Policyholder Diligence Ensures You’re InsuredPolicyholders take notice – a recent New York case highlights the importance of thoroughly analyzing and understanding all policy language to minimize project risk and ensure proper coverage. As an illustration, the Court of Appeals of New York recently held that a named additional insured was not covered under an insurance policy because the plain meaning of the language in the policy endorsement required a written contract between the policyholder and the additional insured.

In Gilbane Bldg. Co./TDX Construction Corp. v. St. Paul Fire & Mar. Ins. Co., the Dormitory Authority of the State of New York (DASNY) contracted with Samson Construction Company as general contractor for the construction of a new building. DASNY also contracted with a joint venture, formed by Gilbane Building Company and TDX Construction Corporation (the “JV”), to serve as construction manager on the project. The contract between DASNY and Samson required Samson to procure general liability insurance for the project and name the JV as an additional insured. Samson obtained this coverage from Liberty Insurance Underwriters.

Thereafter, DASNY sued Samson and the project architect. In turn, the architect filed a third-party complaint against the JV, which then provided notice to Liberty seeking defense and indemnification. Liberty denied coverage, and the JV initiated suit against Liberty, arguing that it qualified for coverage as a named additional insured. The New York Supreme Court denied Liberty’s motion for summary judgment and held that the JV was an additional insured under the applicable insurance policy. The Appellate Division reversed and the Court of Appeals affirmed.

The court reviewed the language of the additional insured provision which read, in relevant part, “an insured [is] any person or organization with whom you have agreed to add as an additional insured by written contract…” Here, the JV and Samson did not have a written contract with one another. Nonetheless, the JV argued that the written contract requirement conflicted with the plain meaning of the language in Liberty’s endorsement, “well-settled rules of policy interpretation,” and the parties’ reasonable expectations. The court disagreed, and found that the language was facially clear. It concluded that Liberty’s endorsement would only provide coverage to the JV if Samson and the JV entered into a written contract because “unambiguous provisions of an insurance contract must be given their plain and ordinary meaning.”

The court then explained how the outcome would differ if the provision did not include the word “with.” In that case, the endorsement would have provided coverage to “any person or organization whom [Samson had] agreed by [any] written contract to add…” Since Samson already contracted with DASNY to add the JV as an additional insured, coverage would have been effective as to the JV.

Regardless of the type of insurance policy at issue, it is critically important to thoroughly analyze the policy documents to ensure an accurate understanding of the language used. Individual policyholders often take policy language at face value, if they read the terms of the policy at all, and never question what coverage they have actually purchased. Similarly, when the policy at issue is part of a larger set of contract documents, companies often become complacent during the contract review process—especially when certain documents appear boilerplate or seem like only a minor formality to finalize a contract. Oftentimes, the perceived need for reviewing policy language is further dampened by the fact that the insurance policy comes into existence after the project contract is signed, such as the policy in this case.

As a result of complete oversight, the hurried nature of review, or the overwhelming volume of contract documents requiring review, policyholders can easily adopt a reading of policy language that might reflect reasonable expectations but does not necessarily adhere to the plain meaning of the language. Diligence must extend to the review of insurance policies because ignoring the actual language of the policy can result in significant risk exposure.  If you have any questions or concerns about your current insurance coverage or upcoming project needs, please contact Alex Thrasher and the team at Bradley to learn more about ways to ensure that you’re covered.

FFIEC Highlights Importance of Cyber InsuranceThe Federal Financial Institutions Examination Council (FFIEC) issued a joint statement in April emphasizing the need for companies in the financial sector to include cyber insurance in their risk management program. Although the FFIEC did not announce new regulatory requirements or expectations, the announcement is further evidence of what most businesses have already recognized: Cyber coverage is quickly becoming indispensable.

Among the points highlighted by the FFIEC:

  • Institutions face a variety of risks from cyber incidents, including risks resulting from fraud, data loss, and disruption of service.
  • Traditional insurance coverage may not cover cyber risk exposures.
  • Cyber insurance can be an effective tool for mitigating risk.
  • Insurance does not remove the need for an effective system of controls as the primary defense to cyber threats.
  • The cyber insurance marketplace is growing and evolving, requiring due diligence to determine what insurance products will meet an organization’s needs.

Although not specifically mentioned in the FFIEC statement, businesses should be aware that cyber coverage can be an important source of mitigating regulatory risk associated with data breaches – if the organization purchases a policy that provides regulatory coverage. Today, there are a number of insurers offering products that reimburse costs for investigating and responding to a regulatory investigation or enforcement proceeding, as well as provide coverage for administrative penalties. Given amplified scrutiny from regulators in the area of data security, the importance of such coverage continues to increase. With a rapidly changing market, institutions should carefully review policies to be sure that the scope and limitations of coverage match their exposure.

 

Republished with permission. This blog post was modified for the It Pays to Be Covered blog. The blog post originally appeared on Bradley’s Financial Services Perspectives blog on April 17, 2018.

webinarUpcoming Event - Policyholder Insurance Webinar Series: Is That Drone Insured?Bradley’s Policyholder Insurance group is pleased to present “Enterprise Risk Management: What In-House Counsel Need to Know” as part of our ongoing Litigation Lunch & Learn series.

This onsite event will discuss an overview of enterprise risk management presented by guest speaker Matthew Lusco of Regions Financial and Bradley attorneys Katherine J. Henry and Emily M. Ruzic.

When:  Wednesday, May 16, 2018
11:30AM – 12:00PM CDT (Lunch and Registrations)
12:00PM – 1:00PM CDT (Presentation)

Where:  Bradley Arant Boult Cummings LLP, 1819 5th Avenue North, Suite 200, Birmingham, AL 35203

What:  Enterprise risk management provides a framework for managing risks across all sectors of an organization. This entity-wide approach to risk management depends on cooperation between an organization’s risk management and legal departments. Join us as we discuss enterprise risk management with Matthew Lusco, Senior Executive Vice President and Chief Risk Officer of Regions Financial. This one-hour program will offer insight into effective enterprise-risk-management strategies with a focus on in-house counsel’s contribution to an organization’s enterprise risk management program.

To register for the event, please RSVP by May 9th, 2018.

We look forward to seeing you there!