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By: Bart Gary
Many contracts, especially construction contracts, will contain a provision whereby one party, usually a subcontractor, agrees to add the other party to the contract, usually the general contractor, as an additional insured on the former’s insurance coverage. Where the additional insured has its own coverage, the question arises as to whether there are in effect multiple insurance coverages for the additional insured, and whether the named insured’s insurance policy must answer for claims against the additional insured.
The Supreme Court of Minnesota was confronted with a very unusual set of facts. A general contractor was an additional insured in the liability policy of its subcontractor. The general contractor directed the subcontractor where to install sheet piles; however, the subcontractor actually drove the piles and thereby damaged underground pipes. A jury had determined that the subcontractor was not negligent in damaging the pipes. The general contractor nevertheless contended that it was covered under the subcontractor’s liability insurance policy as an additional insured.
The Court held that the additional insured endorsement in the subcontractor’s insurance policy is plainly for vicarious or derivative liability of the additional insured based upon the negligence of the principal, or named, insured. Vicarious liability arises where one party, for example an employer, is liable for the conduct of an employee by the relationship. Since the general contractor could be vicariously liable only if the subcontractor was liable, the jury’s exoneration of the subcontractor meant that the general contractor was not covered as an additional insured on the subcontractor’s policy. Eng’g. & Constr. Innovations, Inc. v. L.H. Bolduc Co., 825 N.W.2d 695 (Minn. 2013).