A food-products manufacturer (“customer”) hired a painting company to do contract work at the customer’s site. The painting company orally agreed to name the customer as an additional insured under the painting company’s commercial general liability (CGL) policy.
That oral agreement shouldn’t have been a big deal. The painting company’s insurance had an automatic additional-insured clause that would have resulted in the customer being an additional insured — if the insurance carrier had issued the additional-insured certificate before a covered “occurrence.”
But, before the painting company requested such a certificate, one of its employees was injured in a fall at the customer’s site and sued the customer for negligence. (Shortly after the fall, another painting-company employee sent an urgent email to the insurance carrier requesting a certificate, which the insurance carrier issued the next morning.)
The insurance company sought a declaratory judgment that it wasn’t obligated to provide a defense for or indemnify the customer because the painting company hadn’t timely requested the certificate, as required by the policy terms. A federal court granted summary judgment in favor of the insurance company. Cincinnati Ins. Co. v. Vita Food Prods., Inc., No. 13 C 05181 (N.D. Ill. Jan. 30, 2015). UPDATE: The Seventh Circuit reversed the summary judgment and remanded for a trial; see below.
That likely will result in the painting company being responsible for the defense and indemnity obligation; as an appeals court in another jurisdiction noted last year (but in the end found it unnecessary to decide), “a party who agrees to procure the insurance and fails to do so assumes the position of the insurer and, thus, the risk of loss.” Higby Crane Service, LLC v. National Helium, LLC, 751 F.3d 1157, 1161 (10th Cir. 2014) (reversing and remanding summary judgment for plaintiffs) (citation and internal quotation marks omitted).
Lesson for drafters (for either party): It wouldn’t hurt to check that someone is making sure the agreed-to insurance is actually obtained.
UPDATE: The Seventh Circuit held that the insurance contract in question was ambiguous about whether issuance of a certificate was a prerequisite; therefore, under the contra proferentem doctrine (not labeled as such) as applied to insurance companies, “if Vita can prove that there was an oral agreement to add it as an additional insured prior to the accident to Ovando, it will be entitled to coverage under Cincinnati Insurance’s policy.” Cincinnati Ins. Co. v. Vita Food Prods., Inc., No. 15-1405, slip op. at 4-6 (7th Cir. Dec. 16, 2015) (Posner, J.) (reversing and remanding summary judgment). The lesson-learned above still applies, though.