Subcontractors As Additional Insureds: Check the Contract!
Recently, in Westfield Insurance Co. v. FCL Builders, Inc., the First District considered whether a contractor was an additional insured under an insurance policy issued by Westfield to a third party. This case arose out of the all too common situation where a general contractor requires a subcontractor to obtain insurance as part of its agreement to perform work on a particular project. In this case, FCL subcontracted the steel fabrication out to Suburban Ironworks, Inc. and required Suburban to obtain liability insurance which would cover not only Suburban but FCL as well. Suburban in turn subcontracted the steel erection work to JAK Ironworks, Inc. The agreement between Suburban and JAK was incorporated by reference a master agreement between the two parties which required JAK to obtain insurance that would cover JAK, Suburban and FCL in the event of an accident on the steel erection project.
The project progressed and one of JAK’s employees was injured. Westfield, which issued the insurance policy to JAK was asked by FCL to defend and indemnify it against the allegations made by the injured employee in a lawsuit. Westfield refused to do so claiming that FCL did not qualify as an additional insured under the policy issued to JAK. The JAK policy contained an endorsement which required two conditions to be met before a third party could become an additional insured. Those conditions were: 1) the entity seeking coverage must be one “for whom you [JAK] are performing operations;” and 2) JAK and the entity seeking insurance coverage must have agreed “in writing in a contract or agreement” that the entity seeking coverage must be added to the policy as an additional insured.
The First District found that Westfield had no duty to defend FCL under the policy it issued to JAK because there was no agreement in writing between JAK and FCL for FCL to be an additional insured. Because the policy explicitly and unambiguously required a direct written agreement between the insured, JAK and the prospective additional insured, FCL and no such written agreement existed, the court found that FCL did not become an additional insured.
This case represents another example of the variety of coverage issues which arise out of multi party construction projects and the distribution of risk between the participants and their insurers. It emphasizes the importance to not only review the contracts for indemnity, insurance and other risk allocation provisions but also the importance of reviewing not only contracts but any applicable insurance policies when involved in construction projects.
