INSURER MUST DEFEND PROPERTY OWNER AS “ADDITIONAL INSURED” UNDER ITS SUBCONTRACTOR’S GENERAL LIABILITY POLICY

In a recent decision, the Third Circuit held that the owner of a parking garage where construction work was taking place was an “additional insured” under a general liability policy that listed a subcontractor as the named insured and was therefore entitled to a defense under the policy in a lawsuit brought by an employee of that subcontractor who was injured while performing construction work at the garage. In Ramara v. Westfield Insurance Co., No. 15-1003, 2016 U.S. App. Lexis 2656 (3rd Cir. Feb. 17, 2016), Ramara, Inc., the garage owner, hired Sentry Builders Corp. as a general contractor to perform work at the garage, who in turn, subcontracted certain concrete and related work to Fortress Steel Services, Inc. The contract between Fortress and Sentry required Fortress to purchase a general liability policy, which it did from Westfield and that policy named both Sentry and Ramara as “additional insureds.”

During construction, one of Fortress’s employees, Anthony Axe, was injured in an accident and he filed tort claims against only Ramara and Sentry, since Fortress was immune from suit under the Pennsylvania’s Workers’ Compensation Act. Based on its being named as an “additional insured” under the Fortress policy, Ramara tendered the claim to Westfield seeking a defense and indemnification, but Westfield declined coverage because it claimed that the policy did not insure Ramara for Axe’s claims. Ramara then filed a declaratory judgment and breach of contract action against Westfield, the U.S. District Court for the Eastern District of Pennsylvania granted partial summary judgment to Ramara and Westfield appealed.

Under the policy, an additional insured was only entitled to coverage if the injury was “caused, in whole or in part,” by Fortress’s acts or omissions or the acts or omissions of someone acting on Fortress’s behalf. Westfield claimed that because Axe’s underlying complaint did not expressly allege that Fortress proximately caused his injuries, thus allegedly violating Pennsylvania’s strictly construed four-corners rule, it had no duty to defend Ramara. Because the relevant case law defined “proximate causation” as a cause which was “a substantial factor in bringing about the plaintiff’s harm,” the appellate court’s review focused on whether or not, when liberally construed in Fortress’s favor, Axe’s complaint “potentially alleged” that Fortress’s acts or omissions were a substantial factor in his being injured. The court held that Axe’s allegations based Ramara’s liability, at least in part, on Ramara’s failure to supervise the work of its contractors or subcontractors, who allegedly improperly used equipment and disregarded a site safety plan. The court further held that even though Fortress had been hired by Sentry, it was nonetheless a Ramara subcontractor, and that Axe’s sole reason for being on the job site at which he sustained the injuries was his employment by Fortress. As such, the court determined that Axe had made factual allegations that potentially would support a conclusion that his injuries were “caused, in whole or in part,” by Fortress’s acts or omissions and therefore, Ramara came within the “additional insured” endorsement with respect to Axe’s suit and was entitled to a defense.

The court also addressed Westfield’s argument that the underlying complaint did not expressly allege that Fortress proximately caused Axe’s injuries by noting that because of the worker’s compensation issue, specifically Fortress’s immunity to a suit by its employee, it was understandable that Axe’s attorney drafted the complaint in the underlying action taking the existence of the worker’s compensation act into account and did not make specific allegations against Fortress. Therefore, the Third Circuit held that where the Workers’ Compensation Act is relevant to a coverage determination, it must be factored into the determination of whether the allegations in the underlying case might trigger coverage under the policy.

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