(Article from Insurance Law Alert, June 2015)
For more information, please visit the Insurance Law Alert Resource Center.
The Fourth Circuit ruled that an additional insured endorsement does not limit coverage to instances in which an additional insured is alleged to be vicariously liable for the acts of the named insured. The court therefore held that an insurer was required to defend a real estate developer in a negligence action even though no claims were asserted against the named insured contractor. Capital City Real Estate, LLC v. Certain Underwriters at Lloyd’s London, 2015 WL 3606861 (4th Cir. June 10, 2015).
Capital City, a real estate developer, contracted with Marquez Brick Work, Inc. to perform foundation work. In connection with the contract, Marquez Brick secured general liability insurance from the Underwriters. The policy’s additional insured endorsement provided coverage to Capital City “but only with respect to liability for . . . ‘property damage’ . . . caused in whole or in party by: 1. [Marquez’s] acts or omissions; or 2. The acts or omissions of those acting on [Marquez’s] behalf; in the performance of [Marquez’s] ongoing operations for [Capital City].” During the course of Marquez’s construction work, a wall collapsed. A suit was filed against Capital City and several other parties, but not Marquez. Capital City filed a third-party complaint against Marquez and sought coverage from the Underwriters based on the additional insured endorsement. A Maryland federal district court granted the Underwriters’ summary judgment motion, finding that the Underwriters had a duty to defend Capital City “only if the underlying complaint had alleged that Capital City was vicarious liable for the actions of its subcontractor.” The Fourth Circuit reversed.
The Fourth Circuit ruled that the endorsement provides coverage for property damage caused by Marquez, “either in whole or in part, regardless of whether the underlying complaint seeks to hold Capital City vicariously liable for Marquez’s acts or omissions.” Here, although the underlying complaint did not mention Marquez, it alleged negligence in the excavation and renovation in which Marquez was undisputedly involved. Therefore, the court concluded that “it cannot be said that the complaint does not seek to hold [Capital City] liable for property damage ‘caused in whole or in part’ by Marquez.” The court distinguished a scenario in which a complaint alleged negligence solely on the part of the additional insured, noting that “perhaps [that] would be a different case.”
Courts disagree as to whether additional insured coverage is limited to circumstances in which the additional insured is held vicariously liable for the named insured’s negligence, or whether it extends to acts of the additional insured’s own negligence, so long as the injury has some connection to the operations of the named insured. As reported in our March 2013 Alert, the Minnesota Supreme Court, addressing policy language similar to that at issue in Capital City, limited additional insured coverage to instances of vicarious liability and ruled that an insurer was not required to provide additional insured coverage to a contractor where the named insured sub-contractor had not committed negligence. Engineering & Construction Innovations, Inc. v. L.H. Bolduc Co., 825 N.W.2d 695 (Minn. 2013).