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Newsletter -
Fall 2010
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On June 23, 2010, the New Jersey Appellate Division ruledthat subcontractor agreements requiring a subcontractorto provide additional primary insurance coverage, cannotbe used to override the plain language of the policy at issueif same only provided excess coverage.
In Jeffrey M. Brown Associates, et al. v. Interstate Fire andCasualty Company, No. A-2325-08T2, 2010 WL 2508830(App. Div. 2010). Plaintiff, a general contractor, sued thesubcontractor's insurer seeking coverage as an additionalinsured under the subcontractor's commercial generalliability policy. Pursuant to the subcontractor agreementthe parties entered into, the subcontractor was requiredto name the general contractor as an additional insured.In addition, the subcontractor was required to have itscommercial general liability policy be primary to any otherinsurance coverage the general contractor may have had ineffect. However, contrary to the subcontract agreement,the subcontractor's commercial general liability policy didnot include a primary policy endorsement, rather, only providedexcess coverage to the general contractor.
Following a construction site accident, the subcontractor'sinsurer refused to provide the general contractor a defense.The general contractor's insurer instituted a declaratoryjudgement action seeking coverage. The trial court grantedsummary judgment in the general contractor's favor, basedon the provision in the subcontractor agreement requiringthe general contractor's additional insured coverage tobe primary. The trial court Ordered that subcontractor'sinsurer take over the general contractor's defense.
On appeal, subcontractor's insurer argued that the generalcontractor was not owed a defense, as the additionalinsured coverage provided under its policy was excessover the general contractor's own coverage. Subcontractor'sinsurer argued that the excess coverage languageof the policy was certain and unambiguous. The generalcontractor's general liability policy, on the other hand, wasprimary, and as a result, subcontractor's insurer wouldhave no duty to defend until the limits of the general contractor'spolicy were exhausted.
The Appellate Division rejected the trial court's determinationthat the terms of the subcontract agreement wouldoperate to alter the coverage provided by the subcontractor'scommercial general liability policy. The Court concludedthat the general contractor could not rely upon thesubcontract to provide a broader scope of coverage thanis provided by the plain language of the subcontractor'sinsurer's additional insured endorsement. As a result, thegeneral contractor would only be entitled to the excesscoverage afforded by the excess policy endorsement, irrespectiveof the terms of the subcontract agreement.
It should be noted, however, the Court explicitly mentionedthat this ruling did not foreclose the general contractor'sright from asserting a claim against the subcontractor forbreach of contract for failure to obtain primary additionalinsured coverage.
As a general proposition, general contractors must makethe effort to confirm that their subcontractors haveobtained the appropriate insurance coverage required bytheir subcontract agreements. Ensuring that the contractualinsurance requirements have been met at the outsetof a project will help avoid the costly legal battle to enforcethe terms of the agreement later on.
Russ M. Patane, Esq
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