New York’s First Department: Privity of Contract With Subcontractor Required to Enforce Owner’s Position as Additional Insured

Earlier this year, in the action captioned New York City Housing Authority, et al. v. Harleysville Worcester Insurance Company, et al., 226 A.D.3d 804, 209 N.Y.S.3d 130 (N.Y. App. Div. 2024), New York’s Appellate Division, First Department, reversed an order denying defendant Harleysville Worcester Insurance Company’s motion for summary judgment, holding that Harleysville was not obligated to defend and indemnify as additional insured parties, including the owner, with whom it did not have a direct contract.

Harleysville involved a case in which Oceanhill, LLC (Owner) had entered into a construction contract with Blue Sea Construction Company, LLC (the Contractor), under which the Contractor agreed to serve as the general contractor. In turn, the Contractor engaged A&R Electrical Maintenance (A&R) as an electrical subcontractor. Under the subcontract, A&R agreed to indemnify and hold harmless the Contractor and Owner for any claims arising from A&R’s negligence or omission. The subcontract further required A&R to obtain a commercial general liability policy naming Owner, the Contractor and an additional party as additional insureds.

Claiming an injury, an employee of A&R initiated a personal injury claim against A&R and the Contractor. The plaintiff also sued Owner and several other non-contractor entities. The Contractor, Owner and non-contractor entities sought a declaration that Harleysville had an obligation to defend and indemnify them in the personal injury action as additional insureds under the commercial general liability policy issued by Harleysville to A&R. In seeking summary judgment, Harleysville argued that it had no obligation to defend and indemnify Owner, Contractor or the other entities as additional insureds. The trial court denied Harleysville’s motion.

The First Department reversed the trial court and held that Harleysville was not obligated to defend and indemnify the noncontractor entities, including Owner, as additional insureds. Construing the party intent “as determined from the four corners of the policy itself,” the First Department noted that the noncontractor entities were not named insureds on the policy issued to A&R, nor were they listed as additional insureds.

The First Department rejected the argument that a certain policy endorsement automatically conferred additional insured status on any of the noncontractor entities seeking coverage. The endorsement in question extended additional insured status to “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” (omissions in original). The First Department held that this language required privity of contract between the named insured (A&R) and the party seeking additional insured status. Therefore, the court held that only the Contractor was an additional insured under the policy because the Contractor was in privity with A&R. In contrast, Owner was not in privity with A&R and was not an additional insured. The First Department also held that the subcontract’s “incorporation by reference” of the prime contract between Owner and the Contractor (which required that the Contractor add Owner as an additional insured under its policy) did not confer additional insured status to Owner because subcontract clauses purporting to incorporate the terms of the prime contract only bind the subcontractor to requirements in the prime contract relating to scope, quality, character and manner of work to be performed.  

Relative to the Contractor, the First Department also considered whether A&R’s policy was “primary” before the Contractor’s policy. Because the subcontract did not state that coverage naming the Contractor as an additional insured was primary and noncontributory over other insurance, and because the Harleysville policy expressly stated that additional insured coverage is excess over other insurance available to the additional insured unless a contract requires otherwise, the Harleysville policy was excess to the Contractor’s own policy.

Author Monica Clarke Platt is a partner in the Litigation Department at Klehr Harrison.