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Additional insureds covered for their own negligence

By: dmc-admin//April 20, 2005//

Additional insureds covered for their own negligence

By: dmc-admin//April 20, 2005//

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Curley

“If the Acuity policy intended to exclude coverage for liability arising from the additional insured’s own negligence, it should and could have spelled out as much. Other policies have."

Hon. Patricia S. Curley
Wisconsin Court of Appeals

An additional insured endorsement in a CGL policy applies, even when the claim arises solely from the alleged negligence of the additional insured, the Wisconsin Court of Appeals held on April 12.

Miller Brewing Company contracted with Selzer-Ornst Company, a general contractor, for the installation of new windows and other improvements at Miller’s Milwaukee brewery facility. As a condition of the construction contract, Selzer-Ornst had to add Miller as an "additional insured" on its CGL insurance policy, which was issued by Acuity.

Selzer-Ornst did so, and provided Miller with a Certificate of Insurance listing Miller as an additional insured on the policy. The policy provides, in relevant part, as follows: "Who Is an Insured is amended to include as an insured any person or organization for whom you [Selzer-Ornst] are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy.

Such person or organization [Miller] is an additional insured only with respect to liability arising out of your ongoing operations performed for that insured. A person’s or organization’s status as an insured under this endorsement ends when your operations for that insured are completed."

Selzer-Ornst subcontracted with J.F. Cook, Inc., to replace the windows at the brewery. They similarly added Miller, pursuant to contract, as an additional insured on their policy. J.F. Cook’s policy with Milwaukee Mutual Insurance Company provides, in relevant part, as follows:

"Each of the following is also an insured:

a. Any person or organization you [J.F. Cook] are required by a written contract, agreement, or permit to name as an insured, but only with respect to liability arising out of:

1. ‘your ongoing operations’ performed for that insured at the location designated in the contract, agreement, or permit; or

2. premises owned or used by you."

J.F. Cook’s contract with Selzer-Ornst also included the following indemnity clause: "The Sub-Contractor [J.F. Cook] shall indemnify and save harmless the Owner [Miller], the Architect, the Contractor [Selzer-Ornst] and their respective agents from any and all liability, payments and expenses of any nature for injury or death to any person, or persons, or for damage to any property, caused … by the Sub-Contractor, or incidental to the execution of work under this contract by the Sub-Contractor, his agents or employees; and the Sub-Contractor shall maintain from the beginning until the completion of his work policies of insurance satisfactory to the Contractor, covering the liabilities above mentioned, such as employers’ liability insurance, public insurance, contingent insurance, etc." (Where the ellipses are contained the words, "or alleged to have been caused," were struck from the contract.

Thor C. Mikula, an employee of J.F. Cook, was injured while working at the brewery, when the doors of a cargo elevator slammed together and crushed his left hand. Mikula brought suit against Miller, alleging negligence, and a safe place claim.

Miller tendered its defense to Acuity, seeking coverage as an additional insured under Selzer-Ornst’s general liability policy. Acuity agreed to defend Miller, but retained separate counsel to challenge coverage. Acuity moved for summary judgment, seeking a ruling that it does not provide coverage to Miller when an employee of a subcontractor is injured solely by the negligence of an additional insured (Miller), absent any negligence of the named insured (Selzer-Ornst)."

Before Acuity’s motion for summary judgment was decided, Miller filed a third-party complaint against Milwaukee Mutual and J.F. Cook, alleging that the indemnity language in the subcontract between J.F. Cook and Selzer-Ornst obliges J.F. Cook to indemnify and hold Miller harmless for Mikula’s injuries, and that, the insurance policy issued to J.F. Cook requires Milwaukee Mutual to defend and indemnify Miller as an additional insured for the claims asserted by Mikula.

Milwaukee County Circuit Court Judge Clare L. Fiorenza granted Acuity’s motion for summary judgment, concluding that the Acuity policy provides no coverage for Miller, and dismissing all claims against Acuity with prejudice. The court also dismissed Selzer-Ornst and J.F. Cook, finding that the complaint alleged negligence only by Miller.

What the court held

Case: Mikula v. Miller Brewing Co., No. 2004AP000498

Issue: Does an additional insured endorsement require the insurer to pay for damages caused solely by the negligence of the additional insured?

Holding: Yes. A reasonable insured would not read the endorsement to cover only negligence by the named insured.

Counsel: Jeffrey Oxford Davis, Milwaukee; Robert J. Lauer, Milwaukee; Patrick S. Nolan, Milwaukee, for appellant; Arthur P. Simpson, Milwaukee; Becky Vogt, Milwaukee, for respondent.

Miller appealed, and the court of appeals reversed in a decision by Judge Patricia S. Curley, concluding that Miller is covered by the additional insured endorsement of the Acuity policy.

Miller argued tha
t Mikula’s injuries arise out of Sezler-Ornst’s ongoing operations, and therefore, the endorsement covers the claims.

Acuity argued that, because the purpose of an additional insured endorsement is to protect the additional insured from being liable for the negligence of the named insured, no reasonable person would expect coverage to apply.

Acuity also argued, "Miller should not be allowed to escape responsibility for a condition Miller solely created and controlled. Miller should not be allowed to pass off its responsibility to innocent contractors who have no ability to control every negligent condition Miller fails to maintain on its premises."

