Insurance claim form and insurance policyA recent Summary Order from the Second Circuit Court of Appeals highlights the difficulties that often arise with other insurance clauses and additional insureds. Which carrier has the primary duty to defend and indemnify an underlying action is a question that turns up with frequency when there are multiple parties sued and multiple possible applicable insurance policies. This is especially true in construction litigation where owners, general contractors and others are often required to be named as additional insureds in subcontractor policies by the underlying construction contracts. How that all shakes out depends on the specific language in the policies.

In Liberty Ins. Corp. v. Admiral Ins. Co., No. 3:14-CV-949 (N.D.N.Y. Apr. 17, 2015, aff’d, No. 16-1983-cv (2d Cir. Apr. 25, 2017) (Summary Order), two actions were commenced by the underlying plaintiff against private and public parties involved in a construction project on a state university campus. A subcontractor obtained its own CGL policy as required by its contract and its sub-subcontractor also had its own CGL coverage from another insurance company. The sub-subcontract required that the insurance policy name the public entities and the subcontractor and general contractor as additional insureds and that the insurance “shall apply as primary insurance, on a noncontributory basis before any other insurance.” The sub-subcontractor’s policy included an Other Insurance clause and a Primary/Non-Contributing Insurance Endorsement.

The subcontractor’s policy also had additional insured and Other Insurance clauses. The Other Insurance clause provided that the subcontractor’s policy will be excess “unless the written agreement with you requires that the insurance provided for the additional insured be primary concurrent or primary non-contributory, in comparison to the additional insured’s own policy or policies.” The subcontractor’s contract also required that the general contractor and the public entities be named as additional insureds.

The question for the court was whether both carriers, each of which had a duty to defend, had a co-primary duty or whether one carrier owed the sole primary duty to defend the four defendant entities. The district court held that the sub-subcontractor’s carrier had the sole primary duty. The Second Circuit affirmed.

In affirming, the Second Circuit agreed with the district court that the subcontractor’s Other Insurance clause made that policy primary only as to the additional insureds’ own policies. In other words, the relevant policy is not the sub-subcontractor’s policy, but the policies issued directly to each of the four entities (the general contractor and the public entities) as named insureds. The court interpreted the language in the subcontractor’s Other Insurance clause referencing the additional insureds’ own policies to mean that the subcontractor’s policy was primary in comparison only to the policies issued directly to the additional insureds and not the sub-subcontractor’s policy that named the entities solely as additional insureds.

In so finding, the Second Circuit held that this interpretation of the “in comparison” clause comported with the reasonable expectations of a business person. The key is to carefully read the Other Insurance clauses in the relevant insurance policies and to have a clear understanding of which policy will be responsible as the primary carrier should a claim arise.