Recently, we’ve been working with a General Contractor on a claim for injury to a Subcontractor’s employee. The situation is outlined as follows (names have been removed):
General Contractor (GC) subcontracted work to a masonry subcontractor (Sub). An employee of the Sub fell off scaffolding on the jobsite and has lower back pain, broken ribs and additional injuries. The Sub’s Workers Compensation policy has been paying for his medical and indemnity costs since the accident. The employee then filed a third-party over action claim against the GC for an “unsafe work environment”
The contract between the parties requires the Sub to indemnify the GC for any claim which may arise including claims by the Sub’s employees. The insurance provisions require that the GC be named as an additional insured on the General Liability and Umbrella Liability policies and that the Sub carry $1,000,000 per occurrence in General Liability coverage and a $2,000,000 Umbrella Liability policy.
The contract does not require “primary & non-contributory” wording be included on any policy.
The GC tendered suit to the Sub and its insurance carriers with the following responses received:
- Sub’s General Liability Insurance Carrier: accepted the tender and will provide defense and indemnity for the GC up to the $1,000,000 per occurrence limit.
- Sub’s Umbrella Insurance Carrier: accepted the tender and will provide defense and indemnity for the GC assuming that all applicable underlying policies are exhausted.
Unfortunately, the requirement that “all applicable underlying policies are exhausted” triggers coverage under the GC’s policies as well. Since the GC is included as an “additional insured” on the Umbrella policy, then their General Liability policy would be “valid and collectible” insurance for this claim and would need to be exhausted before the Sub’s Umbrella will apply.
This also creates an issue for the Sub in that they have a contract that specifically requires them to indemnify and hold the GC harmless for any and all claims. The Umbrella carrier maintains that they did not sign the contract with the GC and are therefore not responsible to pay until the GC’s General Liability policy has been exhausted. Since their insurance policy will not apply, the Sub is responsible for coverage directly (i.e.: their assets and credibility as a subcontractor are now in jeopardy).
Umbrella Policy Wording
The Umbrella insuring agreement of one of our partner insurance companies reads as follows:
“We will pay on behalf of [the Insured] all sums in excess of the Retained Limit that the Insured becomes obligated to pay…because of Bodily Injury or Property Damage that occurs during the Policy Period and is caused by an Occurrence…”
However, the Conditions and Definitions section with regards to “Other Insurance” reads as follows:
Conditions:
“L. Other Insurance: If Other Insurance applies to damages that are also covered by this policy, this will apply excess of, and shall not contribute with, that Other Insurance, whether it is primary, excess, contingent or on any other basis…”
Definitions:
“P. Other Insurance means any insurance providing coverage for damages covered in whole or in part by this policy…”
“J. Insured means…any person or organization other than the Named Insured, included as an Additional Insured in any Scheduled Underlying Insurance…”
The GC’s additional insured status qualifies them as an “insured.” As such, the Other Insurance provision requires that the GC’s General Liability policy be exhausted prior to the Travelers’ Umbrella policy taking effect.
Contractual Solution (adequate?)
One would assume that the addition of primary and non-contributory wording into the contract between the GC and Sub would remedy the need for the GC’s General Liability coverage to respond as underlying coverage. However, Travelers has maintained that since they were not privy to contract negotiations nor did they sign the contract with the GC, they cannot be bound to the terms of the contract. Therefore, without specific “primary and non-contributory” wording in the Umbrella policy, coverage would apply in the same manner as stated above regardless of the contractual obligation between the GC and Sub.
The solution, therefore, is having a “primary, non-contributory” endorsement added to any Umbrella/Excess policy for anyclient required to indemnify another party and include them as additional insured on a primary/non-contributory basis. We must also recommend that this requirement be passed along to any lower-tiered subcontractors.
Unfortunately, this may be much more difficult in practice. Of the insurance policies reviewed by Safegard, only two (2) carriers specifically address this concern in their standard policy form.
Conclusion:
Safegard and our clients remain extremely vigilant when reviewing policies and discussing coverages for subcontractors. If an umbrella insurance carrier is unable to provide “primary, non-contributory” status for additional insureds, then other avenues of recourse should be explored. This is extremely important and differs per jurisdiction (horizontal versus vertical exhaustion states) and Safegard has remained on the forefront since it came to light in recent years.
While this coverage is most important for General Contractors and Subcontractors, it is not specific to the construction industry. Any owner, manager or entity that subcontracts work to any other entity would have this concern. It could also apply to owner/tenant relationships. The contracts and the insurance policies have to work in concert in order for the interests of the contracting and subcontracted parties to be protected.