Minnesota Supreme Court Narrowly Interprets an Additional Insured Endorsement

Engineering & Const. Innovations, Inc. v. L.H. Bolduc Co., Inc., 825 N.W.2d 695 (Minn. 2013)

On January 23, 2013, the Minnesota Supreme Court adopted a narrow interpretation of a blanket additional insured provision in a liability policy issued to a construction sub-contractor. The Court found that an additional insured endorsement which limited coverage to injury or damage caused by the acts or omissions of the named insured only provided coverage for loss due to the vicarious liability of the additional insured.

ECI subcontracted with Bolduc to build a shoring system to be created by driving metal sheeting into the ground to act as walls for the underground pits necessary to construct a sewer pipeline. Under the subcontract, ECI was responsible for determining where to drive the metal sheeting into the ground and Bolduc was responsible for installation of the sheeting. The subcontract also required Bolduc to indemnify ECI as follows:

[Bolduc] agrees to protect, indemnify, defend, and hold harmless ECI and Owner, to the fullest extent permitted by law and to the extent of the insurance requirements below, from and against...(b) all damage, judgments, expenses, and attorney’s fees caused by any act or omission of [Bolduc] or anyone who performs work or services in the prosecution of the Subcontract.

Finally, Bolduc was required to procure insurance covering Bolduc’s indemnity obligations and to name ECI as an additional insured under said policy.

Bolduc obtained commercial general liability insurance from Travelers. The Travelers Policy included a Blanket Additional Insured (Contractors) Endorsement, making ECI an additional insured “if and only to the extent that the injury or damage is caused by the acts or omissions of you or your subcontractor in the performance of ‘your work’....”

While driving sheet metal into the ground, Bolduc drove a sheet into an underground pipeline causing significant damage. ECI spent approximately $235K to repair the pipe and then submitted a claim to Travelers, Bolduc’s insurer, seeking reimbursement for the cost of pipe repairs and as an additional insured under the blanket endorsement in Bolduc’s policy. After Travelers denied ECI’s claim, ECI filed this lawsuit against Travelers and Bolduc alleging that the damage to the pipe was caused by Bolduc’s negligence and that Travelers had breached its insurance contract by refusing to provide coverage to ECI as an additional insured.

At trial, the jury found that Bolduc was not negligent. Based upon this finding, Travelers argued that ECI could not possibly qualify as an additional insured since the blanket endorsement provided that ECI would be an additional insured “if and only to the extent that, the injury or damage is caused by the acts or omissions of Bolduc.” Because the jury found that Bolduc was not negligent, Travelers argued that the injury or damage to the pipeline was not caused by Bolduc’s act or omissions and, therefore, ECI could not qualify as an additional insured. On the other hand, ECI argued that the phrase “acts or omissions” contains no requirement of negligence as a precursor to triggering additional insured coverage. Thus, because it was undisputed that it was the physical act of Bolduc that caused the sheeting to come in contact with the pipe, ECI contended that additional insured coverage was available under the Travelers Policy. The intermediate court of appeals found in favor of coverage for ECI.

The Minnesota Supreme Court reversed the decision of the intermediate court of appeals. The court noted that the additional insured endorsement provided coverage to ECI “only with respect to liability for…‘property damage’…caused by the acts or omissions of [Bolduc].” The court reasoned that this language meant that ECI would be an additional insured with respect to loss due to Bolduc’s negligence, not just Bolduc’s physical acts. The court next observed that ECI’s liability could only arise in three ways: (1) ECI could be directly liable, which is not covered by the additional insured endorsement; (2) ECI could have contractually assumed liability for Bolduc’s fault, which the court held was also outside the scope of additional insured endorsement; or (3) ECI could be vicariously liable for Bolduc’s negligence, which is covered by the additional insured endorsement. However, because Bolduc was found not to have been negligent, ECI could not be vicariously liable for anything Bolduc did. Consequently, ECI could not recover under the additional insured provision.

The Minnesota Supreme Court further concluded that Bolduc was not required to indemnify ECI under the indemnification provision of the subcontract. Minn. Stat. § 337.02 provides:

An indemnification agreement contained in, or executed in connection with, a building and construction contract is unenforceable except to the extent that: (1) the underlying injury or damage is attributable to the negligent or otherwise wrongful act or omission, including breach of a specific contractual duty, of the promisor or the promisor’s independent contractors, agents, employees, or delegates[.]

Section 337.02, therefore, renders unenforceable indemnification agreements in which a party assumes responsibility to pay for damages that are not caused by the party’s own wrongful conduct.

Bolduc argued that, under the plain language of the statute, because a jury specifically concluded that the damage to the pipeline was not due to Bolduc’s own negligence or wrongful act, requiring Bolduc to indemnify ECI for the damaged pipeline would violate Min Stat. § 337.02. ECI countered that requiring Bolduc to indemnify ECI would not violate Minn. Stat. § 337.02 because, in hitting the pipeline, Bolduc breached a contractual obligation to perform its work properly.

The Minnesota Supreme Court concluded that ECI had waived its argument regarding Bolduc’s alleged contractual liability. Furthermore, even if its claim had not been waived, the court determined that ECI failed to present any evidence that Bolduc breached the subcontract in performing its work. Accordingly, the court concluded that, under Minn. Stat. § 337.02, Bolduc could not be required to indemnify ECI because the underlying damage was not attributable to Bolduc.

The Minnesota Supreme Court’s limitation of the coverage available under a blanket additional insured endorsement will likely have a large impact on the ability of general contractors to obtain coverage under policies issued to subcontractors, and may make it impossible to do so where the subcontractor is immune from liability, such as when the general contractors is sued by an injured employee of a subcontractor. The court’s decision relied heavily on the precise language of the endorsement at issue and, therefore, insurers will have to closely consider any similarities or differences in the language of relevant endorsements when handling claims involving additional insured issues.

For more information on the issues discussed above, or any other insurance coverage questions, please contact Adam H. Fleischer, AFleischer@BatesCarey.com or David J. Buishas, DBuishas@BatesCarey.com.