Ark Underwriting (“Ark”), the insurer for Shawmut Design and Construction (“Shawmut”) and Haven Restoration, Inc. (“Haven”) claimed that a purchase order that Lanco Scaffolding, Inc. (“Lanco”), an insured of Lexington Insurance (“Lexington”), signed obligated Lexington to recognize Shawmut and Haven as additional insureds under Lanco’s liability policy. Lanco was a subcontractor of Haven and a sub-subcontractor of Shawmut on a construction project.
The dispute between the two insurers arose after a Haven employee had a catastrophic fall from Lanco’s scaffolding. Although Shawmut and Haven had a detailed Universal Subcontract agreement that specified that any sub-subcontractors Haven hired had to add Shawmut and Haven as additional insureds to their liability insurance, Lanco never added them as additional insureds.
Ark claimed that the terms of the Universal Subcontract and the purchase order that Lanco signed with Haven agreeing to provide additional insured coverage satisfied Lexington’s policy’s blanket additional insured endorsement and, therefore, Lexington had to defend and indemnify Ark’s insureds.
The Federal court disagreed and found against Ark. The court found that Lexington’s obligation to provide coverage only extended if Lanco assumed a third party’s tort liability for bodily injury or property damage. The court found that the failure of Lanco to obtain the insurance as required was a breach of contract but not an assumption of tort liability. Thus, Lanco’s agreement to provide insurance did not qualify as an insured contract under Lexington’s CGL.
The Harvard Medical School construction contract
Shawmut won a major contract for renovation work at the Harvard Medical School. Shawmut subcontracted with Haven for masonry work on the project. Haven had an existing Universal Subcontract with Shawmut. Under that Universal Subcontract agreement, Haven had the responsibility in any agreements with Shawmut’s sub-subcontractors to:
require each sub-subcontractor and supplier to be bound by all Contract Documents to the same extent and with the same effect as if the subcontractor or supplier were the Subcontractor [Haven].
One of the requirements that Haven had under the Universal Subcontract was for insurance. This requirement was that it:
“obtain and maintain insurance from a responsible insurer with an A.M. Best rating of “A” or better and satisfactory to Contractor. Subcontractor’s insurance shall apply to any Subcontract Work furnished by or through Subcontractor for Contractor at any Project.”
The Universal Subcontract specified that Haven and, therefore, any sub-subcontractors would maintain insurance coverage including:
- Commercial General Liability Occurrence Coverage (ISO Form CG 00 01 10 01 or equivalent)
- Broad Form Property Damage.
- Explosion, Collapse, and Undermining and Damage to Underground Property (X.C.U.).
- Premises-Operations, Independent Contractors (Sub-Let Work).
- Contractual liability applicable to Subcontractor’s indemnity obligations; and
- Completed Operations for a period of not less than one year following completion of Contractor’s operations, subject to the following minimum limits:
- $1,000,000 each occurrence
- $2,000,000 products and completed operations aggregate, and
- $2,000,000 general aggregate per project
The Haven-Lanco sub-subcontract
In April 2016, Haven contracted with Lanco to provide scaffolding at the Harvard Medical School project as a subcontractor to Haven and a sub-subcontractor to Shawmut. Haven’s contract with Lanco took the form of a purchase order for scaffolding. The terms and conditions of the purchase order provided that Lanco would:
“shall procure and maintain at its own expense and from insurers acceptable to Haven Restoration, such insurance policies as will fully protect Subcontractor, Haven Restoration and Owner from all claims for injuries or damages, including attorney’s fees, by whomever caused, arising out of Subcontractor’s obligations or performance under this Purchase Order, whether before or after its completion.”
The purchase order’s terms and condition concerning insurance went on to state that Lanco would also “maintain any other insurance required by the Prime Contract documents,” and in any event to maintain a commercial general liability policy with limits of $1 million for each occurrence, a $2 million general aggregate, and a $2 million products-completed operations aggregate.
The purchase order’s terms and conditions required that Lanco name as additional insureds on its policy Haven, Harvard, and “any other party noted in the Purchase Order Documents” as additional insureds.
Lanco fulfilled its insurance requirements under the purchase order with Haven with a CGL policy from Lexington. However, Lanco failed to add Haven, Harvard, or any other party noted in the purchase order documents, or Shawmut, as additional insureds under its CGL policy with Lexington.
Fall from Lanco’s scaffolding leads to a bodily injury lawsuit by Haven employee
During the construction project at Harvard Medical, a Haven employee fell several stories from Lanco’s scaffolding and sustained serious injuries. His injuries were severe enough that he was placed under a court-ordered co-conservatorship.
The co-conservators filed suit against Lanco and Shawmut, claiming that they were negligent concerning the scaffolding from which the employee fell. Haven was not sued directly by the co-conservators because of its exemption from liability under the Worker’s Compensation act. However, Shawmut filed a third-party complaint against Haven based upon the indemnity provisions in the Universal Subcontract, claiming that Haven had an obligation to defend and indemnify it from the injured employee’s co-conservators suit.
