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(Article from Insurance Law Alert, April 2017)

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Addressing a matter of first impression under Indiana law, the Indiana Court of Appeals ruled that a named insured under a general liability policy must satisfy the self insured retention (“SIR”) before an additional insured may seek coverage under the policy.  Walsh Constr. Co. v. Zurich American Ins. Co., 2017 WL 1151033 (Ind. Mar. 28, 2017).

Walsh, a general contractor, hired Roadsafe as a subcontractor in the construction of a traffic exchange.  Roadsafe obtained a general liability policy and named Walsh as an additional insured, as required by the parties’ indemnity contract.  The policy included a $500,000 per-occurrence SIR endorsement.  When a claimant sued Walsh for injuries sustained in the construction zone, Walsh sought additional insured coverage under the policy.  Zurich denied coverage based on Roadsafe’s failure to pay the SIR.  A trial court ruled in Zurich’s favor and the Indiana Court of Appeals affirmed.

The question on appeal was whether the SIR endorsement amends Zurich’s obligation to defend Walsh as an additional insured.  Walsh and Roadsafe argued that the endorsement amends only Zurich’s relationship to Roadsafe, whereas Zurich argued that the SIR amount must be satisfied before Zurich has any obligations under the contract.  The court agreed with Zurich, finding that the SIR payment was an unambiguous condition precedent to any coverage under the policy.  The court reasoned that the SIR shifts the initial cost burden from Zurich to Roadsafe for coverage costs, not just for Roadsafe’s damages and defense costs.  The court noted that if Walsh disapproved of its subcontractors obtaining SIR endorsements in policies under which it was an additional insured, it could have precluded that in its indemnity contract with Roadsafe.