General contractor G hires steel fabricator SF to fabricate and erect structural steel on the owner’s project. Fabricator SF hires steel erector SE to erect the beams and columns SF will fabricate in its shop. G’s subcontract with SF requires SF to name G as an additional insured on SF’s commercial general liability insurance. SF’s sub-subcontract with SE requires SE to name G and SF as additional insureds on SE’s commercial general liability policy. SE complies, and sends G a certificate of insurance showing G and SF as additional insureds on SE’s policy. Sound familiar?
Later, a couple weeks into erection of the steel on site, one of SE’s ironworkers falls and is injured. The ironworker files a workers’ compensation claim against SE, and a negligence lawsuit against SF and G. G, shown as an additional insured on the certificate provided by SE, tenders G’s defense in the negligence lawsuit to SE’s insurance company. If you would expect SE’s insurance company to defend and indemnify G, you would be mistaken, at least in Illinois, under the recent decision of the Illinois Appellate Court. Surprised?
In Westfield Insurance v. FCL Builders, 2011 WL 855197 (1st Dist. 2011), the court ruled that Westfield’s insurance policy language regarding the definition of who was insured required Westfield to provide coverage only when “you and such a person or organization have agreed in writing in a contract or agreement that such a person or organization be added as an additional insured on your policy.” The court found that SE’s promise to SF to name G as an additional insured was not enough to meet this requirement. Finding no direct written agreement between SE and G requiring SE to name G as an additional insured, the court ruled there could be no coverage for G under SE’s policy, in spite of the issuance of a certificate of insurance identifying G as an additional insured.
Perplexed? How can you fix this?
Easily enough! Besides requiring subs to require sub-subcontractors to name G as an additional insured, and submission of certificates of insurance reflecting that they have done so, G should require subcontractors and suppliers at all levels to submit, along with the typical certificate of insurance, a letter like this:
“Pursuant to a direct agreement among Owner, G and SE, and in consideration of Owner and G’s acceptance of SE as a trade contractor [or material supplier] on the project, SE hereby agrees directly with Owner and G to name Owner and G as additional insureds on SE’s commercial general liability insurance policy for the duration of the project, and is supplying the enclosed certificate of insurance from SE’s insurer identifying Owner and G as an additional insureds under SE’s commercial general liability insurance policy, together with a copy of SE’s policy and of the endorsement naming Owner and G as additional insureds.”
Of course, the ruling in the Westfield Insurance case was based on the particularly narrow wording of Westfield’s policy, but you can be sure this court decision will prompt many other carriers to modify their policy language accordingly. The simple expedient of requiring the above form of letter covering each and every insurance certificate, policy and endorsement on the project will protect general contractors against the fate that befell FCL Builders in this coverage case.