Lexington, as Lanco’s liability insurer, undertook that company’s defense to the injured employee’s lawsuit. Ark assumed responsibility for Shawmut and Haven in the lawsuit.
Ark seeks primary coverage from Lexington for its insureds
Ark demanded that Lexington assume the obligation to defend and indemnify Shawmut and Haven in the employee’s lawsuit. Ark asserted that its insureds had coverage by virtue of Lexington’s policy’s additional insured endorsement, which stated:
Section II – “Who Is An Insured” is amended to include as an additional insured the person(s) or organization(s) shown in the Schedule, but only with respect to liability for “bodily injury” . . . caused, in whole or in part, by “your work” at the location designated and described in the Schedule of this endorsement performed for that additional insured…”
The Schedule in the endorsement stated the additional insureds were: “Blanket where required by written contract.”
Ark, through counsel, tendered the defense of Shawmut and Haven to Lexington, asserting that the above blanket schedule adding additional insureds to the Lexington policy applied. To Ark, Lexington’s blanket additional insured endorsement only required a contract evidencing a promise to name the contracting party as an additional insured. In this case, their condition was satisfied by the purchase order that Lanco signed.
When Lexington did not respond, Ark filed suit in Federal court
In its lawsuit, Ark argued that the Lexington Policy provides additional insured coverage if two conditions were satisfied:
- Where the named insured has agreed to provide such coverage “by written contract;” [the Haven purchase order] and,
- When liability for bodily injury is “caused, in whole or in part, by” the named insured’s [Lanco] acts or omissions in the performance of its work for the additional insureds.
Ark further asserted that Lexington had a duty to defend Haven and Shawmut as additional insureds because Lanco “agreed to obtain such coverage for Haven and Shawmut by its written contract,” and 2) the employee’s lawsuit alleged that his bodily injuries were a “direct and proximate result” of Lanco’s negligence.
The Court rules that breach of a contract to name an additional insured not sufficient for coverage
On cross-motions for summary judgment, the court took a different view than the one that Ark asserted analyzed the policy from the point of view of an “insured contract.”
Lexington’s policy defined an “insured contract” as:
“That part of any other contract or agreement pertaining to your business . . . under which you assume the tort liability of another party to pay for “bodily injury” or “property damage” to a third person or organization. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement.“
The “insured contract” is the operative term in the policy providing an exception to the general policy exclusion, which bars coverage for breach of contract claims. This exclusion states that “This insurance does not apply to:
b. “Bodily injury” or “property damage” for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement.
However, the contractual liability exclusion contains an exception that states:
This exclusion does not apply to liability for damages:
- That the insured would have in the absence of the contract or agreement; or
- Assumed in a contract or agreement that is an “insured contract” . . ..
The court finds for Lexington based on no coverage for Lanco failing to add additional insureds as agreed
The court found that the purchase order that Lanco signed with Haven required it to name Haven and the owner of the project, Harvard, as additional insureds on Lexington’s CGL policy. The court did not find that the purchase order required that Lanco name Shawmut as an additional insured. The purchase order had no reference to Shawmut directly or even “by a categorical description (such as ‘General Contractor’).”
However, the court found that Lanco’s breach of its contract to name, at least, Haven and Harvard as additional insureds did not bind Lexington to provide coverage.
Lanco did not make an “insured contract” that assumed the tort liability of another party to pay for “bodily injury” or “property damage” to a third person or organization. Instead, Lanco made an agreement to obtain insurance coverage for Haven and Harvard for that liability.
Thus, the court ruled that without an agreement amounting to an “insured contract” assuming tort liability, Lexington’s policy exclusion barring liability assumed under contract applied. Any liability Lanco had for its failure to obtain bodily injury coverage for Haven, or Harvard arose under the purchase order it signed with Haven from its “assumption of liability in a contract or agreement.”
Judgment for Lexington, but Ark moves for reconsideration
Following the decision in favor of Lexington and against Ark, judgment entered for Lexington dismissing Ark’s claim. However, Ark has filed a motion for reconsideration. That motion is still pending as of the date of this article.
Motions for reconsideration rarely succeed. Per the First Circuit, “The granting of a motion for reconsideration is “an extraordinary remedy which should be used sparingly…To obtain relief, the movant must demonstrate either that newly discovered evidence (not previously available) has come to light or that the rendering court committed a manifest error of law.”
Agency Checklists will follow up
Agency Checklists will supplement this article if the motion for reconsideration is allowed or Ark appeals the judge’s decision to the First Circuit Court of Appeals.
Insurance Coverage Legal Expert/Co-Founder & Publisher of Agency Checklists
Over the course of my legal career, I have argued a number of cases in the Massachusetts Supreme Judicial Court as well as helped agents, insurance companies, and lawmakers alike with the complexities and idiosyncrasies of insurance law in the Commonwealth.
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