An intermediary appellate court in Massachusetts recently found no coverage for a general contractor who was listed as additional insured under a subcontractor's general liability insurance policy. The main contractor sought cover for a negligence alleged by an employee of the subcontractor regarding work injuries.
There were two relevant provisions in the policy: a clause on separation between insured persons and an exclusion from cross-liability. The section on separation of insured required that the policy apply as "if each named insured was the only named insured" and "[s] accordingly for each insurance against which a claim is made or" cost "is raised." The clause would not only apply "with respect to the insurance limits and any rights or obligations specifically assigned … to the first named insured." The exclusion of cross-liability excluded coverage for personal injury claims brought by an "employee of all insured persons."
The main contractor cited Massachusetts case law that the separation of insured clauses limits the effect of language of exclusion. It argued that since the separation of the insured clause requires that each additional insurance be treated as if it were the only insured, the exemption from cross-liability is limited to claims made by employees against their employer. Any other result would make the difference between the insured clause meaningless. Alternatively, the main contractor claimed that exemption from cross-liability is ambiguous in this context when read in connection with the separation of insured clauses, which requires that the exclusion be read narrowly and in favor of coverage. the exclusion's use of "someone" instead of "the" insured. According to the court, this meant that there would be no coverage for a cost of employees on someone insured against their employer or against another insured. The court reasoned that the purpose of the exclusion is to prevent claims "of one insured [or its employees] against another [or its employees]."
Based on this, the court held that the policy did not cover the claim against the turnkey contractor because the subcontractor's employee was employed by an insured person under the insurance. The court's decision is in conflict with other holdings that have similar languages. See e.g. Shelby Realty LLC v. National Surety Corp. 2007 WL 1
As the opinion of the Massachusetts Court highlights, there are potential pitfalls in obtaining coverage as additional insured. Although alternative sources of recovery may be helpful to project owners, contractors and resellers of goods and services, the specific wording and interplay between different provisions, such as separation of insured clauses and exemptions from cross-liability, may lead to a lack of coverage. Units should therefore consult experienced brokers and coverage advisors at the time of procurement and policy placement to protect themselves against outcomes such as what Phoenix faces in this case.
The case is Phoenix Baystate Construction, Co., Inc. v. First Financial Insurance Company 145 NE3d 911 (Mass App. Ct. 2020) (unpublished table decision).