Once again, a certificate of insurance and a request for additional insured coverage landed an independent insurance agency in the middle of a lawsuit.
The insured was a snow removal contractor in New Jersey. Another contractor had signed a contract to provide snow removal services for an apartment complex in Princeton. That contractor subcontracted the work to the insured. The insured had a general liability insurance policy through a local independent agent.
The contract included a hold harmless agreement in which the insured agreed to hold the other contractor harmless for claims arising out of their work. It also required the insured to provide the contractor with a certificate of insurance (COI) naming them as an additional insured. The agency provided a certificate naming the contractor as additional insured per an endorsement cited by a specific number. That endorsement made another person or organization an insured if the named insured worked for that organization under a written contract. Coverage applied to liability caused “in whole or in part” by the named insured. Lastly, it provided coverage on a primary and noncontributory basis if the contract so required.
In February 2017, an individual slipped and fell at the apartment complex and suffered significant injuries. She sued the contractor, among others. The contractor sought coverage as an additional insured under the insured’s policy. However, the carrier denied coverage on the grounds that the injury arose out of the contractor’s own negligence and did not arise “in whole or in part” out of the named insured’s negligence. They also said that, even if coverage applied, it would be on an excess basis, not primary.
The contractor eventually paid the injured person $650,000 and incurred more than $200,000 in legal expenses. In October 2019, they sued the carrier and the snow removal contractor’s insurance agent for breach of contract, negligence, bad faith, and they sought to have the insurance policy reformed to provide coverage.
In April 2022, a jury awarded the contractor $713,600 in damages. The agency immediately asked the judge for a “judgment notwithstanding the verdict” (JNOV.) In a JNOV, the judge sets aside the jury’s verdict and rules in the losing party’s favor without a new trial. After a September 2022 hearing on the motion, the judge rejected it. The agency appealed.
In June 2024, the appellate judge rejected the appeal and upheld the jury’s verdict. He wrote in part:
“The record reveals that (an agency employee), who issued the COI on behalf of (the agency,) testified that she did not recall reviewing (the) endorsement … in its entirety to determine whether it contained any exclusions or otherwise complied with the requirements set forth in the … contract prior to issuing the COI. … (T)he jury could reasonably have concluded that (the contractor) reasonabl(y) expected primary, and not excess coverage; that (the agency’s) representations on the COI were therefore negligent representations of material fact made with the intent of inducing (the contractor’s) reliance thereon; and that (the contractor) relied to its detriment on (the) representations.”
This error could happen in any agency. A busy account manager issued a certificate of insurance without comparing the additional insured endorsement to the contract requirements. Insurance agents and their support staff are not lawyers and probably lack the expertise to interpret contractual requirements. It would have been better if the insured had obtained a review of the contract from an attorney who could then have interpreted the insurance requirements. Unfortunately, that seldom happens. Instead, an agency’s client tells the agency it needs a certificate in a hurry and the agency issues one. Sometimes, the end result is like this.
Certificates of insurance and additional insured coverage are consistent errors and omissions trip wires for insurance agencies. There are many opportunities for things to go wrong. The only way to avoid cases like this is careful review of the insurance requirements and endorsement, along with communications with the insured about whether the coverage is sufficient.
