In the construction industry, it is standard for ‘upstream’ parties to require ‘downstream’ parties to purchase and maintain general liability insurance coverage, at varying limits, and to obtain an endorsement adding all or most ‘upstream’ parties as ‘additional insureds’ under that policy. A recent decision from the Massachusetts Superior Court serves as a reminder that not all additional insured endorsements are created equal and that attention ought to be paid to the language that addresses the scope of coverage.
The facts in NES Equip. Servs. Corp. v. Acadia Ins. Co., 2016 WL 6988708 (2016) are commonplace. A contractor rented a scissor lift under a rental agreement, which required, among other terms, additional insured status for the supplier. Two workers were injured when the lift collapsed. They sued the supplier and other parties, but not the contractor. The supplier tendered the claim to the contractor’s carrier, since it enjoyed additional insured status. The carrier, however, denied defense and indemnity, taking the position that it had no obligation because there were no claims against the contractor. The Court disagreed. The policy stated that the supplier was covered for claims caused by contractor’s “use, operation or maintenance” of the equipment. As such, the contractor’s negligence was not a prerequisite to a duty to defend. The Court stated “the fact that an accident is not attributable to the named insurance’s negligence is irrelevant when the additional insured endorsement does not purport to allocate or restrict coverage according to fault.” The Court pointed out that the carrier could have included such limiting language, but chose not to, and so coverage was triggered merely by the use of the equipment.
This decision is notable for several reasons. First, businesses that work in construction are well advised to review additional insured endorsements on each project because the language and scope of coverage often changes. Second, the Court found that the contractor had an obligation to indemnify the supplier by virtue of looking at not only the rental agreement but also other business records and prior dealings of the parties. This exercise is notable in that construction contracting is oftentimes fast dealing, and businesses must take caution that the compilation of business records, including everything from formal contracts to purchase orders and even electronic and verbal communications, might well create binding contractual rights, remedies and obligations.