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.