Agreement Didn't Add Name To Policy
October 21, 2008
The U.S. District Court for the Northern District of Illinois recently held that a general contractor was not an additional insured on a subcontractor's general liability insurance policy that required that additional insureds be added by written contract, despite language in the written subcontract agreement between the general contractor and subcontractor requiring the subcontractor to procure and maintain liability insurance. Westchester Surplus Lines Ins. Co. v. Stonitsch Construction Inc., 2008 WL 3863906 (N.D. Ill. Aug. 21, 2008).
The insurer, Westchester, was represented by Richard T. Valentino and Vasudev N. Addanki of Smithamundsen LLC. Joseph B. Carini III, Michael A. Pauletto and Richard R. Gordon of Johnson & Bell Ltd. represented the general contractor, Stonitsch.
An employee of A&D Erectors Inc., a subcontractor of Stonitsch on an aircraft hanger project, brought an underlying suit in state court claiming that both A&D and Stonitsch were liable for a work-related injury. A&D was eventually dismissed from the underlying claim. In the meantime, Stonitsch sought coverage as an additional insured from A&D's general liability insurer, Westchester.
Westchester's policy issued to A&D, among other things, provided in an endorsement that it would cover as additional insureds any persons listed in the endorsement. In the place where the persons were to be listed, however, the endorsement simply stated: "as required by contract, provided contract executed prior to loss."
The subcontract between A&D and Stonitsch was entered into prior to the injury alleged in the underlying complaint. According to its terms, the subcontract had "important legal and insurance consequences" and required that A&D procure and maintain in force various types of liability insurance. The contract did not, however, expressly require that A&D name Stonitsch as an additional insured on A&D's policy, although Stonitsch argued that that was the intention of the parties.
Also prior to the underlying injury an entity that appeared to be A&D's insurance broker issued two certificates of insurance stating that Stonitsch was an additional insured on a number of insurance policies, including the Westchester policy, for work performed on the aircraft hanger project. The certificates contained language indicating that they were issued for "information only" and that they did not alter the terms of any insurance policy. Westchester appears to have had no agency agreement with the issuer of the certificates.
Westchester and Stonitsch filed cross motions for summary judgment concerning the existence or non-existence of coverage for Stonitsch under the policy. In an opinion by Judge Amy St. Eve, the court granted the motion of Westchester and denied that of Stonitsch.
St. Eve initially addressed the terms of the additional insured endorsement. She noted that it did not necessarily require a "written" contract between Stonitsch and A&D, but only an "executed" one, and that the term "execute" could refer either to a signature on a written document or to completed performance. Accordingly, it was possible for Stonitsch to be included as an additional insured by way of a signed written contract or a completed oral contract.
As for an oral contract expressly requiring A&D to add Stonitsch as an additional insured, St. Eve said that intent is not enough and that, moreover, Stonitsch failed to put forth any evidence pointing to the existence of a specific oral agreement. Consequently, Stonitsch failed to satisfy its burden as to the existence of an oral contract.
With respect to the written subcontract agreement between Stonitsch and A&D, Stonitsch conceded that the agreement did not expressly require A&D to name Stonitsch as an additional insured. Stonitsch nevertheless contended that the court should look to extrinsic evidence to inject such a requirement into the subcontract agreement. St. Eve observed that doing so may be possible if the contract were not fully integrated or, alternatively, if it were ambiguous.
Concerning integration, St. Eve observed that if a contract is a complete expression of the parties' agreement, the parol evidence rule precludes the court from looking outside the contract. Here, even though the subcontract did not contain an integration clause, it was signed by both parties, it was detailed and covered a wide variety of topics from the legal to the logistical, and, based on its content, St. Eve concluded that it was a fully integrated document. Lack of integration therefore was not a basis to consider extrinsic evidence.
Stonitch nevertheless contended that the subcontract was ambiguous in that it referred to filing "acceptable certificates" of insurance with Stonitsch. St. Eve, however, did not regard this language as susceptible to differing interpretations. Moreover, she said, even if the court could look outside the agreement in search of ambiguity, the undisputed evidence showed that the parties did not believe that the subcontract contained a provision requiring Westchester to insure Stonitsch. The ambiguity argument therefore also failed.
St. Eve further said that Stonitsch's reliance on the certificates of insurance was misplaced, because they stated on their face that they were issued only for informational purposes and did not alter the coverage afforded by any insurance policies.
Finally, Stonitsch relied on W.Am.Ins. Co. v. J.R. Constr. Co., 334 Ill. App.3d 75, 777 N.E.2d 610 (1st Dist. 2002), in which the court found that a general contractor was an additional insured on a policy issued to a subcontractor, despite the lack of an underlying written contract between and general and the subcontractor.
In reaching its decision, St. Eve observed that the J.R. Constr. court explicitly stated that it was not relying on the additional insured provision of the applicable insurance policy. The court relied instead based on a number of undisputed facts, including the subcontractor's oral agreement to provide coverage to the general, the insurance company's acknowledgment that the general was an additional insured, and the insurance company's internal documents revealing that it viewed the general as an additional insured.
Although St. Eve said it was unclear what legal theory the J.R. Constr. court relied on to go outside the additional insured provision of the insurance policy, she found that none of the facts relied on in J.R. Constr. were present here. In particular, Stonitsch never produced evidence of an oral agreement, Westchester never acknowledged Stonitsch's additional insured status, and no documents produced by Westchester indicated that Stonitsch was covered.
For all these reasons, the court found that Stonitsch was not an additional insured, and it consequently denied Stonitsch's summary judgment motion, granted that of Westchester, and entered judgment for Westchester.
