Whether you have the advantage of being an “additional insured” on someone else’s policy is not always easy to know. In FirstEnergy Generation, LLC v. Valley Forge Ins. Co., No. 5:19-CV-2413, 2020 U.S. Dist. LEXIS 169512, at *1 (N.D. Ohio Sep. 16, 2020), a federal court recently weighed in on this rarely cited coverage present in many commercial liability policies. In that case, Plaintiffs entered into a service contract with Enerfarb for servicing a coal-fired energy plant. Two Enerfarb employees died and two were injured after they were exposed to toxic gas while working at the plant. The injured employees and the estates of the decedents brought various personal injury lawsuits against Plaintiffs.
Plaintiffs’ service contract with Enerfab required Enerfab to cover Plaintiffs as additional insured parties. Enerfab had purchased an insurance policy from Valley Forge, pursuant to which it extended insurance to Plaintiffs, as "Additional Insured" parties, for “liability for . . . bodily injury or property damage caused in whole or in part by the acts or omissions by or on behalf of” Enerfab.
Plaintiffs tendered a demand to Enerfab for defense and indemnification with respect to the underlying lawsuits, and Enerfab in turn tendered the request to Valley Forge for insurance coverage. Valley Forge denied coverage, claiming the Policy did not cover the underlying lawsuits because Plaintiffs were being sued for their sole or independent negligence and not due to the negligence of Enerfab. The court disagreed and held that Valley Forge owed Plaintiffs a duty to defend under Ohio law
The court first noted the absence of Ohio law regarding the specific policy language, which required Valley Forge to insure Plaintiffs for liability caused “in whole or in part” by the acts or omissions by or on behalf of the named insured under the policy. However, the court invoked the Ohio legal principle that when the allegations in the underlying complaint state a claim potentially or arguably within policy coverage, the insurer must accept the defense. As a result, the question was whether Valley Forge even arguably insured Plaintiffs against the type of liability at issue in the underlying lawsuits. The court further outlined the two-step analysis to guide its decision: (1) determine the scope of the insurance policy; and (2) assess whether the allegations fall within the scope of that policy.
In applying the test, the court first addressed the scope of the policy. Because the Defendant agreed to insure Plaintiffs for liability “caused in whole or in part” by Enerfab, the court construed the policy to cover any of Plaintiffs’ potential liability in the underlying suits caused in whole or in part by Enerfab, even if that liability was not vicarious liability resulting from Enerfab’ s actions. Next, the court analyzed whether the allegations in the underlying lawsuits seek to hold Plaintiffs liable for damage caused “in whole or in part” by Enerfab. The court concluded that the allegations at least “arguably” fell within the scope of what Valley Forge insured Plaintiffs against. Notably, the employees and their families sought to hold Plaintiffs responsible for harm that was caused in part by Enerfab. As a result, Valley Forge owed Plaintiff a duty to defend in the underlying lawsuits.
The allegations in the complaint made clear that the underlying plaintiffs were not seeking to hold Plaintiffs liable for harm caused solely by Plaintiffs, but also for harm “caused by the negligence of [Plaintiffs'] agents . . . and servants.” Thus, the allegations suggested that the additional insured’s liability arises in whole or in part as a result of the named insured’s actions. In addition, according to the service contract, Enerfab was responsible for taking certain actions, and the underlying plaintiffs alleged that the omissions of these actions caused their harm. Because Enerfab was required to ensure its employees’ safety, and Plaintiffs were being sued in the underlying lawsuits for failing to ensure that safety, there was an argument that Enerfab partly caused the harm at issue. Moreover, Enerfab received OSHA violations related to the facts of underlying lawsuits. According to the court, “[u]under Ohio law, that is sufficient to trigger [Valley Forge’s] duty to defend Plaintiffs in the underlying lawsuits. . . . It is at least arguable—indeed, probable—that Enerfab caused, in part, the harm to the underlying plaintiffs for which Plaintiffs face liability.”
So, when you are entering into commercial contracts in which you are offering or seeking protection as an “additional insured,” be sure to understand how that term is used in your own policy and in the policies of the parties with which you are contracting.