Who is an Insured?

Jun 11, 2013 | andracki | Articles | No Comments

“Who is an Insured” Richard F. Andracki, Andrew D. Sysak, 2009 PAMIC Claims Summit.

I.  Introduction

Who is an insured?  This is one of the most fundamental questions facing the insurance professional today.  When deciding whether a party is an insured, additional insured or has some legal right or claim under your policy, the starting point is always a close review of the policy language.

Notwithstanding a review of the policy, the insurance professional should also be aware of existing case law. Existing case law can always provide guidance and insight when analyzing whether a party is an insured or whether a further factual investigation is necessary before making the ultimate determination as to whether a party is an insured, additional insured or entitled to some form of coverage or benefits under your policy.

II.  The Homeowner Policy

A. Residents/Relatives

The typical homeowners’ policy form with respect to the definition of an insured provides:

Insured means you and residents of your household who are:

a. Your relatives; or

b. Other persons under the age of 21 and in the care of any person named above.

Wall Rose Mutual Insurance Company v. Manross, 2007 Pa. Super. 395; 939 A.2d 958 (2007) is one of the more recent decisions examining the issue concerning whether a party is in fact, an insured, under this section of the homeowners’ policy.

The homeowners’ policy form in Manross defined insured as follows:

you; your relatives if residents of your household; persons under the age of 21 residing in your household and in your care or in the care of your resident relatives; and your legal representative, if you die while insured by this policy

In Manross, the issue presented was whether the homeowners’ policy provided coverage to Allen J. Darr, the grandchild of the policyholder, Esther Manross, for an incident that occurred at the home of Ms. Manross.  The facts involved suggest that the claimant, Anthony Cafaro, was injured by an ornamental dagger, which struck his left leg while he was present at the home of the insured.  The parties differed as to how the injury took place, but do appear to concur that the “stabbing” was accidental.  Based upon the incident, Mr. Cafaro ultimately filed suit against Mr. Darr.  Id, at 961.

The insurer filed a Declaratory Judgment Action asserting that no coverage was afforded for Mr. Darr pursuant to the policy of insurance issued to his grandmother, Ms. Manross, as Mr. Darr was not a resident as defined in the policy, and thus, was not an insured entitled to coverage.  The lower court granted summary judgment in favor of the insurer, and an appeal was filed with the Superior Court of Pennsylvania.  The issue reviewed and examined by the Superior Court was whether Mr. Darr was a “resident” of his grandmother’s household pursuant to the terms of the policy.

The Court found guidance in the case of Erie Exchange v. Weryha, 2007 Pa. Super. 247, 931 A.2d 739 (2007).  In that case, the Court stated that, “the question of whether one physically lives with another is a factually intensive inquiry and it requires the trial court to look at a host of factors in reaching a common-sense judgment.”  Id, at 12.  The Court in Weryha held that the term resident was not ambiguous merely because it was not defined in the policy.  Rather, in such a situation, the common law definition historically used by the courts should be used and applied to the facts of the case to arrive at a common-sense decision.  The courts of this Commonwealth have historically recognized the classic definitions of the words “domicile” and “residence.”  Id, at 964-965.

“Domicile is the place where people have their true, fixed and permanent home and principal establishment, and to which whenever they are absent they have the intention of returning.”  Residence, in contrast, is a factual place of abode evidenced by a person’s physical presence in a particular place.  Norman v. Pennsylvania National Insurance Company, 453 Pa. Super. 569, 684 A.2d 189 (1996) quoting Amica Mutual Insurance Company v. Donegal Mutual Insurance Company, 376 Pa. Super. 109, 545 A.2d 343 (1988).

After examining prior case law on the issue of residency, the Superior Court in Manross held that, while the term “resident” was not defined specifically in the policy, it was not ambiguous.  Id, at 964.

The Court then examined the factual record and concluded that the deposition testimony provided in the case evidenced that Mr. Darr was a drifter whose visits to the Manross home did not occur with any regularity, but rather were random at best.  Further, Mr. Darr did not possess a key to the residence, and when he would stay overnight, he would stay on the couch as he did not have a bedroom at the home.  Furthermore, while he received some mail at the residence over the course of the years and stored some personal items there, this course of conduct was for his convenience, and was not evidence that he physically lived at the premises.  Id, at 963-964.

One of the important aspects of this case is the Superior Court’s statements that resident status is a question of physical fact, and intention is not a relevant consideration in determining residency.  Whenever a claim for coverage is submitted or presented involving a situation triggering the “residency” portion of coverage, the party seeking coverage will almost always testify or attempt to establish insured status by stating that the premises where the incident happened was their “intended” residence.

Another interesting case with respect to the issue of who is an insured under the homeowners’ policy is Allstate Insurance Company v. Meri Naskidashvili, 2009 U.S. Dist. Lexis 12323 (E.D. of PA, 2009).  In this case, the insurance company filed for summary judgment after bringing a declaratory judgment action in an effort to prove that the injured party was in fact, a “resident” of the household, for purposes of establishing that she was not entitled to coverage under the policy.

