DOES
A CGL INSURER WHOSE NAMED INSURED IS AN ARCHITECT OR ENGINEER HAVE A DUTY TO
DEFEND THE GENERAL CONTRACTOR AS AN ADDITIONAL INSURED?
By: Amanda K. Anderson, Esq.
Boyle, Gentile & Leonard, P.A.
The simple answer is, it depends. However, contrary to
the common belief that the answer is absolutely not, given the “professional
services” exclusion in all CGL policies, there is some case law which supports
this possibility. It is fairly fact specific, but the facts alleged in most
construction defect lawsuits would likely trigger an obligation on the part of
a CGL carrier whose named insured provided professional services on the project
to provide a defense to the additional insured, general contractor. This is
likely true even if the policy does not provide coverage to the named insured.
If the additional insured endorsement, whether blanket or
specific, uses the phrase “arising out of” or “caused, in whole or in part, by”
there is a high likelihood a defense is owed to the additional insured. Every
standard CGL Policy contains a “Separation of Insureds” provision, typically in
Section IV- Conditions, which states in relevant part “any rights or duties
specifically assigned in this Coverage Part to the first Named Insured, this
insurance applies…separately to each insured [i.e., any additional
insured under Section II of the additional-insured endorsement] against whom
claim is made or ‘suit’ is brought.”
The two seminal
cases supporting this are: State Auto. Mut. Ins. Co. v. Habitat Const. Co.,
875 N.E.2d 1159 (Ill. App. Ct. 2007) and Patrick Eng'g, Inc. v. Old Republic
Gen. Ins. Co., 973 N.E.2d 1036 (Ill. App. Ct. 2012). In Habitat,
Habitat was the general contractor on a construction project for a building in
Chicago, and Central Building & Preservation (Central Building) was a
subcontractor hired to provide certain services. Habitat Const. Co., 875
N.E.2d 1159. The written contract between Habitat and Central Building required
Central Building to add Habitat as an additional insured on the commercial
general liability (“CGL”) policy it had in effect through State Auto, its
insurer. Id. The blanket additional insured endorsement in the Central
Building Policy provided that the “person or organization is only an additional
insured with respect to liability arising out of ‘your work’ for that
additional insured for or by you” and explicitly provided, almost identical to
the Travelers Primary Policies, that the insurance provided to the additional
insured does not apply to rendering or failure to render any professional
services. Id. During construction, an employee of Central Building was
allegedly injured and subsequently filed suit against Habitat and others, but
not Central Building. Id. The employee made several claims founded in
negligence and specifically alleged that Habitat was the owner or in charge of
the project site and was present during the construction and participated in coordinating
the work done. Id. In Illinois, the duty to defend is determined by the
same standard as in Florida, the “eight corners”. Id.; and Nat'l Union Fire Ins. Co. v. Lenox
Liquors, Inc., 358 So. 2d 533, 536 (Fla. 1977). The Habitat
court held that the allegations of the complaint sufficiently alleged that the
employee’s injuries at least potentially arose out of the named insured’s work,
and therefore gave rise to a duty to defend, and the insurer’s reliance on the
professional exclusion provision was misplaced and had no application as the
additional insured was a general contractor and not an architect, engineer or
surveyor. Id.
In Patrick
Eng’g, Old Republic Insurance Company (“Old Republic”) issued a CGL policy
with a professional services exclusion to Patrick Engineering. Patrick
Eng’g, Inc., 973 N.E.2d 1036. Patrick Engineering entered into an agreement
with Commonwealth Edison Company (“ComEd”) to provide engineering design
services for the relocation of ComEd’s utility poles, and the agreement
required that ComEd be named as an additional insured. Id. While working
on the project, ComEd damaged an underground sewer facility. Id. The
city filed suit against ComEd alleging that it had acted negligently. Id. Interestingly, the City never filed a claim
against Patrick, but ComEd did file a third party claim against them. Id.
