Additional Insured Coverage

Law Talk

In Vitton Insurance Company, Inc. v. Pacific Insurance Company, the California Court of Appeal explained additional insured coverage. The court decided that under the particular policy being reviewed, the general contractor was entitled to coverage as an additional insured under the subcontractor's umbrella insurance policy. This will all be explained below.

Vitton Construction Company ("Vitton") was the general contractor on a project to build a warehouse. Vitton entered into a subcontract agreement with Pacific Erectors, Inc. ("Pacific"). The subcontract included "cutting and installing of roof opening frames." The subcontract required Pacific to carry general liability insurance covering all operations by, or on behalf of Pacific. The subcontract also required that the general liability policy obtained by Pacific would name Vitton (the general contractor) and the project owner as additional insureds.

CNA issued the commercial general liability policy. The policy contained a "Blanket Additional Insured" approval. It included as additional insureds, any person or organization Pacific was contractually obligated to add as an additional insured. This provided that "such party would only be considered an additional insured with respect to liability arising out of ... [Pacific's] work for that additional insured by or for [Pacific]." Vitton and the project's owner were specifically named as additional insureds, with respect to liability arising out of" Pacific's work on the warehouse.

In addition, Pacific also purchased an "umbrella policy" from Pacific Insurance. This policy had a $5 million dollar per occurrence limit. Pacific Insurance agreed to pay for damages, if Pacific (the subcontractor) became liable to pay after the limits of the underlying policy (CNA) were used up. The parties who were covered as additional insureds under the umbrella policy were those same parties covered under the underlying (CNA) insurance policy.

Pacific, the subcontractor, laid decking for the roof structure on the warehouse and cut holes in the decking for skylights and HVAC equipment. That equipment was to be installed by another contractor who was not an additional insured on any of the policies. When Pacific completed its work and left the job site, Vitton employees attached "wood nailers" and "curves" to the roof opening but they did not cover the openings themselves. Sometime later, Anderson, an employee of a roofing subcontractor, was working on the roof of the warehouse when he fell through an uncovered hole that Pacific had cut in the roof decking. Anderson was hurt. An expert witness for Anderson testified that the general contractor is responsible for maintaining a safe construction site and they found that Vitton was at fault for failing to cover the roof openings or have someone else cover them. Vitton's president also acknowledged that the general contractor (Vitton) had a responsibility to ensure no one was hurt on the job.

The case was settled for a substantial amount of money. It was in excess of the underlying (CNA) policy and therefore, Vitton and another insurance carrier sued Pacific, to cover the difference arguing that Vitton was an additional insured under the Pacific policy. The umbrella insurance company (Pacific Insurance) argued that Vitton was not an additional insured because Vitton's liability for that project did not "arise out of" work performed by the Subcontractor, Pacific.

The court discussed interpretation of insurance polices and stated that insurance polices should be governed by the law of contracts. The law of contracts requires that the court determine what the parties intended as expressed by the contract. If possible, it is done only through the provisions within the contract itself. When the provisions are somewhat ambiguous (subject to two or more reasonable interpretations), the courts usually will decide the ambiguity against the party who caused that ambiguity. That is to say, the one who drafted the agreement will suffer the loss. The court had to interpret liability arising out of the provision "only with respect to liability arising out of ‘your work' by or for that insured." The court went on to state that the terms "arising out of" or "arising from" in insurance provisions are always broadly interpreted so as to provide insurance coverage. The court went on to state that the facts in this case are not complicated. Subcontractor Pacific created the holes or openings in the roof of the warehouse. The holes were left uncovered and a roofer accidentally fell through one of them while he was working on the roof. Using common sense, it seems fairly clear that Anderson's injury and fall "arose out of" Pacific's work in cutting the roof openings. That is regardless of whether it was Pacific's responsibility or the other contractor, to make the holes safe. Pacific's work actually created the dangerous condition.

Therefore, the court found a sufficient causal connection between the named insured, Pacific, and the situation giving rise to liability to trigger coverage.