Primary and Noncontributory Provisions and Priority of Coverage

The contract between the developer and the general contractor contains a requirement that the general contractor had an obligation to name the developer as an additional insured under a commercial general liability (CGL) policy with a $1,000,000 per occurrence limit. The contract between the general contractor and the subcontractor also contained a similar provision requiring the subcontractor to obtain additional insured coverage for both the developer and the general contractor.

When the developer is served with the complaint, its own insurer tenders coverage to the general contractor’s insurer and the subcontractor’s insurer. Similarly, the general contractor tenders the lawsuit to the subcontractor’s insurer. The subcontractor’s insurer receives the tenders and evaluates the terms of its policy. The subcontractor’s policy contains a blanket additional insured endorsement in the CGL policy, which states, “Who Is An Insured is amended to include as an insured any person or organization for whom you are performing operations when you have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy.” Based on that provision, and its evaluation of the contract that the subcontractor signed, the subcontractor’s CGL insurer determines that both the developer and the general contractor are entitled to additional insured status under the subcontractor’s policy.

However, the subcontractor’s insurer then goes a step further to determine the priority of coverage for both the developer and the general contractor. The subcontractor’s CGL insurer notes that the subcontractor’s policy contains a primary and noncontributory endorsement that provides, “This insurance is excess over all other insurance available to the additional insured whether on a primary, excess, contingent or any other basis. But if required by ‘written contract,’ this insurance will be primary and non-contributory relative to the insurance on which the additional insured is a named insured.” Increasingly, insurers are incorporating this type of provision that modifies the policy’s other insurance provisions, and these clauses are meant to affect the priority of coverage offered to additional insureds under the policy.

The subcontractor’s insurer reviews the contract that the subcontractor signed and determines that, although the subcontractor agreed to provide additional insured coverage to the developer and the general contractor, there was no requirement that the coverage be primary and noncontributory. Therefore, the subcontractor issues a tender denial to both the developer and the general contractor explaining that, although both entities are entitled to additional insured status, the subcontractor’s insurer has no duty to defend or indemnify either entity until their own policies are exhausted because the subcontractor’s policy is excess to both entities’ other coverage.

Additional insured coverage is an integral part of risk management in countless settings. As in the scenario above, there are numerous reasons why a developer or contractor would want another entity’s liability carrier to defend the owner for a loss. For example, losses can affect an entity’s ability to purchase insurance in the future and affect insurance rates and premiums. Additionally, securing coverage under another liability policy protects the limits that an entity has under its own policy. Relatedly, although in this scenario the developer or general contractor may be entitled to contractual indemnification from the subcontractor, their right to indemnity may not accrue until liability is determined in the underlying bodily injury action. The benefit of the additional insured status is that the duty to defend is triggered by allegations alone—the developer and the general contractor need not wait for a judgment to demand a defense.

Insurance professionals are frequently called upon to evaluate whether an entity is entitled to covered status or whether an exclusion applies. However, the next step in that analysis—and one that frequently arises when there are multiple potential at-fault parties and some of them are entitled to additional insured status under other entities’ policies—is the priority of coverage between or among multiple policies.

Courts differ on their interpretation of provisions similar to those within the subcontractor’s policy in this hypothetical, but knowledge regarding how a court might perform this analysis is important. For example, if we assume in the hypothetical that the value of the employee’s case is approximately $800,000, the general contractor’s insurer may initially be inclined to assume that nothing will ever be owed under its policy. Because the subcontractor’s policy has a $1,000,000 per occurrence limit, the general contractor’s insurer may be inclined to think that the subcontractor’s policy is sufficient to cover a potential judgment and set its reserves based on that assumption.

If, however, the general contractor’s liability insurance is primary to the additional insured coverage granted by the subcontractor’s policy, the risk to the general contractor (and its insurer) would be much greater. Thus, the purpose of this article is to address how courts throughout the country evaluate primary and noncontributory provisions based on decisions made within approximately the past five years.

To be clear, there are various other issues that would impact the hypothetical introduced above. The hypothetical assumes that the developer and the general contractor are entitled to additional insured status under the subcontractor’s policy. However, that determination itself can incorporate multiple other questions. For instance, additional insured coverage may depend on whether the additional insured endorsement contains a privity requirement. Such coverage may also be impacted by whether the underlying bodily injury is alleged to have been caused by an entity’s work on the project. It is also possible, regardless of whether coverage is triggered, that the general contractor may be able to pass its liability through to the subcontractor directly. Practitioners should be mindful of these considerations—but they are outside the purview of this article.

Priority of Coverage Generally

When two or more policies afford coverage for the same risk, then a priority of coverage analysis must be made to determine the priority of coverage among those policies. In order to determine the priority of coverage between the policies, courts must examine all relevant policies. This is typically done by evaluating the policies’ “other insurance” clauses (which could be in the main coverage form, a stand-alone endorsement, or an additional insured endorsement).

