Court Enforces Automatic Additional Insured Provision’s Pre-Condition Requiring Underlying Contract to Be Fully Executed Pre-Loss

By on April 16, 2018
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Many liability policies contain provisions, typically in endorsements, automatically bestowing additional insured status on third parties when called for in certain types of contracts. These endorsements usually require that such contracts be in writing and signed by both parties prior to the date of the event for which coverage is sought. In Selective Ins. Co. of Am. v. BSA, No. 15-0299, 2018 U.S. Dist. LEXIS 56178 (E.D. Pa. April 2, 2018), a Philadelphia federal judge recently enforced the signed written agreement requirement as an unambiguous condition precedent to coverage, denying additional insured status where the underlying contract had not been signed by the named insured.

At issue was a Blanket Additional Insured clause which provided coverage to any organization that the insured, Keystone College, agreed to add to the policy in a written contract, so long as the contract was signed by both the named insured and the additional insured before any loss. The Boy Scouts of America (“BSA”) sought coverage under this provision after a Keystone student was injured on campgrounds owned by BSA. The campground rental agreement required that Keystone add the BSA as an additional insured. Crucially, however, Keystone never signed it.

Rejecting the BSA’s argument that Keystone’s post-accident ratification of the contract sufficed to make BSA an additional insured, the Court held that Selective was entitled to insist upon true compliance with policy’s express requirement of “a written agreement signed by both parties.” The Court thus distinguished the legally-irrelevant issue of whether the policy holder and the BSA had entered a binding agreement among themselves from the distinct, and controlling, issue of whether the policy’s express conditions for automatic coverage had been satisfied. Because they were not, the court refused to find that the third-party agreement expanded the insurer’s coverage obligations under the policy.

The takeaway from this decision is that insurers are entitled to insist that unambiguous conditional language of policies be enforced as written. The relevant inquiry was not whether the parties to the incompletely-executed underlying contract considered themselves bound to it, but whether those conditions had been complied with. As is should be, the insurer was only bound by the terms it had agreed to in the policy, and the policyholder’s failure to comply with this unambiguous condition precedent precluded automatic additional insured status under the policy for its contractual counterparty.

Filed under Commercial General Liability

New York High Court Reconfirms That Pure Pro Rata Allocation Remains the Rule in Continuous Trigger Situations, Rejecting Attempt to Shift Allocation to Insurers for Periods Where Insurance Was Commercially Unavailable

By and on April 4, 2018

Rejecting policyholder arguments that losses during periods where pollution liability insurance was commercially unavailable should be allocated to insurers of other periods, the New York Court of Appeals recently confirmed that New York remains a pure pro rata/time on the risk allocation state. In Keyspan Gas East Corporation v. Munich Reinsurance America, Inc., the policyholder, Keyspan Gas East Corporation (Keyspan), sought coverage to clean up environmental contamination at a site that began in the 1890s and continued for decades. Century Indemnity Company (Century) issued eight excess insurance policies between 1953 and 1969, and the trial court found that environmental liability insurance was unavailable prior to 1925 and after 1970.

The Court of Appeals previously adopted the pro rata approach to allocating responsibility for coverage for progressive injury claims spanning across multiple policy periods in Consolidated Edison Co. of N.Y. v Allstate Ins. Co., 98 NY2d 208 (2002). Keyspan, however, argued that an equitable exception should be created for periods where insurance was commercially unavailable, and that liability for such periods should be allocated to insurers of other time periods. Rejecting this so-called “unavailability rule,” the Court found Keyspan’s arguments irreconcilable with the unambiguous language of Century’s policies, which like nearly all general liability policies, limits the insurer’s liability to property damage that occurs “during the policy period.” Losses sustained outside that period – such as years insurance was unavailable – are not within the scope of coverage.

Importantly, the Court took pains to emphasize that its recent decision in Matter of Viking Pump, Inc., 27 NY3d 244 (2016), that “all sums” allocation is appropriately applied to policies containing “anti-stacking” or “noncumulation” clauses that collapse coverage across multiple policy periods into a single period, did not presage a retreat from the Court’s prior adoption of pro rata allocation. Instead, the Court emphasized that its fundamental rule is that policies must be enforced according to their contractual language and that so-called “public policy” or “equity” concerns cannot serve to permit New York’s Courts to rewrite the bargain between an insurer and its insured.

The Court’s holding is a significant win for insurers in New York involved in “long-tail” insurance claims, particularly those stretching across several decades. The holding reaffirms strict compliance with the pro-rata approach to allocation, and holds insurer’s liable only for their time on the risk. Emphasizing the importance of permitting insurers to select for themselves the risks they choose to underwrite, the Court rejected Keyspan’s bid to rewrite the policy for “public policy” reasons, and refused to find coverage that was never underwritten and never contemplated by the parties. While this case involved environmental contamination, it also can be expected to have important repercussions for long-tail personal injury claims such as asbestos, where coverage for asbestos claims has been commercially unavailable to most commercial insureds since the mid-1980s.

Filed under Environmental Liability Insurance