After Patrick Engineering and ComEd both tendered the claim to Old Republic,
Old Republic denied coverage to ComEd based on the CGL policy’s professional
services exclusion. Id. In its evaluation, the court focused on three
main parts of the CGL policy, (1) the separation of insureds clause; (2) the
additional insured endorsement, and (3) the professional services exclusion. Id.
The CGL policy at issue in Patrick Engineering is the standard post 1986
CGL policy. The court ultimately found that, pursuant to the additional insured
endorsement and the separation of insureds clause, Old Republic had a duty to
defend and indemnify ComEd because despite the named insured’s providing of
professional services, the additional insured did not perform professional
services in connection with the project. Id.
The
separation-of-insureds clause provides each insured, whether named or
additional, with separate coverage. Mactown, Inc. v. Cont'l Ins. Co., 716 So.2d 289 (Fla. 3d DCA 1998); Premier
Ins. Co. v. Adams, 632 So.2d 1054 (Fla. 5th DCA 1994); Liberty Mutual
Ins. Co. v. Sentry Ins. Co., 288 So.2d 556 (Fla. 2d DCA 1974); Southern
Owners Ins. Co. v. Wiggins, No. 310-CV-390-J-37MCR, 2012 WL 405322, at *4
(M.D. Fla. Feb. 9, 2012); and United
States Fid. & Guar. Co. v. Globe Indem. Co., 60 Ill.2d
295, 299, 327 N.E.2d 321 (1975). A provision providing that the “‘insurance
applies[s]eparately to each insured against whom claim is made,’ ” shows that
the insurer recognizes an obligation to additional insureds distinct from its
obligation to the named insured. See id. This means that it is as though each insured is
separately insured with a distinct policy, subject to the liability limits of
the policy. Id.
It is important to
note that courts interpreting the “arising out of” or “in whole or in part”
language have consistently held that such language provides coverage to the
additional insured for its own scope of fault and not just
its vicariously liability. Koala Miami Realty v. Valiant Ins. Co., 913
So. 2d 25 (Fla. 3d DCA 2005); Taurus Holdings, Inc. v. United States Fid.
& Guar. Co., 913 So. 2d 528 (Fla. 2005); Monticello Ins. Co. v. City
of Miami Beach, Case No.: 06-20459-CIV, 2008 WL 906537 (S.D. Fla. 2008); Capital
City Real Estate, LLC v. Certain Underwriters at Lloyd's London,
Subscribing to Policy Number: £ARTE018240, 788 F.3d 375, 379-80 (4th Cir.
2015); Gilbane Bldg. Co. v. Admiral Ins. Co., 664 F.3d 589, 598 (5th
Cir.2011); McIntosh v. Scottsdale Ins. Co., 992 F.2d 251, 255 (10th
Cir.1993) (original alterations omitted); Am. Empire Surplus Lines Ins. Co.
v. Crum & Forster Specialty Ins. Co., 2006 WL 1441854 (S.D. Tex. May
23, 2006); Zep Construction v. Interstate Fire & Cas. Co., 18 Fla.
L. Weekly Supp. 65a (Fla. 12th Cir. 2010); First Mercury Ins. Co. v. Shawmut Woodworking
and Supply Co., Inc, 2014 WL 5519831,
2 (D. Conn. Oct. 31, 2014); Thunder Basin Coal Co., Inc. v. Zurich Am. Ins.
Co., 943 F.Supp.2d 1010, 1014 (E.D. Mo. May 2, 2013); WBI Energy
Transmission, Inc. v. Colony Ins. Co., 56 F.Supp.3d 1194, 1202-1203 (D.
Mont. September 29, 2014).
This concept combined with the separation of
insureds clause necessitate any court to find the general contractor qualifying
as an additional insured, be entitled to at least a defense under a CGL policy despite
the existence of the professional services exclusion. More specifically, when
the underlying construction defect complaint
generally alleges defects in the design and is unclear whether the general
contractor is alleged to have performed “professional services”, the insurer
should provide a defense to the additional insured, non-professional.
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