The court agreed with Miller, reasoning, "Acuity insists that it is not objectively reasonable to expect the policy to provide coverage for ‘anything and everything’ that happened on Miller’s premises. We disagree with Acuity’s underlying premise. The question here is whether Miller is covered as an additional insured under Selzer-Ornst’s policy for claims resulting from a J.F. Cook employee’s injury that occurred while the employee was performing the work J.F. Cook was hired by Selzer-Ornst to do in furtherance of its contract with Miller. We conclude that it is."

The court noted that the phrase, "arising out of," has been construed broadly in Wisconsin — "commonly understood to mean originating from, growing out of, or flowing from, and require[s] only that there be some causal relationship between the injury and the risk for which coverage is provided."

"Ongoing operations" has not been defined, but the court adopted the following definition: the doing or performing of a practical work or of something involving practical application of principles or processes as a part of a series of actions that is actually in process or that is making progress.

The court wrote, "In other words, Selzer-Ornst’s ‘ongoing operations’ could reasonably be interpreted to refer to the ongoing performance of the work that Selzer-Ornst undertook to complete for Miller, pursuant to their contract — that is, the ongoing process of work performed for the additional insured."

The court concluded, "With these definitions in mind, a common sense reading of the relevant language in the additional insured endorsement — ‘[s]uch person or organization [Miller] is an additional insured only with respect to liability arising out of your [Selzer-Ornst’s] ongoing operations performed for that insured’ — indicates that Miller is an additional insured with regard to Mikula’s claims. That is, Selzer-Ornst hired J.F. Cook to perform certain tasks as part of the ongoing operations Selzer-Ornst was performing for Miller. It was alleged in the complaint and, in fact, it was stipulated, that Mikula, a J.F. Cook employee, was in the course of his work when injured. Thus, Miller’s liability ‘arose out’ of Selzer-Ornst’s ongoing operations. Nothing in the language of the policy indicates that Miller’s coverage as an additional insured with respect to ‘liability arising out of [Selzer-Ornst’s] ongoing operations’ is limited solely to the liability Miller might be exposed to as a result of Selzer-Ornst’s negligence. The language is very broad."

Both parties cited cases from other jurisdictions to support their interpretations, and the court found the majority supported Miller’s reading — that there need not be negligence alleged against the named insured for the additional insured to be covered.

The court further noted, "If the Acuity policy intended to exclude coverage for liability arising from the additional insured’s own negligence, it should and could have spelled out as much. See Swift Energy, 206 F.3d at 499 (‘Mid-Continent could have expressly stated in the Policy that liability not resulting from [the named insured’s] sole negligence was not covered by the additional insured endorsement. It did not do so.’); Syufy Enters., 81 Cal. Rptr. 2d at 562 (‘Insurance companies are free to, and commonly have, issued additional insured endorsements that specifically limit coverage to situations in which the additional insured is faced with vicarious liability for negligent conduct by the named insured.’). Other policies have. See, e.g., Baltimore Gas & Elec. Co. v. Commercial Union Ins. Co., 688 A.2d 496, 504-05 (Md. Ct. Spec. App. 1997)."

In dicta, the court also suggested that, if the endorsement did cover only the additional insured’s vicarious liability for the tortious acts of the named insured, the coverage may be illusory.

The court observed, "should the additional insured be held vicariously liable, it would presumably have an action for indemnity against the tortfeasor regardless of whether it was ‘covered’ as an additional insured, thus rendering the additional insurance coverage essentially illusory. See, e.g., Marathon Ashland Pipe Line, 243 F.3d at 1240 n.5 (noting that the court was rejecting the ‘argument that the intent of an additional insured endorsement is to "provide protection where the named insured, performing a job for the additional insured, blunders"’)."

Accordingly, the court held that Miller is covered by the additional insured endorsement of the Acuity policy. For the same reasons, the court held that Miller is covered by J.F. Cook’s Milwaukee Mutual policy, as well.

Indemnification

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Case Analysis

The court further held that J.F. Cook must indemnify Miller for its own negligence, notwithstanding the general rule against such indemnification.

The court wrote, "There are exceptions, however, to this general rule. One such exception provides that absent clear and unequivocal language indicating as much, ‘if it is clear that the purpose and unmistakable intent of the parties in entering into the contract was for no other reason than to cover losses occasioned by the indemnitee’s own negligence, indemnification may be afforded.’"

Applying that exception, the court concluded, "here, when the two provisions are taken together, J.F. Cook’s agreement to purchase additional insurance and to indemnify and save harmless the Owner [Miller] … from any and all liability, payments and expenses of any nature for injury or death to any person, or persons, or for damage to any property, caused by the Sub-Contractor, or incidental to the execution of work under this contract by the Sub-Contractor, his agents or employees[,] evidences J.F. Cook’s intent to indemnify and hold Miller harmless even though Miller may be negligent. An agreement to purchase insurance indicates an intention to affect the burden of covering the cost of liability that may arise, and considered in combination with an agreement to ‘indemnify and save harmless’ a party from ‘any and all liability’ for injury or death or ‘for damage to any property’ ’caused by the Subcontractor’ or ‘incidental to the execution of work,’ evidences a clear intent to indemnify the party for all liability, including that resulting from the indemnitee’s own alleged negligence. The contract evinces no other purpose for the inclusion of both agreements. Thus, as Mikula’s injury was, at the very least, ‘incident to the execution of work,’ J.F. Cook must indemnify Miller."

Accordingly, the court reversed.

Click here for Case Analysis.

David Ziemer can be reached by email.

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