Agreement to Add Additional Insured to Liability Policy Must Be in Writing and in Effect at the Time of the Loss
September, 2004
The Indiana Court of Appeals has ruled that an agreement to add an additional insured to a commercial general liability policy must be in writing and in effect at the time of the loss in order to provide coverage. Liberty Ins. Corp. v. Ferguson Steel Co., Inc., 812 N.E.2d 228 (Ind. App. 2004).
Facts
Ferguson Steel Company (“Ferguson Steel”) was the general contractor on a construction project at which it retained Steel Frame Erectors, Inc. (“Steel Frame”) as a subcontractor. An employee of Steel Frame was injured while working on the project. At the time of the injury, Steel Frame was working on the project pursuant to an “informal unwritten” agreement with Ferguson Steel. On past projects, it was common for Steel Frame to begin work for Ferguson Steel before preparing and signing a written agreement; Ferguson Steel did not follow this practice in its dealing with any other subcontractor.
One week after the accident, Ferguson Steel and Steel Frame entered into a written contract under which Steel Frame agreed to purchase and maintain CGL insurance for the duration of the work and name Ferguson Steel as an additional insured on the policy. The contract between Ferguson Steel and Steel Frame was signed by both parties two weeks after the accident. The injured employee later filed suit against Ferguson Steel and others; Ferguson Steel then filed suit against the insurer, Liberty Insurance, seeking a declaration that it was entitled to coverage for the loss. The trial court granted summary judgment to Ferguson Steel, finding that it was an additional insured under the policy despite the undisputed lack of a written contract with Steel Frame at the time of the injury.
Analysis
The appellate court reversed and entered judgment for Liberty Insurance. The court based its holding on the policy’s additional insured endorsement clause, which identifies an additional insured as “any person or organization for whom you [Steel Frame] are performing operations when you and such 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.” The court found that this language clearly and unambiguously required that the written agreement referenced therein be in effect at the time of the loss. “Although Liberty’s policy does not specifically state that the written agreement between the contracting parties must exist prior to commencement of the work, it is clear from the policy that Liberty will not insure a party without a dated written agreement in effect at the time of the claimed loss or injury,” the court wrote. The reason for this is that “Liberty cannot insure a party without knowledge of the name of the party, the period of coverage, or of its obligation to do so.”
The appellate court rejected Ferguson Steel’s argument that it and Steel Frame intended to be bound by an oral agreement and that formalizing agreements in writing after the commencement of work was a common course of dealing between these entities. “[T]he course of dealing between Ferguson [Steel] and Steel Frame does not apply to a third party such as Liberty,” the court held. “Course of dealing is an established pattern of conduct between the parties to a particular transaction. * * * Liberty was not a party to the agreement between Ferguson [Steel] and Steel Frame. Liberty was a party to a separate agreement with Steel Frame that required a written contract to establish coverage for an additional insured.” The court concluded that “Liberty has a right to protect itself against responsibility for informal verbal agreements between contractors by requiring that agreements be in writing. If the trial court’s ruling is affirmed, it would allow for the creation of coverage by reducing oral agreements to writing after a loss has occurred, in effect making coverage retroactive despite the terms of the policy.”
Learning Point:
Within the construction industry, contractors that have an extensive working history often begin projects based upon verbal agreements which are later reduced to writing. Subcontract agreements typically require that the subcontractor add the general contractor as an additional insured under the subcontractor’s general liability policy. If the date of final execution of the subcontract agreement occurs after the date of an injury, further review is necessary in order to determine whether any written agreement requiring additional insured coverage existed on the date of the accident. In the event no such written agreement exists, there is the potential to deny coverage to an alleged additional insured. During the initial review of the claim, copies of subcontracts should be secured and the dates of execution reviewed in order to determine the insured status of each entity seeking coverage under the policy.
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