New Jersey Appellate Division Holds Contract Requiring Primary Additional Insured Coverage Does Not Override Unambiguous Language of Policy Containing Excess Other Insurance Clause
On June 23, 2010, the New Jersey Superior Court, Appellate Division joined several other states, including New York, that have held a contract requiring a subcontractor to provide additional insured coverage on a primary basis to not override the plain language of the policy at issue, which provided additional insured coverage, but excess as to the additional insured’s own coverage. Jeffrey M. Brown Associates, Inc., et al. v. Interstate Fire & Casualty Company, __ N.J.Super. __ (App. Div. 2010); No. A-2325-08T2, 2010 WL 2508830 (App. Div. 2010).
Jeffrey M. Brown Associates, Inc., a general contractor, obtained a CGL policy with Zurich American Insurance Company, and subcontracted certain construction work to CAP Services, Inc., which was insured by Interstate FIre & Casualty Company. The contract between Brown and CAP required CAP to maintain its own insurance, naming Brown as an additional insured, with CAP’s insurance to be primary. After a sidewalk bridge collapsed upon several of CAP’s employees, Brown was sued. After Interstate refused to provide a defense, Zurich commenced a declaratory judgment action. The trial court granted summary judgment in Zurich’s favor, based on the provision in the contract between Brown and CAP requiring Brown’s additional insured coverage to be primary, and ordered Interstate to take over Brown’s defense and assessed Zurich’s costs for pursuing the declaratory judgment action.
On appeal, Interstate argued that Brown owed no defense, as the additional insured coverage provided by Interstate’s policy was excess over Brown’s own coverage, based on the policies’ own terms, which were unambiguous. The Zurich policy stated that its insurance was primary, while the Interstate policy purported to be excess over any other insurance available to the additional insured, and stated that Interstate would have no duty to defend if any other insurer had a duty to defend the additional insured. Citing the recent case of W9/PHC Real Estate LP v. Farm Family Cas. Ins. Co., 407 N.J.Super. 177 (App. Div. 2009), the Appellate Division held that the Interstate policy’s excess other insurance clause operated to make its coverage excess over Zurich’s coverage.
The Appellate Division rejected Zurich’s argument that the terms of the contract between Brown and CAP, which required CAP’s insurance policy to provide additional insured coverage to Brown on a primary basis, would operate to alter the coverage provided by the Interstate policy. In so holding, the Appellate Division joined several other states, including New York, which have held that priorities of coverage between policies are not controlled by extraneous documents such as contracts. In a recent case, the New York Supreme Court, Appellate Division stated:
An insurance policy is a contract between the insurer and the insured. Thus, the extent of coverage (including a given policy’s priority vis-a-vis other policies) is controlled by the relevant policy terms, not by the terms of the underlying trade contract that required the named insured to purchase coverage.
Bovis Lend Lease LMB, Inc. v. Great American Ins. Co., 855 N.Y.S.2d 459, 464 (1st Dep’t 2008).
Finally, as to the trial court’s order regarding attorney’s fees, the Appellate Division rejected Zurich’s argument that despite reversing the trial court’s grant of summary judgment, Zurich qualified as a “successful claimant” because the declaratory judgment action had been required to force Interstate to acknowledge its coverage obligations. The Appellate Division noted that in its briefs, Interstate acknowledged its obligation to provide coverage (albeit on an excess basis).