It is the error that won’t go away.  A party, often a general contractor, is entitled to coverage as an additional insured under a subcontractor’s liability policy.  The subcontractor’s broker, advised of this obligation, issues a Certificate of Insurance to the general contractor – the certificate holder -- identifying the subcontractor’s policy.  Then, in the COI’s comments section, it identifies the general contractor and states that it is an additional insured. And it might even go a step further and add that additional insured coverage is provided on a primary and non-contributory basis.

And then the broker’s work ends there.  It does not, in fact, have the general contractor added as an additional insured to the subcontractor’s policy.  That’s one scenario.    

But perhaps that’s no harm, no foul as the general contractor may also believe that it is an additional insured, under the subcontractor’s policy, by way of a blanket additional insured endorsement.  But, for various reasons, sometimes that road to AI coverage does not go as planned.  And when that happens, the general contractor will likely point to the COI, and its statement of additional rights, as its basis for additional insured coverage.

But, of course, the Certificate of Insurance very likely says six ways from Sunday that it is issued for information only and does not confer additional insured status.  Some of these warnings are even written in all or some capital letters. 

Here’s one:  “THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER.”

And another: “IMPORTANT:  If the certificate holder is an ADDITIONAL INSURED, the policy(ises) must have ADDITIONAL INSURED provisions or be endorsed.  If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement.  A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s).”

And, as promised on the COI, courts have generally held that a Certificate of Insurance, despite any statement that such and such party is an additional insured, does not confer such rights on the party.   As a result, the party is denied additional insured status.  And it is likely incredulous and in disbelief given what the COI expressly states.

[Admittedly, there may be some complicating authority/agency issues, based on who issued the COI and their relationship to the insurer.  But, for the most part, parties that seek additional insured rights, when all they have to show for it is a COI, are not successful.]

In my experience, often times nothing comes of all this.  That may be because the general contractor, despite not having additional insured rights, still has its own general liability policy to fall back on.  Therefore, it does not need to pursue the subcontractor for breach of contract.  So, in this case, the party actually harmed is the GC’s insurer, which has now lost the ability to take an excess “other insurance” position over the subcontractor’s policy.  And it likely could have done so based on language in its own policy.  So, alas, the error goes away.

But it did not go away for Malmquist Construction.  And that’s what brings us to the Supreme Court of Montana’s decision in TCF Enterprises, Inc. v. Rames, Inc., No. DA 22-0731 (Mont. Feb. 27, 2024).

Malmquist Construction was the general contractor for two construction projects.  It sub-contracted with C&H Engineering and Surveying.  Malmquist sent C&H a new vendor packet that contained a description of insurance requirements.  It included a sample Certificate of Insurance that contained the following language:

“TCF Enterprises Inc. DBA Malmquist Construction is named as an Additional Insured with respect to General Liability, including Primary/Non-Contributory and Completed Operations coverage, per forms CG2010 0413 and GC2037 0413 or equivalent. Waiver of Subrogation in favor of TCF Enterprises Inc. DBA Malmquist Construction on General Liability.”
  
C&H received the new vendor packet and sent the sample COI to Traci Waddell, the office manager at Central Insurance Agency (now known as Rames).  As required, Waddell prepared a COI that listed Malmquist as the certificate holder and included the following language:

“The certificate holder is listed as an additional insured on a primary and noncontributory basis for General Liability per policy for GCD037 04/05, for ongoing and completed operations. Waiver of subrogation for General Liability applies to certificate holder.”

You can see where this is going.  The court stated: “In contrast to what was represented on the certificate provided by Waddell, Rames did not actually procure additional insured coverage for Malmquist and did not list Malmquist as an additional insured on C&H’s policy through a scheduled endorsement.”

And you can again see where this is going.  C&H did its work on the projects.  Construction defects arose.  The developer sued Malmquist.  Malmquist sought coverage as an additional insured under C&H’s policy issued by Travelers.  Travelers denied coverage on the basis that Malmquist was not an additional insured.  Malmquist paid over $2.2 million for repairs and to settle the developer’s suit.

Malmquist filed suit against Rames, the broker.  Putting aside some procedural issues, a jury found that Rames was negligent and Malmquist suffered $1,000,000 in damages from loss of coverage. 

The case made its way to the Montana Supreme Court.  One of Rames’s arguments – and it is a key one on this issue -- was that it owed no duty to Malmquist because Malmquist was not its client.  As Rames saw it, it was C&H that requested that Rames procedure additional insured coverage for Malmquist’s benefit.

But the court was not persuaded:

“In addition to the duty created by committing to obtain the additional insured coverage after being directed to do so, Rames owed, as all parties do, a general common law duty to use reasonable care under the circumstances to avoid causing foreseeable harm to others.  Waddell, the Rames agent tasked with obtaining additional insured coverage, testified the additional insured coverage was valuable, it was fair for C&H and Malmquist to rely on the COI she sent to believe the coverage stated in the COI was secured, and her email certified and represented to C&H and Malmquist that Malmquist was listed as an additional insured on a primary and non-contributory basis as described in the COI. Waddell did not actually obtain the additional insured coverage. It is foreseeable that a party may be harmed when it believes it has insurance coverage but does not.  And no public policy considerations would bar the imposition of a duty on Rames here, because it is reasonable to expect an insurance agent to secure the coverage it agreed to procure and represented existed. Imposing a duty on an insurance business to act with reasonable care and not misinform its customers regarding their insurance coverage clearly comports with public policy considerations.

“In addition, this Court has recognized and adopted the long-standing principle of tort law that one who assumes to act, even though gratuitously, may thereby become subject to the duty of acting carefully, if he acts at all.  Rames assumed the responsibility to act with due care when it undertook to obtain the additional insured coverage for Malmquist’s benefit requested by C&H.” (citations and internal quotes omitted).

The court also concluded that Waddell was negligent.  Among other things, she testified that the only way to specifically list somebody as an additional insured was through a scheduled endorsement.

Lastly, while I do not address this here, the court also held that the Professional Services exclusion, in C&H’s policy, would not have precluded coverage for Malmquist as an additional insured.   

As I’ve never seen the consequences of this additional insured/certificate of insurance issue addressed in such detail, I included the decision in the annual insurance coverage hit parade.