A recent New York case highlights the importance of thoroughly analyzing all contract language in minimizing project risk. In Gilbane Bldg. Co./TDX Construction Corp. v. St. Paul Fire & Mar. Ins. Co., the Court of Appeals of New York held that a named additional insured was not covered under an insurance policy because the plain meaning of the language in the policy endorsement required a written contract between the policyholder and the additional insured.
The Dormitory Authority of the State of New York (“DASNY”) contracted with Samson Construction Company (“Samson”) as general contractor for the construction of a new building. DASNY also contracted with a joint venture, formed by Gilbane Building Company and TDX Construction Corporation (the “JV”), to serve as construction manager on the project. The contract between DASNY and Samson required Samson to procure general liability insurance for the project and name the JV as an additional insured. Samson obtained this coverage from Liberty Insurance Underwriters (“Liberty”).
Thereafter, DASNY sued Samson and the project architect. In turn, the architect filed a third-party complaint against the JV, which then provided notice to Liberty seeking defense and indemnification. Liberty denied coverage, and the JV initiated suit against Liberty, arguing that it qualified for coverage as a named additional insured. The New York Supreme Court denied Liberty’s motion for summary judgment and held that the JV was an additional insured under the applicable insurance policy. The Appellate Division reversed and the Court of Appeals affirmed.
The court reviewed the language of the additional insured provision which read, in relevant part, “an insured [is] any person or organization with whom you have agreed to add as an additional insured by written contract…” Here, the JV and Samson did not have a written contract with one another. Nonetheless, the JV argued that the written contract requirement conflicted with the plain meaning of the language in Liberty’s endorsement, “well-settled rules of policy interpretation,” and the parties’ reasonable expectations. The court disagreed, and found that the language was facially clear. It concluded that Liberty’s endorsement would only provide coverage to the JV if Samson and the JV entered into a written contract because “unambiguous provisions of an insurance contract must be given their plain and ordinary meaning.”
The court then explained how the outcome would differ if the provision did not include the word “with.” In that case, the endorsement would have provided coverage to “any person or organization whom [Samson had] agreed by [any] written contract to add...” Since Samson already contracted with DASNY to add the JV as an additional insured, coverage would have been effective as to the JV.
The key takeaway of this case is broadly applicable. It is critically important to analyze all contract documents to ensure an accurate understanding of the language used. Realistically, parties often become complacent during the contract review process, especially when certain documents are considered “standard” or when a document seems like a minor formality to finalize a contract. As a result of the hurried nature of review, or the overwhelming volume of contract documents requiring review, parties can easily adopt a reading of contract language that might reflect reasonable expectations but does not necessarily adhere to the plain meaning of the language. And that diligence must extend to insurance policies, which may come into existence after the contract is signed, such as the policy at issue in this case. Ignoring the actual language of the policy can result in significant risk exposure.