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Vol. 2, Iss. 20
October 30, 2013


Who Is “You”?:
If “You” Is “Named Insured” Then “Additional Insured” May Not Be Subject To Policy Exclusions

Cases involving additional insured endorsements are like fingerprints – no two are alike. The language of additional insured endorsements vary tremendously. Manuscript versions abound. And even with many ISO additional insured endorsements available off the shelf, these too can vary quite a bit (and insurers sometimes use older versions of ISO endorsements that have since undergone important changes). In general, what any additional insured endorsement will say, from one policy to the next, can be a complete mystery. And then there’s the claims themselves. They are often fact intensive, with such facts often being outcome determinative. Lastly, courts vary in how they address certain of the principal legal issues that arise in additional insured claims. All of this is to say why I do not often address additional insured cases in Coverage Opinions. Because of their uniqueness, they are less likely than many other types of cases to offer lessons that can apply on a wide scale.

But once in a while an additional insured case comes along that has something to say that can be relevant to more than just the case itself. The Utah Court of Appeals’s decision in America First Credit Union v. Kier Construction Corporation, No. 20101036-CA (Utah Ct. App. Oct. 24, 2013) is one such additional insured case.

The facts are fairly straightforward – a welcomed change from many additional insured cases. America First Credit Union entered into a contract for Kier Construction Corporation to act as the general contractor in the construction of an AFCU branch office building in Slaterville, Utah. Kier subcontracted with Broberg Masonry, Inc. to supply and install manufactured stone veneer for the building. As part of its contract with Kier, Broberg obtained a CGL policy that listed Kier as an additional insured.

AFCU filed a breach of contract action against Kier alleging defective construction due to the cracking and failing of the exterior masonry work on the building. Kier filed a third-party complaint against Broberg. Kier sought coverage as an additional insured from Broberg’s insurer -- Owners Insurance Company.

At issue, among other things, was the potential applicability of the “your work” and “your product” exclusions. At this point I am going to stop addressing the specifics of America First Credit Union v. Kier Construction Corporation – remember, AI cases are unique -- and instead simply focus on a concept in the case that has more wide ranging applicability.

A CGL policy typically states that the terms “you” and “your” refer to the Named Insured. Here, as the Named Insured was Broberg, the court held that “you” and “your” referred only to Broberg and not Kier. Here is why this matters. The court stated: “Under the provisions of the CGL policy, Owners agreed to ‘pay those sums that the insured becomes legally obligated to pay as damages because of ... ‘property damage’ to which this insurance applies.’ However, provisions in the CGL policy exclude coverage for ‘[p]roperty damage’ to ‘your product’ arising out of it or any part of it’ (Exclusion k) and ‘[p]roperty damage’ to ‘your work’ arising out of it or any part of it and including in it the ‘products-completed operations hazard’ (Exclusion l). Because we have determined that ‘you’ and ‘your’ as used in the policy refer only to Broberg, the district court erred in evaluating Exclusion k and Exclusion l from the standpoint of Kier, rather than Broberg. Thus, read correctly, the policy excludes coverage for ‘[p]roperty damage’ to ‘[Broberg's] product’ arising out of it or any part of it’ and ‘[p]roperty damage’ to ‘[Broberg’s] work’ arising out of it or any part of it.”

You can see where this is going. If “you” and “your” refer only to the Named Insured, and not an Additional Insured, then an Additional Insured may not be subject to the same exclusions as a Named Insured. Translation – an Additional Insured, the party for whom very little premium, or maybe even none, was paid, could get more coverage than a Named Insured. This is a complex issue and must looked at on a case by case basis. And there is also the issue of whether an additional insured is entitled to coverage for its own work anyway. However, this distinction has been addressed by courts and its is one that I’ve wondered about. Insurers have done a lot in the past several years with additional insured endorsements in an effort to cut down on unintended exposure. Yet I have seen very little effort made to address this situation.

 
 
 
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