Privity of Contract Needed for Additional Insured Status Under CG

Simply including a requirement in a contract to add certain parties as additional insureds under a commercial general liability insurance (CGL) policy may not be enough to ensure such coverage is provided in New York. In New York City Hous. Auth. v. Harleysville Worcester Ins. Co., 226 A.D.3d 804 (2024), the New York Supreme Court Appellate Division – Second Department ruled that the language in an insurance endorsement required privity of contract with the insured party subcontractor to obtain additional insured status and denied coverage to others despite a provision in a subcontract requiring such additional insured coverage.

In this case, an owner entered into a contract with a general contractor for construction services. The general contractor entered into a subcontract with a subcontractor. The subcontractor agreed to procure and maintain a CGL policy naming the owner, the general contractor, and another related party as additional insureds thereunder. An employee of the subcontractor was injured on the project and sued the three additional insureds and several other parties. Subcontractor’s insurance company refused to defend and indemnify any party other than the general contractor. All the parties sued by the subcontractor’s employee brought an action against the subcontractor’s insurance company, seeking coverage for defense and indemnification as additional insureds under the subcontractor’s CGL policy.

The subcontractor’s insurance endorsement at issue is provided in the below relevant part:

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.

The court interpreted the prepositional phrase “for whom” to require privity of contract between the named insured subcontractor and the party seeking additional insured status. Since the general contractor was the only party who contracted directly with the subcontractor, only the general contractor qualified for additional insured coverage under the terms of the CGL policy. Even though the subcontractor agreed to add other parties as additional insureds in the subcontract, the language in the endorsement precluded all other parties not in privity with the subcontractor from additional insured coverage. The court also ruled that the language in the subcontract incorporating the terms of the prime contract between the owner and general contractor, which required the general contractor to add the owner as an additional insured under its policy, was insufficient to confer additional insured status on the owner with respect to the subcontractor’s policy.

To ensure additional insured coverage in New York, owners and general contractors should obtain and review copies of all subcontractor insurance policies and endorsements before the commencement of work to ensure a prepositional phrase such as “for whom” or “with whom” relating to privity of contract is not included as a condition of additional insured coverage.