Ward Greenberg Partner David Knapp is an expert commentator for International Risk Management Institute, Inc. Read his August article, "Beyond the Eight Corners - Additional Insureds and Workers Comp," below:
Consider this common scenario. A subcontractor's employee is injured on the job and sues the general contractor, an additional insured on the subcontractor's commercial general liability (CGL) policy. The employee does not sue the subcontractor because she is prevented from doing so under state workers compensation law. If the employee's complaint is silent as to the subcontractor's fault, how does the general contractor trigger additional insured coverage under the subcontractor's policy?
Prior to 2004, the standard Insurance Services Office, Inc. (ISO), additional insured endorsement forms provided that an additional insured was covered for liability "arising out of" the named insured's operations. Courts generally construed "arising out of" broadly to merely require some causal connection between the underlying claims and the named insured's operations for coverage to be triggered (i.e., but for the named insured's operations, the alleged bodily injury or property damage would not have occurred). Thus, additional insured coverage applied regardless of whether the named insured was negligent. This standard easily is satisfied in the scenario above because the subcontractor's employee would not have been injured but for the subcontractor's operations for the general contractor.
In 2004, however, ISO revised the standard additional insured endorsements, replacing "arising out of" with language stating that additional insured coverage applied only to liability "caused, in whole or in part, by" the acts or omissions of the named insured. Most courts have interpreted this language as requiring proximate causation (i.e., that the named insured must be at least 1 percent at fault to trigger additional insured coverage).
How the Duty to Defend is Determined
For claims implicating state workers compensation laws, whether an additional insured is entitled to a defense may depend on what information the court considers in determining whether the duty to defend is triggered. In some jurisdictions, insurers must consider facts outside of the underlying pleadings. There, an additional insured sued by an employee of the named insured need only point to evidence showing a possibility that the named insured was at least partially responsible to trigger additional insured coverage.
Consider a recent case from New York's Appellate Division, M&M Realty of N.Y. LLC v. Burlington Ins. Co., 170 A.D.3d 407 (1st Dept. 2019). In that case, M&M Realty hired L&M Restoration to perform work at M&M's building. When M&M was sued by an employee of L&M who was injured on the job, M&M tendered the suit to L&M's insurer for defense. The insurer denied coverage, asserting that the underlying complaint did not allege that the plaintiff's injuries were "caused, in whole or in part, by" L&M. The trial court held that M&M was not entitled to a defense because the underlying complaint did not allege that L&M's acts or omissions caused the plaintiff's accident.
The Appellate Division reversed, holding that "the known facts suggest a reasonable possibility of coverage, i.e., a reasonable possibility that the underlying injury was caused, in whole or in part, by L&M's acts or omissions." Id. at 408. Thus, even though the underlying complaint was silent as to whether the named insured was at least partially at fault (because the named insured was immune from suit under New York's workers compensation law), the court held that additional insured coverage was triggered because facts outside the pleadings showed a possibility that the named insured was at least partially at fault.
In other jurisdictions, however, the duty to defend is based solely on the allegations of the underlying complaint. This is often referred to as the four-corners or eight-corners rule (i.e., the duty to defend is determined by the four corners of the complaint, or the four corners of the complaint plus the four corners of the insurance policy). In these jurisdictions, an additional insured sued by an employee of the named insured faces a dilemma. If the duty to defend is based solely on the allegations of the complaint, and the complaint is silent as to the named insured's potential fault because the named insured is immune from suit, when, if ever, is coverage triggered for the additional insured?
Read the full article here.
Acknowledgment: Christine Naassana (2019 Summer Associate, University at Buffalo Law School Class of 2021) provided assistance with this article.
This article was first published on IRMI.com and is reproduced with permission.
Copyright 2019, International Risk Management Institute, Inc.