The standard “other insurance” language provides that the policy will be primary except in certain enumerated instances, including that the insurance will be excess over any other primary insurance available to the insured for which the insured has been added as an additional insured. Thus, most policies anticipate that if the named insured under the policy is entitled to additional insured coverage under another policy, the policy providing additional insured coverage will be primary to the named insured’s own policy.

Importantly, most courts determine that the only evidence necessary in conducting a priority of coverage analysis are the relevant insurance policies. In other words, an underlying trade contract is not a factor in evaluating priority of coverage unless one or more of the policies specifically require that the contract be evaluated:

[A]ny requirements in the Subcontract cannot change the relative priority of coverage between the Mt. Hawley Policy and the SNIC Policy. Where a subcontract requires a subcontractor to procure insurance, the subcontract terms govern the rights between the parties to the subcontract, while the terms of the insurance policy govern the scope of insurance coverage. Thus, when a subcontractor procures insurance required under a subcontract, but that insurance does not provide the level of coverage required by the subcontract, the terms of the insurance policy, not the subcontract, control the insurer’s obligations. Therefore, notwithstanding whatever obligations Spray Foam undertook through the Subcontract, it is the language of the Mt. Hawley Policy which governs Mt. Hawley’s obligations toward its insureds, not the Subcontract.

Thus, in the hypothetical above, the subcontractor’s insurer looked to the contract to determine whether there was a requirement that its named insured provide the additional insureds with coverage that was primary and noncontributory, only because the other insurance provision within its policy conditioned coverage on the terms of the trade contract.

In the hypothetical with respect to coverage for the general contractor, some courts will determine either: (1) the coverage under the general contractor’s own policy is primary, and therefore that insurer has the sole obligation to defend the general contractor; (2) the coverage under the subcontractor’s policy is primary, and therefore that insurer has the sole obligation to defend the general contractor; or (3) the coverage available under each policy is co-primary, and therefore each insurer must share the costs of defending the general contractor.

Additional complicating factors are often at play because an owner or developer may be entitled to additional insured coverage under multiple policies. For example, in the hypothetical above, the developer may be entitled to additional insured coverage under the general contractor’s policy as well, in which case the priority of coverage analysis requires review of the developer’s policy, the general contractor’s policy, and the subcontractor’s policy. Furthermore, many entities have both primary and excess policies, so there may be questions regarding the interplay of those policies as well.

Application of the Provision’s Plain Language

Some courts have interpreted the language of a primary and noncontributory endorsement according to the endorsement’s plain language. For example, in Arch Insurance Co. v. Charter Oak Fire Insurance Co., a subcontractor agreed to provide particular entities with additional insured coverage under its CGL policy. However, the subcontractor’s policy stated that the policy would provide primary coverage to additional insureds only if there was a written contract specifically requiring that the subcontractor’s coverage apply on a primary basis. Thus, the subcontractor’s carrier argued that because the subcontractor’s contract did not contain a requirement that the policy be primary, the additional insured coverage would be excess to their own primary policies.

The Sixth Circuit Court of Appeals also addressed this issue in Commerce & Industry Insurance Co. v. Century Surety Co. Although the provision at issue was a more general one that declared itself excess over any other available insurance, the court elaborated on the purpose of additional insured coverage generally. In so doing, the court explained that it was “strange” that the policy would have such a provision without any qualifying language to honor its named insured’s contractual obligations. However, the court noted that it was prohibited from reading an “additional insured exception” into the policy and that, by its plain language, the policy provided excess coverage.

A Michigan federal court went a step further in Travelers Property Casualty Co. of America v. Amerisure Insurance Co. In that case, Amerisure issued primary CGL and umbrella policies to a contractor, while Travelers issued primary CGL and umbrella policies to a general contractor. The dispute in the lawsuit was the priority of coverage owed to the general contractor. The primary dispute was over an endorsement in the Amerisure umbrella policy titled “Additional Insured—Primary/Non-Contributory Coverage when Required by Written Contract, Written Agreement, or Certificate of Insurance.” The endorsement added the following language to the Amerisure policy: “If coverage provided to any additional insured is required by a written contract, written agreement, or certificate of insurance, we will provide coverage to the additional insured on a primary basis without contribution from any other valid and collectible insurance available to the additional insured.”

Thus, Travelers argued that because the contractor had agreed in its contract to provide the general contractor with additional insured coverage, then pursuant to the endorsement’s terms, the Amerisure umbrella policy was primary coverage. The court disagreed, reasoning that the endorsement’s title stated that primary coverage would be afforded when required by a written contract. Thus, the court concluded that “[b]ecause no written contract, agreement, or certificate of insurance required [the contractor] to provide [the general contractor] additional insured coverage on a primary/non-contributory basis, the additional insured-primary/non-contributory endorsement to the Amerisure umbrella policy does not apply.”

