Ruling: Endorsement entitles additional insured to coverage
The Maryland case deals with the extent of coverage available under an additional insured endorsement.
A Maryland appellate court has ruled that an insurer is obligated to defend an additional insured for claims arising, in whole or in part, for the actions of the named insured.
The case is James G. Davis Constr. Corp. v. Erie Ins. Exch., 126 A.3d 753 (Md. App. 2015).
James G. Davis Construction (Davis) worked as the general contractor on a residential construction project in the District of Columbia. Davis hired Tricon Construction (Tricon) as a subcontractor to work on the HVAC in the house. The subcontract between Davis and Tricon, required Tricon to purchase an insurance policy that would also insure Davis for claims arising from Tricon’s negligence.
The certificate and the policy
Tricon purchased a CGL policy from Erie Insurance Exchange. The certificate of insurance Tricon provided to Davis showed that the policy contained an additional insured endorsement naming Davis as an additional insured (certificate endorsement). The policy itself correctly contained the endorsement listing Davis as an additional insured (policy endorsement). Both the certificate and the policy endorsements contained an exclusion for bodily injury or property damage occurring after all work on the project was completed, or after the part of Tricon’s work that caused the bodily injury or property damage “has been put to its intended use by any person or organization other than another contractor or subcontractor” on the same project. However, the policy endorsement included language not found on the certificate endorsement. This additional language said that Davis was an additional insured, “but only with respect to liability for ‘bodily injury,’ ‘property damage’ or ‘personal and advertising injury’ caused, in whole or in part, by” the acts or omissions of Tricon or anyone acting on Tricon’s behalf while working on the project. (italics omitted, emphasis added).
What happened
During construction on the residential project, Tricon had to erect scaffolding to continue work on the HVAC system. One of Tricon’s subcontractors hired Frost Fire Insulation to complete the HVAC work. Two Frost Fire workers suffered injuries when the scaffolding collapsed while they were using it. The workers claimed Davis had assured them of the scaffold’s stability and safety. They subsequently sued both Tricon and Davis on one count each for negligence.
Davis submitted a claim to Erie, but the carrier denied coverage, asserting that the Tricon policy did not extend coverage for Davis’s own negligence. Davis sued Erie for breach of contract and filed a motion for summary judgment. Davis argued the additional insured coverage had been triggered by the underlying complaint and Erie was in the wrong for denying Davis’s claim. Erie also filed a motion for summary judgment, maintaining that Davis was not entitled to additional insured coverage. The trial court consulted the certificate endorsement and determined that Davis was an additional insured on Tricon’s policy. However, Davis was not entitled to coverage because the underlying complaint had not alleged Davis’s vicarious liability for Tricon’s negligence. The judges granted summary judgment to Erie. Davis appealed.
Certificate not binding
The appellate court began by analyzing how the trial court had only relied on the certificate endorsement in its ruling for Erie. The appellate judges consulted an earlier Maryland case, G.E. Tignall & Co. v. Reliance Nat. Ins. Co., 102 F. Supp. 2d 300 (D. Md. 2000), where the federal District Court for the District of Maryland had ruled that a certificate of insurance could not support coverage independently of the policy it certified. The Tignall judges also said the certificate could not bind the insurer to coverage because it had been authored by an independent insurance professional, not someone who worked for the insurer.
The judges applied the reasoning in Tignall to the instant case. For one thing, the certificate Tricon had given to Davis expressly stated it merely provided information and did not in any manner affect the coverage described in Erie’s policy. For another, the certificate had been written not by Erie, but on Erie’s behalf by an independent insurance broker. Therefore, the judges said, the certificate of insurance was not binding on Erie, including the certificate endorsement.
In whole or in part
Even though the judges had determined that neither Tricon’s certificate of insurance nor the certificate endorsement were not binding on Erie, they continued their analysis regarding the scope of coverage available to Davis under the Erie policy and the policy endorsement. The language in the policy endorsement only covered Davis’s liability arising from “‘bodily injury,’ ‘property damage’ or ‘personal and advertising injury’ caused, in whole or in part by” the actions or omissions of Tricon or any of Tricon’s agents (italics omitted, emphasis added). Though the Court of Appeals of Maryland (now called the Maryland Supreme Court) had not addressed the issue directly, the appellate court looked to Capital City Real Estate, LLC v. Certain Underwriters at Lloyd’s London, 788 F.3d 375 (4th Cir. 2015), a federal case centered on an additional insured endorsement with similar language to Tricon’s policy endorsement.
In Capital City, a real estate developer was named as an additional insured on a subcontractor’s policy “only with respect to liability for . . . ‘property damage’ . . . caused in whole or in part by [a subcontractor's] acts or omissions; or [t]he acts or omissions of those acting on [the subcontractor's] behalf.” (emphasis added). The judges in that case decided the insurer owed the real estate contractor a defense because the underlying complaint had alleged “property damages … caused in whole or in part by” the subcontractor, who was the named insured.
The appellate judges in the instant case applied the logic of the Capital City decision to its analysis of whether Erie owed Davis a defense. The policy endorsement stated Davis was covered “only with respect to liability for ‘bodily injury,’ ‘property damage’ or ‘personal and advertising injury’ caused, in whole or in part by” Tricon or any of its agents. (italics omitted, emphasis added). The judges determined that “liability,” in this context, could not refer to vicarious liability “because vicarious liability is an all or nothing proposition” and therefore could not arise from liability caused in part by another party.
Based on this line of reasoning, the judges said the term “liability,” as used in the policy endorsement, referred to the proximate cause of the alleged damages rather than vicarious liability. Therefore, the underlying complaint only needed to allege that Davis was “liable, in whole or in part, [for] the acts or omissions of Tricon.”
Coverage still applied
The court went back to the complaint to determine whether it had made allegations against Davis that were proximately caused by Tricon or its agents. The injured Frost Fire employees alleged that Davis had assured the stability and safety of the collapsed scaffolding. However, the complaint alleged that both Tricon and Davis had been negligent and were therefore responsible for the injuries suffered by the Frost Fire employees. According to the court, the negligence allegations against Tricon and Davis arose from their respective responsibilities, as the owner of the scaffolding and as the general contractor, to maintain and ensure the safety of the structure.
Conclusion
The judges determined that at least some of the negligence against Davis had arisen from Tricon’s work at the construction site undertaken on Davis’s behalf. Therefore, based on the policy endorsement, the negligence claims against Davis were within the scope of Tricon’s policy, and Erie was obligated to defend Davis in the underlying suit.
The trial court’s verdict was reversed, and the case was sent back for consistent proceedings.
Editor’s note: Coverage for additional insureds can be tricky. It is only available for certain liability claims arising from the additional insured’s relationship to the named insured. In this case, the trial court relied on the language of the certificate endorsement. Based on this endorsement, Davis only had coverage for “liability arising out of [Tricon's] ongoing operations performed for [Davis].”
However, the trial court had missed the last step because the judges had only considered the certificate endorsement in their analysis. As the appellate court found, neither the certificate of insurance nor the certificate endorsement were binding on Erie. A certificate of insurance simply represents what is in the actual policy; it is not a policy in and of itself.
The trial judges had not considered or analyzed the policy endorsement, so they did not reach the “in whole or in part” language in the policy endorsement that guided the appellate court’s analysis. Since the “in whole or in part” language was on the policy endorsement, which was binding on Erie, the appellate court reasoned that Davis was entitled to coverage because the underlying complaint had alleged claims against Davis that were at least partially caused by Tricon.