Additional Insureds: “Sole Negligence” Language Does Not Preclude Coverage
A Laurie & Brennan article featured in the Construction Law Corner Fall 2012 eNewsletter.
Additional insured endorsements are commonly required on construction projects of all kinds. Owners and general contractors usually require their subcontractors to (a) obtain commercial general liability policies (“CGL”) and (b) name them as an additional insured on the CGL policy. Whether a party is an additional insured depends on the terms of the additional insured endorsement. If a party is determined to be an additional insured, the scope of coverage afforded to the additional insured is defined and limited by the terms of the endorsement and CGL policy. Despite the prevalence of CGL policies in the construction industry, there is much confusion and litigation over the scope of additional insured coverage. One such area of confusion is the “sole negligence” exclusion contained in certain additional insured endorsements.
The Illinois appellate court recently determined that when a complaint contains allegations against multiple entities and/or persons, the “sole negligence” exclusion of coverage for an additional insured general contractor in a CGL policy does not apply. A-1 Roofing Co. v. Navigators Ins. Co., 2011 IL App (1st) 100878.
In A-1 Roofing, A-1 Roofing Company (“A-1”) was the general contractor for a roof resurfacing job at Barrington High School. Jack Frost Iron Works, Inc. (“Frost”) was one of A-1’s subcontractors. Frost had a CGL policy with Navigators Insurance Company (“NIC”) with an additional insured endorsement which contained the following clause: “[n]either the coverages provided by this insurance policy nor the provisions of this endorsement shall apply to any claim arising out of the sole negligence of any additional insured or their agents/employees.” It was undisputed that A-1 was an additional insured.
Frost hired a subcontractor Midwest Sheet Metal, Inc. (“Midwest”) which leased a boom-lift from Bakes Steel Erectors, Inc. (“BSE”). William McKoin, an employee of Midwest, was killed while operating the boom-lift on the project. McKoin’s estate brought a construction negligence and wrongful death suit against A-1, BSE and two other defendants. Neither Frost (the named insured) nor Midwest (the employer) were named as a party or even mentioned in the complaint.
A-1 filed a declaratory judgment action against NIC, seeking a judgment that NIC owed it a duty to defend and indemnify for the McKoin lawsuit based on its additional insured status. The trial court found that NIC had no duty to defend or indemnify A-1 because the McKoin complaint did not state a cause of action against Frost, the named insured on the NIC policy.
The Illinois appellate court reversed the trial court, holding that because the complaint alleged that BSE and two other parties were also negligent, the “sole negligence” exclusion did not apply to negate coverage. Initially, the A-1 Court found that the accident arose out of Frost’s (its named insured) work and so came within the scope of the additional insured endorsement. Having found coverage, the A-1 Court analyzed whether the “sole negligence” exclusion applied. The A-1 Court determined that the plain, unambiguous meaning of “the sole negligence of any additional insured” implies “exclusively or entirely” or “single-handedly.” The A-1 Court determined that by the explicit terms of the endorsement, for the sole negligence provision to apply, the underlying negligence allegation needed to be exclusively, entirely, or single-handedly based on A-1’s negligence. Since the underlying complaint alleged that BSE and two additional parties were also negligent, the allegations in the underlying complaint were not exclusively, entirely, or single-handedly directed at A-1. Liberally construing the policy in favor of coverage, the A-1 Court concluded that the sole negligence exclusion did not apply to negate coverage.
The Illinois Supreme Court denied the Petition for Leave to Appeal the appellate court’s decision on March 28, 2012, making the First District decision final.
The A-1 opinion does not quote the entirety of the additional insured endorsement or identify the standard policy form that was at issue. However, based on the “sole negligence” language that was quoted in the opinion, it appears the court was interpreting an endorsement that was intended to provide narrower coverage than that provided by additional insured endorsements that afforded coverage “arising out of” a named insured’s work. The A-1 decision is yet another reminder that owners, contractors and subcontractors should review the wording of additional insured endorsements before work begins to understand what risks may be insured and those that may not be.