entity must enter into a direct written agreement with JAK listing them as additional insured.
Second, FCL's position assumes that if JAK had a contractual obligation to Suburban to list FCL as an additional insured and JAK subsequently bought a CGL policy from Westfield, then FCL must necessarily be an additional insured under that policy. However, the question is not JAK's contractual obligations to Suburban, but Westfield's contractual obligations to its insureds, and those obligations are controlled by the insurance contract itself. The additional insured provision unambiguously limits Westfield's obligations to only JAK and those entities with whom JAK directly contracts in writing for additional coverage. Regardless of whether JAK and Suburban had agreed that FCL should be an additional insured, JAK and FCL did not agree in writing that FCL was an additional insured. The terms of the FCL-Suburban contract and the Suburban-JAK contract are consequently irrelevant to whether Westfield is obligated to cover FCL as an additional insured under this particular policy provision. The First District distinguished West American Ins. Co. v. J.R. Construction Co., 334 Ill.App.3d 75 (2002), which involved an additional insured endorsement defining an additional insured as "any person or organization who you are required to name as an additional insured on this policy under a written agreement or contract." Unlike the Westfield provision, the West American provision encompasses any entity that the primary insured was contractually required to name as an additional insured, regardless of whether the primary insured and that entity have a direct written contract. The Westfield provision has different requirements and is significantly narrower in scope.
FCL next argued that the evidence in the record demonstrates that JAK and Suburban intended for FCL to be an additional insured under the policy. However, the additional insured provision is not ambiguous, and it is therefore inappropriate to consider extrinsic evidence when interpreting it. Moreover, even if extrinsic evidence were necessary in order to determine the intent of the parties to the insurance contract, the deposition testimony refers only to what Suburban and JAK intended regarding their respective obligations under the Suburban-JAK contract. The deposition testimony consequently has no relevance to what JAK and Westfield intended for their respective obligations to be under the Westfield insurance contract.
Finally, FCL argues that it must be an additional insured under the policy because it received a "certificate of insurance" that listed it as an additional insured. However, the certificate was not issued to FCL by Westfield, but instead appears to have been issued by an unrelated third party. Moreover, the certificate contains a prominent disclaimer stating:
"THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW."
Thus, the certificate confers no rights and does not alter Westfield's liability on the policy in any way.
Learning Point
A putative additional insured cannot rely on contracts with third parties to establish additional insured status where the subject additional insured endorsement clearly and unambiguously requires a written contract or agreement between the named insured and the putative additional insured to confer additional insured status. Extrinsic evidence will not be considered, and issuance of a certificate of insurance to the putative additional insured will not mandate a contrary result where the certificate states that is does not alter the policy terms.
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