By Jonathan A. Cass, Esq.
A recent court decision in New Jersey serves as a reminder of the importance of ensuring that subcontractors obtain coverage consistent with their contractual obligations.
In Jeffrey M. Brown Associates, et al. v. Interstate Fire and Casualty Company, the plaintiff-general contractor (GC) (and its insurance carrier) sued the subcontractor's insurer seeking coverage as an additional insured under the subcontractor's commercial general liability (CGL) policy. The subcontract between the GC and the subcontractor required the subcontractor to name the GC as an additional insured, and to have the subcontractor's CGL policy be primary to any other insurance coverage that the GC had (i.e., to be the first policy to provide coverage to the GC). However, contrary to the contractual requirements, the subcontractor's CGL policy did not include the primary requirement, but, rather, only provided excess coverage to the GC.
As a result, the Court concluded the subcontractor's insurance carrier was not required to provide coverage to the GC until the GC's own coverage limits were exhausted. Since the underlying claim had been settled for less than the coverage limits for the GC's policy, the GC's insurance carrier was responsible for paying the entire claim. (In its opinion, the Court noted that the GC was pursuing a separate action against the subcontractor for failing to obtain the appropriate insurance coverage -- the likely result when a subcontractor fails to obtain the required insurance coverage to the detriment of a general contractor.)
The lesson to be learned is that general contractors need to confirm that their subcontractors have obtained the appropriate insurance coverage required under the subcontract. A Certificate of Insurance, alone, is often not enough to confirm that the appropriate coverage has been obtained. A contractual provision requiring that the subcontractor attach copies of the required policies (or at the very least, the relevant additional insured endorsement) to the Certificate of Insurance is a better practice. Similarly, subcontractors need to confirm with their insurance agents and brokers that they have obtained the required insurance coverage. Time spent at the beginning of the project making sure that contractual insurance requirements have been met can help avoid discovering later in the project, and after a claim arises, that the correct coverage was not obtained.
Jonathan A. Cass is Senior Counsel at Cohen Seglias and Co-Chair of the Firm's Insurance Coverage and Recovery Group. Mr. Cass frequently lectures and writes on insurance coverage and other risk management issues affecting contractors. He can be reached at (215) 564-1700 or firstname.lastname@example.org.