On July 27, the United States Court of Appeals for the First Circuit issued a decision which provides clarification for construction industry contractors on an important insurance issue.  The job in question involved a new building on a University campus.  The General Contractor hired a subcontractor to install structural steel and that subcontractor hired another company to assist in some of the steel installation work.  An employee of the third company tripped while stepping away from a ladder and fell four floors through an unguarded stair opening.  The employee sued the General Contractor for negligence and later added both the subcontractor and his employer as defendants.  The General Contractor had a commercial general liability insurance policy with Insurance Company 1.  When it hired the subcontractor, the General Contractor required that the subcontractor obtain its own insurance and name the General Contractor as an additional insured on that policy.  After the employee sued, Insurance Company 1 notified Insurance Company 2 (the insurance company for the subcontractor) about the lawsuit, but Insurance Company 2 did not respond.  The Federal District Court ruled that Insurance Company 1 was the primary insurer. 

On appeal, the First Circuit reversed and concluded that the insurance company for the subcontractor (Insurance Company 2) was the primary insurer based upon the unambiguous meaning of the word “you” in the policy language and the fact that the General Contractor never added the subcontractor as an additional insured on the General Contractor’s insurance policy.  Rather, the General Contractor by specific language in its subcontract agreement required the subcontractor to name the General Contractor as an additional insured.  This careful wording in the subcontract agreement was also a primary factor in the ruling by the Circuit Court on appeal.  The obvious lesson from this decision is the General Contractors should carefully word their subcontract agreements to require that subcontractors name the General Contractor as an additional insured.  In addition, subcontractors should be sure to understand how their insurance company interprets any policy language on “additional insureds.”   
                                                                                                      By Bill Harding, Chapter Attorney