Courts differ on the significance of the language that may appear in the title of an endorsement. For instance, in Depositors Insurance Co. v. Ubrina, the court took a different track than Travelers, holding that coverage to be primary even though the endorsement was titled “Additional Insured—When Required in an Agreement or Contract with You Primary and Non-Contributory.” Despite the endorsement’s title, the court disagreed with the insurer’s argument that a requirement for primary and noncontributory coverage must be contained within the underlying contract.

However, the Amerisure court’s interpretation of the language and willingness to evaluate the meaning of the endorsement’s title are further indications of the courts’ increasing inclination to afford this type of provision its plain meaning.

Other Factors Necessary to Determine Priority

Other courts have determined that additional insured and priority of coverage disputes can be resolved by sources beyond the underlying contract. For example, previous articles on this topic have addressed cases such as Kuntz v. Park Construction Co. and Maryland Casualty Co. & Assurance Co. of America v. Transportation Insurance Co., where the courts essentially determined that a requirement to obtain additional insured coverage for another party was a requirement that the coverage be primary—even without the explicit requirement—because it makes no sense that an entity would be interested in only obtaining excess coverage.

A more recent case also demonstrates courts’ willingness to evaluate the parties’ intent in making the underlying contract. For example, in Capitol Construction Solutions, Inc. v. Selective Insurance Co. of South Carolina, a general contractor sought additional insured coverage under a policy that Selective issued to a subcontractor. The Selective policy contained an additional insured endorsement providing that the coverage would be excess “unless this coverage is required to be primary and/or not contributory in the contract or agreement referred to above.” Selective argued that because the contract between the general contractor and the subcontractor did not clearly require the subcontractor to obtain additional insured coverage that would be primary, then the coverage available to the general contractor under its policy was excess to the general contractor’s own coverage.

The court’s analysis regarding the issue was extensive. The court referred to earlier Illinois decisions, such as West Bend Mutual Insurance Co. v. DJW-Ridgeway Building Consultants, Inc., which evaluated the issue, in part, based on the full terms of the underlying contract. Specifically, the court referred to the fact that in DJW, the underlying contract required the subcontractor to obtain both general liability and excess coverage, which led the DJW court to conclude, “If [the parties to the contract] intended for the general liability coverage to be excess, they would have so labeled it, as they did the umbrella coverage.”

Thus, the court implied that there could be language in the underlying contract that implied a requirement for the subcontractor to obtain primary CGL coverage—even if that requirement was not explicit. For example, if the subcontractor had been required to obtain both CGL and excess liability coverage, then the court would likely have determined that the requirement to obtain CGL coverage was a requirement to obtain primary coverage. In other words, if the requirement to obtain CGL coverage were a requirement for excess coverage, then the requirement to obtain the excess liability policy would not make any sense.

Split Authority in New York

Until just a few years ago, there was a clear split of authority in New York courts regarding interpretation of primary and noncontributory endorsements. Since 2019, however, New York courts have become increasingly more likely to afford the plain meaning to a primary and noncontributory endorsement.

Mazo v. DCBE Contracting Inc. involved a coverage dispute over a general contractor’s policy and its liability coverage available as an additional insured under a policy issued by Harleysville. In evaluating the priority of coverage, the trial court restricted its review to the other insurance language within the general contractor’s own policy, which stated that the coverage to the general contractor would be excess over any “other primary insurance available to [the general contractor] for which [it had] been added as an additional insured by attachment of any endorsement.” Without even looking at the language of the Prosight policy, the court determined, “DCBE is an additional insured on Harleysville’s policy. That means that Prosight’s policy is excess to Harleysville’s policy in regard to the coverage provided by Harleysville.”

This decision was reversed by the appellate court. The appellate court explained that the Harleysville policy contained an endorsement stating that its coverage would be excess over any other available insurance unless the underlying trade contract required the Harleysville coverage to be primary. Because there was no such requirement in the contract, the court concluded that the Harleysville policy provided excess coverage.

That same appellate court issued a very similar decision in Endurance American Specialty Insurance Co. v. Harleysville Worcester Insurance Co. The court determined, “Furthermore, the Harleysville policy, by its terms, provides excess coverage to NYCHA, and the underlying contract between WWC and Harleysville did not ‘specifically’ require the Harleysville policy to be primary. The parties are therefore not co-primary insurers, and Harleysville has no obligation to provide primary coverage.” The fact that the court’s decision was so brief suggests the court viewed the issue as straightforward.

