Everyone in construction loves OPI—other people’s insurance. The most common and direct way to access OPI is to require it in your construction contracts, usually via additional insured status. But in recent years, insurance companies have successfully narrowed access to additional insured coverage through litigation and policy drafting. If you want to be an additional insured to OPI these days, then get your contracts right and make sure your insurance is right!

Construction projects commonly transfer the risk of third-party claims through indemnification and additional insured coverage under commercial general liability (CGL) policies. The objective is to transfer the risk to the party in the best position to control the risk and for that party to have appropriate insurance. As is well known, if a subcontractor causes bodily injury or property damage at the project, the general contractor and property owner will almost certainly also be named as defendants against the claim. Done correctly, additional insured coverage will provide upstream parties, like the general contractor and owner, enormous protection. But many things can go wrong in this area, frustrating the entire risk transfer plan.

In recent years, insurance companies have turned to clever wording in their insurance policies to limit additional insured coverage that usually has been available to owners or other contractors. In 2018, New York’s Court of Appeals affirmed the First Department and held that a particular additional insured endorsement required contractual privity, i.e., a direct written contract between those parties. See Gilbane Building Co./TDX Construction v. St. Paul Fire & Marine Insurance, 31 N.Y.3d 131 (2018). One of us, Allen Wolff, wrote about this Gilbane decision with colleague Dennis Artese following the First Department’s 2016 decision, noting that it was a hyper-technical reading of policy language at odds with common usage in the industry. See Dennis J. Artese & Allen R. Wolff, “Courts Chip Away at Significant Construction Industry Coverage,” Anderson Kill Policyholder Advisor (Nov./Dec. 2016).

In Gilbane, the Court of Appeals cited the insurance company’s additional insured endorsement language from the policy stating: “Who is an insured … is amended to include as an insured any person or organization with whom you have agreed to add as an additional insured by written contract but only with respect to liability arising out of your operations or premises owned by or rented to you.” The insurance company successfully argued that this was different from a requirement to give such status to someone “for whom” the primary policyholder had agreed to extend additional insured coverage. The court interpreted the phrase “with whom” to necessitate contractual privity. This was problematic because such an interpretation was inconsistent with the custom and practice of the construction industry, where there was an understanding that upstream contracting parties and owners were to be additional insureds to each subcontractor’s insurance policy regardless of privity.

A decision out of the Second Department in New York’s appellate courts recently further restricted access to additional insured coverage by imposing a privity requirement on “for whom” language. In April, the court in New York City Housing Authority v. Harleysville Worcester Insurance interpreted an additional insured endorsement to require privity of contract between the named insured and the party seeking additional insured status. 226 A.D.3d 804, 807 (2d Dep’t 2024). The relevant policy endorsement stated: “Who is an insured is amended to include as an insured any person or organization for whom you are performing operations only as specified under a written contract … that requires that such person or organization be added as an additional insured on your policy.”

Site owner Oceanhill, LLC had entered into a contract with general contractor Blue Sea Construction. Subsequently, the general contractor entered into a contract with A&R Electrical Maintenance, a subcontractor, to perform electrical services in connection with the project. Under the subcontract, A&R agreed to provide all materials and labor necessary for the electrical services, as well as to defend, indemnify, and hold the general contractor and site owner harmless for any claims arising from the negligence or omission of A&R. The subcontractor A&R also agreed to procure and maintain a general liability policy naming the site owner, general contractor, and another defendant as additional insureds. A&R had purchased a CGL policy from Harleysville Worcester Insurance Co.

An individual was injured while working for the subcontractor. He brought an action for bodily injury against A&R, Blue Sea Construction, and Oceanhill, among other “noncontractor” parties. Id. at 806. Subsequently, Oceanhill, Blue Sea Construction, and the noncontractor parties brought an insurance coverage action seeking a ruling that Harleysville was obligated to defend and indemnify them as additional insureds in the underlying action. The trial court had ruled against the insurance company, but on appeal the Second Department reversed the trial court and determined that only the general contractor qualified for additional insured status because only the general contractor directly contracted with the named insured. Contractual privity was required, and without it, the other plaintiffs were unable to achieve additional insured status.

The Law Offices of John Caravella, P.C. does not own this content. This content was created by Allen R. Wolff, Ethan W. Middlebrooks and Kathleen Gatti. This material was published to law . com. To view the full article, please click here. 

 John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: John@LIConstructionLaw.com or (631) 608-1346.