SDV Insights

Additional insured endorsements often provide “blanket” coverage to persons or organizations as required by a written contract. However, the wording of the “blanket” language is critically important, as the inclusion of certain phrases in an additional insured endorsement can result in a denial of coverage for the upstream party.

For example, risk transfer issues can arise when an additional insured endorsement provides coverage to parties “when you [the named insured] and such person or organization [the additional insured] have agreed in writing in a contract or agreement.” Courts in New York (among other jurisdictions) have interpreted this phrase to require contractual privity – that is, only the entity that contracted directly with the named insured is entitled to additional insured coverage, even if the named insured agreed in that contract to provide additional insured coverage for others as well. The same goes for the phrase “any person or organization with whom you [the named insured] have agreed to add as an additional insured by written contract.”

Recently, the Second Department of the New York Appellate Division also interpreted the phrase “for whom you are performing operations” as requiring contractual privity, giving rise to yet another obstacle for parties seeking additional insured coverage in New York. In New York City Hous. Auth. v. Harleysville Worcester Ins. Co.,¹  Oceanhill, LLC (“Owner”) and Blue Sea Construction Company, LLC (“General Contractor”) entered into a contract for construction services. The General Contractor then entered into a contract with A&R Electrical Maintenance (“Subcontractor”) to provide electrical services for the project. An employee of the Subcontractor was injured and sued the General Contractor, the Owner, and several noncontractor entities (including the housing authority, the development company, etc.).²  Pursuant to the subcontract, the Subcontractor was required to maintain commercial general liability insurance naming the General Contractor, the Owner, and the noncontractor entities as additional insureds. As such, those parties sought additional insured coverage under the Subcontractor’s commercial general liability policy, which was issued by Harleysville, and coverage litigation followed.

The Harleysville policy contained an endorsement titled “ADDITIONAL INSURED—OWNERS, LESSEES OR CONTRACTORS—AUTOMATIC STATUS WHEN REQUIRED IN CONSTRUCTION AGREEMENT WITH YOU—ONGOING OPERATIONS,” which 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.”³  At the trial level, Harleysville argued that because only the General Contractor had a contract with Subcontractor, the Owner and the noncontractor entities lacked the contractual privity required to trigger coverage under the endorsement. Meanwhile, the General Contractor, Owner, and noncontractor parties argued that the Harleysville endorsement does not require contractual privity and that coverage was triggered because the subcontract plainly required that the parties be included as additional insured on the Subcontractor’s insurance.

The trial court denied Harleysville’s motion for summary judgment, which sought to dismiss the complaint. However, the Second Department modified the decision on appeal, holding that the additional insured provision at issue “is properly interpreted to require privity of contract between the named insured and the party seeking additional insured status” and citing two New York cases for support – Yonkers Lodging Partners, LLC v. Selective Ins. Co. of Am.⁴ and Kel-Mar Designs, Inc. v. Harleysville Ins. Co. of New York.⁵  The Second Department therefore held that the General Contractor qualified for additional insured coverage because the General Contractor and Subcontractor had a direct contract with each other, but no coverage was available for the Owner or the noncontractor parties despite the Subcontractor’s agreement to provide additional insured coverage for those entities.

The Second Department’s decision is disconcerting because neither Yonkers nor Kel-Mar is on point. The additional insured endorsement at issue in Yonkers provided coverage to “any person or organization with whom you have agreed in writing in a contract . . . that such person or organization be added as an additional insured on your policy.” While the phrase “with whom you have agreed in writing” has been interpreted to require contractual privity in New York, it is clearly different than the phrase “for whom you are performing operations” at issue in the NYCHA case. Meanwhile, the policy language at issue in Kel-Mar is comparable to that in NYCHA, but the decision in Kel-Mar merely states that the claimants were not entitled to additional insured coverage because the named insured “did not perform operations for them pursuant to a written contract” – a far cry from holding that the policy language required direct contractual privity in order to convey coverage.

The accuracy of the Second Department’s decision is also called into question by the fact that the Southern District of New York came to the direct opposite conclusion just last year. In Travelers Prop. Cas. Co. of Am. v. Harleysville Worcester Ins. Co.,⁶  the district court held that the exact same additional insured provision in the NYCHA case did not require direct contractual privity. The court evaluated the plain meaning of the phrase “for whom” and explained that “it is possible to perform work for a person or organization without having direct privity of contract with them.” However, the Travelers case was decided after the NYCHA appeal was briefed, and it is not clear from the record whether the decision in Travelers was brought to the Second Department’s attention prior to the issuance of the decision in NYCHA.

The NYCHA decision is concerning for entities seeking coverage as additional insureds in New York, where courts continue to broadly import privity requirements into blanket additional insured endorsements, thereby restricting the parties’ intended risk transfer. Many additional insured endorsements that are commonly considered acceptable for risk transfer in New York include phrases similar to that at issue in the NYCHA case. In light of the NYCHA decision, upstream parties will need to be more vigilant than ever to ensure that the downstream party’s insurance does not require contractual privity in order to trigger additional insured coverage. Contact SDV to learn how other states approach the contractual privity problem and for advice in avoiding its restrictive effect on risk transfer.

For more information, please contact Nina Catanzaro at NCatanzaro@sdvlaw.com or Bethany Barrese at BBarrese@sdvlaw.com.
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¹ No. 2019-13582, 2024 WL 1545515, at *1 (N.Y. App. Div. Apr. 10, 2024).
² While the decision in New York City Hous. Auth. v. Harleysville Worcester Ins. Co. states that the injured plaintiff commenced an action against the Subcontractor (among others), the docket in the underlying action reflects that the Subcontractor was brought into the litigation as a third-party defendant.
³ Id. at *2.
⁴ 72 N.Y.S.3d 104 (N.Y. App. Div. 2018).
⁵ 8 N.Y.S.3d 304 (N.Y. App. Div. 2015).
⁶ No. 22 CIV. 2171 (KPF), 2023 WL 4896169 (S.D.N.Y. Aug. 1, 2023).