Similarly, although the case did not involve a primary and noncontributory endorsement, the court in Gemini Insurance Co. v. Golden Insurance Co. signaled a willingness to determine that an entity’s own liability policy may be primary to another policy under which it is an additional insured. In this case, the policy with the additional insured coverage contained an other insurance provision that declared its coverage excess to any other policy under which an entity was entitled to coverage. Notably, the court rejected the argument that additional insured coverage is always primary coverage. The court determined that, based on the two policies’ clear other insurance provisions, it was not required to evaluate the trade contract and that the additional insured coverage was excess.

There are also numerous New York cases that did not specifically analyze an endorsement but insinuated that they would be inclined to afford the endorsement its plain meaning. For example, in a very brief decision, the court held, “in light of the Merchants policy language specifically providing that it is primary and noncontributory for any additional insured, ACC, as an additional insured, is entitled to receive primary coverage from Merchants.”

Contrary to these decisions, there are still some New York courts that refuse to afford this type of endorsement its plain meaning. For example, in L&L 2085 Amsterdam Realty, LLC v. Starr Indemnity & Liability Co., the court acknowledged that the contract did not require primary coverage, but noted that there was no evidence that the parties to the contract had intended for the additional insured coverage to be excess. The court explained the “theory” that a policy affording additional insured coverage would provide excess coverage “defie[d] the standard definition of an additional insured and common sense about the purpose of obtaining additional insured coverage.”

Multiple Other Insurance Provisions within the Same Policy

The priority of coverage may depend on the courts’ interpretation of how multiple applicable endorsements interact. In some instances, a policy may contain a standard Insurance Services Office (ISO) form with priority of coverage language, an additional insured endorsement that includes priority of coverage language, and even a separate primary and noncontributory endorsement. The question in those cases becomes, Which other insurance provision should be applied?

This was the primary dispute in Travelers Property Casualty Co. of America v. Wesco Insurance Co. There, owner Broadway hired JT Magen as the general contractor, which in turn hired subcontractor RBS. Hanover issued a CGL policy to Broadway, Travelers issued a CGL policy to JT Magen, and Wesco issued a CGL policy to RBS. At issue in this case was the priority of coverage owed to Broadway. The Travelers policy contained a blanket additional insured endorsement that contained the following primary and noncontributory language:

Any coverage provided by this endorsement to an additional insured shall be excess over any other valid and collectible insurance available to the additional insured . . . unless a written contract or written agreement . . . specifically requires that this insurance apply on a primary or non-contributory basis. When this insurance is primary and there is other insurance available to the additional insured from any source, we will share with that other insurance by the method described in the policy.

The policy also contained an other insurance endorsement, which provided that it modified the standard “other provision” within the policy’s main coverage form. That endorsement provided, “if there is an insured loss under coverages A and B, Travelers obligations are ‘excess over any of the other insurance, . . . that is available to the insured when the insured is added as an additional insured under any other policy, including any umbrella or excess policy.’”

The Wesco policy issued to the subcontractor contained standard other insurance language indicating that its policy was primary except in certain circumstances that were inapplicable. Travelers argued that, based on the other insurance language within the blanket additional insured endorsement, its policy should provide additional insured coverage to Broadway that was excess to the additional insured coverage provided by the Wesco policy because the underlying trade contract did not require primary coverage.

The court determined that Travelers’ argument was flawed because there was nothing in the additional insured endorsement asserting that it was amending the policy’s other insurance provision. The court further noted that the Travelers policy’s other insurance endorsement explicitly modified the other insurance language in the main policy form but did not mention the additional insured endorsement or purport to modify it. Thus, the court concluded that the broader other insurance endorsement applied, and the Wesco and Travelers policies were co-primary.

The issue was similar in Westfield Insurance Co. v. Judlau Contracting, Inc. There, the policy contained an endorsement titled “Primary and Noncontributory—Other Insurance Condition,” which provided that its policy would be primary if the named insured agreed to provide primary coverage. The policy also contained a “Contractor Series Endorsement” that contained an other insurance provision that provided the coverage was primary, except in certain limited exceptions. The court ultimately concluded that the latter provision within the contractor series endorsement applied because it was more specific.

Conclusion

To determine whether there is additional insured coverage under another entity’s liability policy, it is important to have a complete copy of that policy. Obviously, the policy is necessary for determining whether coverage is triggered, but in any additional insured analysis, it is equally important to evaluate the priority of coverage between or among all applicable policies. It is important to keep in mind that issues of additional insured triggers and priority of coverage are heavily dependent on jurisdiction, and different courts have come to very different conclusions on these issues.

Additionally, if a priority of coverage dispute is going to require coverage litigation, it is important to know that as well. In several of the cases cited above, the dispute arose out of an underlying bodily injury accident that in some instances occurred 10 years before the resolution of the declaratory judgment action. Thus, knowledge about any given jurisdiction’s analysis vis-à-vis priority of coverage is vital to accurately assessing an insurer’s exposure.