Who is liable? It depends…. by Carmelo Torraca and Young Yoon

by Carmelo (Tony) Torraca Esq. and Young Yoon, Esq.

Part of our practice has been to assist companies walk the tight rope between getting additional business, while at the same time, not having all of the risk transferred directly to our client. In one of our presentations, we discussed the plight of a pest control company who, pursuant to a contract, was responsible not only for the workers’ compensation injuries to an employee who slipped and fell at a restaurant he was servicing on behalf of the company, but also indemnification and additional insurance required by the restaurant when that employee filed a third party action. The pest control company and its carrier paid a considerable sum to an employee who was injured while doing his job.

In the slew of case law presented, the courts have made a distinction between the additional insurance requirement and that of indemnity. As to additional insurance, the common interpretation rule is once there is a contractual requirement to name someone as an additional insured on its policy, the court must look to the policy to see if there is coverage.

In a recent case of July 10, 2019, the Appellate Division decided Comcast of Garden State v. Hanover Insurance Co. The Court followed the rule and paid special attention to the policy language, showing the importance of not only knowing what the contract says but what is covered by your insurance.

The facts in this recent case showed that.

Richard Endres filed suit alleging injuries due to the negligence of JNET Communications and Comcast of Garden State, L.P., as a result of tripping over a temporary above-ground cable JNET installed while performing work as Comcast’s contractor. Comcast tendered the defense of the lawsuit to JNET’s insurer, Hanover Insurance Company. Hanover initially accepted the defense. JNET admitted it placed the cable and Comcast was dismissed. Comcast was reinstated after deposition testimony suggested that a Comcast technician replaced the cable after JNET’s initial placement. Hanover tendered the defense back. At Endres’ trial, the jury found Comcast 60% liable and JNET 40% liable.

Comcast filed suit against Hanover and JNET that Comcast was an additional insured entitled to coverage under the policy. The trial court determined that Comcast was an additional insured pursuant to its contractual obligations. Hanover and JNET appealed.

The issue before the Appellate Court was whether Comcast was an additional insured for its own negligent acts under the policy. The Court concluded that it was not.

In interpreting the policy, the Court relied upon the following language:
          Any person or organization with whom you agree. . . is an insured, but only with respect to (1) “your work” for the insured . . . [defined as] “work of operations performed by you on your behalf.

Hanover argued that Comcast was not an additional insured because the jury found Comcast 60% liable and JNET 40% liable. Hanover contended that the jury based its findings of Comcast’s liability on Comcast’s direct negligence unrelated to JNET’s work and was not vicariously liable based upon JNET’s work. Hanover argued that the policy only provides coverage “with respect to” its insured JNET’s work. It did not provide coverage for the negligent acts of another entity. It appears that there was nothing in the policy that required a specific allocation of liability, in order to demand indemnity.

In support of its claim, Comcast relied upon Franklin Mutual Insurance Co. v. Security Indemnity Ins. Co., 275 N.J. Super. 335 (App. Div. 1994) and Harrah’s Atlantic City, Inc. v. Harleysville Ins. Co., 288 N.J. Super. 152 (App. Div. 1996), but the Court drew the distinction from the issues at hand. In both those cases, the insurance policy had language that stated:
Only with respect to liability arising out of the ownership, maintenance or use of that part of the premises.

The Court held that, in those cases, coverage as an additional insured was dependent upon the construction of the insurance policy term “arising out of” which was not “capable of precise definition.”

But in the JNET insurance policy, the Court agreed with Hanover, that the policy was not ambiguous where its plain language “only with respect to” allowed additional insurance only with respect to JNET’s work. Because Comcast’s liability was not determined in reference to or in relation to JNET’s work, Comcast was not an additional insured for its own negligent acts. Here, the Courts relied upon Supreme Court decisions in the indemnity provision requiring that in order to indemnify someone for their own negligence, there must be plain language clearly expressing contrary intent.

The importance of the court’s holding is when entering into a contract and being asked to name someone as an additional insured, not only does the terms of the contract become important, but also that of your insurance policy. While in this case, Hanover was able to avoid paying for Comcast’s own negligence, the contractual provision between Comcast and JNET may have included specific indemnity language asking for such coverage. I trust that we will see many other insurance carriers rewrite the policy for the more specific language. To the business owners and those entering into these type of contracts, it is strongly encouraged to have the contracts reviewed not only by your attorney, but also, your insurance broker, who ensured that if you are agreeing to provide additional insurance, it is for what is intended.