It is not uncommon for an insured to ask its insurance broker to add a third-party as an additional insured under its insurance policies. This happens most frequently in connection with construction contracts and lease agreement. Typically, the broker will issue a “certificate of insurance” that lists the third-party as an additional insured under the requesting party’s insurance policies.
In Selective Ins. Co. v. Hospicomm, Inc., No. L-1053-04, 2014 WL 4722776 (Sept. 24, 2014), the court addressed the enforceability of a certificate of insurance. The defendant/third-party plaintiff in that case, FJL Enterprises, Inc. (“FJL”), entered into a contract with Merion Gardens Assisted Living, LLC (“Merion”) to build an assisted living facility. FJL entered into a subcontract, in turn, with defendant Fire Suppression to design and install a fire suppression system at the facility. After installation, the fire suppression system malfunctioned and Merion sued FJL and Fire Suppression.
FJL was insured by Selective Insurance Company (“Selective”) and Fire Suppression was insured by Valley Forge Insurance Company (“Valley Forge”). In addition to seeking coverage under its own policy, FJL also sought coverage under the Valley Forge policy, claiming that it was an additional insured under that policy.
The Valley Forge policy contained a fairly common additional insured endorsement, which provided:
WHO IS AN INSURED (Section II) is amended to include as an insured any person or organization, including any person or organization shown in the schedule above (called additional insured) whom you are required to add as an additional insured on this policy under a written agreement . . . .
Id. at 6. Unfortunately for FJL, there was no requirement in the contract entered into between FJL and Fire Suppression that FJL be named as an additional insured under Fire Suppression’s policy. Thus, on its face, the additional insured endorsement did not apply. Nonetheless, FJL claimed that it was entitled to coverage as an additional insured based on a certificate of insurance issued to FJL by Fire Suppression’s insurance broker.
The certificate of insurance provided that “FJL Enterprises, Inc. & Merion Gardens Assisted Living Co. are Additional Insureds under the General Liability coverage for liability arising out of the Named Insured’s operations.” As is typical of most certificates of insurance, however, the certificate of insurance issued to FJL also provided:
THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW.
Id. at 7. The back of the certificate of insurance further provided:
If the certificate holder is an ADDITIONAL INSURED, the polic(ies) must be endorsed. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s).
* * *
The certificate of insurance on the reverse side of this form does not constitute a contract between the issuing insurer(s), authorized representative or producer, and the certificate holder, nor does it affirmatively or negatively amend, extend or alter the coverage afforded by the policies listed thereon.
Despite that language, the trial court held that the certificate of insurance was ambiguous with respect to the issue of whether FJL was an additional insured. Applying the doctrine of reasonable expectations, the trial court held that Valley Forge was required to indemnify FJL.
The Appellate Division reversed. The court concluded that “the certificate [of insurance] expressly confers no rights on its holder, FJL.” Id. The court also noted that “[b]ecause New Jersey courts apply the ‘reasonable expectations’ doctrine exclusively to the interpretation of insurance contracts, there was no basis to apply the doctrine to the . . . certificate of insurance . . . .” Id. at *7, n.7. Thus, FJL was not entitled to coverage under the Valley Forge policy issued to Fire Suppression.
Had the underlying contract between the parties required Fire Suppression to name FJL as an additional insured it would have been protected based on the language of the additional insured endorsement to the Valley Forge policy. In addition, had the insurance broker who issued the certificate of insurance been an agent of Valley Forge, FJL would have had a stronger argument.
Unfortunately, all too often project owners and contractors rely on certificates of insurance without confirming that they are entitled to coverage under the policies at issue. It is not until a loss occurs that they realize there may be a problem. The Hospicomm case makes it clear that a party should not rely solely on the issuance of a certificate of insurance if it wants to be added as an additional insured to another party’s insurance policy. The safest bet is to ask that an additional insured endorsement be issued that specifically names the party seeking coverage as an additional insured. Any endorsement should then be reviewed upon issuance to confirm that it provides the required protection.
© William D. Wilson and NJInsuranceBlog.com, 2014. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to William D. Wilson or NJInsuranceBlog.com with appropriate and specific direction to the original content.