In the case, the named insured was Paata Donadze, along with his wife, Khatuna Donadze.  The injured party was Meri Naskidashvili, the mother of Khatuna Donadze.  On March 17, 2005, Ms. Naskidashvili fell down the basement steps of the home, and sustained personal injuries, including a broken left arm, a fractured left hip, a pulmonary embolism, internal bleeding and bruising which required hospitalization and in-patient nursing care.  Id, at 2.

Ms. Naskidashvili subsequently filed suit against her daughter and son-in-law alleging that they were negligent in maintaining the steps where her accident occurred.  Allstate assigned defense counsel to the insureds, and also filed a declaratory judgment action seeking an order that they were not required to indemnify or defend the Donadzes in the cause of action filed against them.

The Allstate Policy included a “Family Liability and Guest Medical Protection” Provision providing that:

Allstate agrees to pay damages which an insured person becomes legally obligated to pay because of bodily injury or property damage arising from an occurrence to which this policy applies, and covered by this part of the policy.

The Policy also provided as follows:

Allstate does not cover bodily injury to an insured person or property damage to property owned by an insured person whenever any benefit of this coverage would accrue directly or indirectly to an insured person.

Allstate does not cover bodily injury to any insured person or regular resident of the insured premises. The term insured person: means you and, if a resident of your household: any relative; and any dependent person in your care.

In this case, the insurance company attempted to establish that the claimant was in fact a resident of the household, and not a guest.  However, the deposition testimony provided by the parties was not sufficient for the insurance company to establish that the claimant was a resident.  Id, at 5.

At the time of the incident, Ms. Naskidashvili, a resident of the Country of Georgia, was visiting her family on a six-month visa, and had been staying at the home for three months prior to the accident.  There was also disputed testimony as to whether the claimant had her own room at the premises or slept on the couch.  The Court concluded that summary judgment was not warranted.  While there was some evidence that Ms. Naskidashvili could be considered a resident by virtue of her stay in that she did not stay at any other locations while in the United States, slept at the premises on a daily basis, and took her meals at the home, the Court was not convinced.  Id, at 10-11.

These are only a few of the cases examining the issue of an insured under the homeowners’ policy.  However, as can be seen, a highly intensive factual inquiry is required in these types of cases.

 

B. Mortgagees

Every homeowners’ policy contains what is know as “The Standard Mortgage Clause.” While a mortgagee is not considered an insured under your policy, the mortgagee has rights pursuant to the policy that exceed those of the insured in that the mortgagee can recover proceeds for its security interest even if coverage is denied to the named insured.  An insurer should always verify whether any mortgagees are named on a policy before releasing any proceeds.  Releasing insurance proceeds without naming the mortgagee on a settlement check exposes the carrier to liability.

The typical Standard Mortgage Clause provides as follows:

If a mortgagee is named in this policy, any loss payable under Coverage A or B will be paid to the mortgagee and you, as interests appear.  If more than one mortgagee is named, the order of payment will be the same as the order of precedence of the mortgages.

If we deny your claim, that denial will not apply to a valid claim of the mortgagee, if the mortgagee:

Notifies us of any change in ownership, occupancy or substantial change in risk of which the mortgagee is aware;

Pays any premium due under this policy on demand if you have neglected to pay the premium; and

Submits a signed, sworn statement of loss within 60 days after receiving notice from us of your failure to do so.  Policy conditions relating to Appraisal, Suit Against Us and Loss Payment apply to the mortgagee.

“The rights of a mortgagee to claim insurance proceeds derive primarily from the nature of the contract existing between the insurer and the insured.” Harleysville Insurance Company v. Locontora et al, 34 Phila. 257, 261 (Phila. C.P. 1997).  In Guarantee Trust and Safe Deposit Company v. Home Mutual Fire Insurance Company, 180 Pa. Super. 1, 117 A.2d 824, 825-6 (1955), the Court recognized what it described as ‘well-established’ law that a standard mortgagee clause creates a separate, distinct and independent contract between the insurer and mortgagee.  Disregarding a mortgagee clause stipulating payment to the mortgagee, and paying a settlement to the insured, does not absolve an insurer of its liability to the mortgagee. Harleysville Insurance Company v. Locontora et al, 34 Phila. 257, 261-62 (Phila. C.P. 1997).

In Locontora, the insured argued that since the mortgagee was not specifically identified in the renewal of the policy, that the mortgagee was not entitled to any insurance proceeds relative to the fire loss.  The Court in Locontora held that the mortgagee “has a superior right to the policy proceeds.” Id, at 262. Moreover, the Court noted that the question of whether omitting the specific name of the mortgagee from the policy bars the recovery by a mortgagee has not been directly addressed by the Pennsylvania Courts.  Id.  Federal Courts interpreting state law however, have determined that such an occurrence will not nullify the mortgagee’s rights under the policy.

In reaching its decision, the Court specifically examined the case of United States Bank v. CS Associates, 121 B.R. 942 (E.D. Pa. 1990), wherein the Court, in interpreting Pennsylvania case law, held that an insurer committed a mistake by not naming the bank on the policy, and thus, the bank was entitled to have the policy reformed to include it as a mortgagee.

Moreover, the Court in Locontora held that the mortgagee also maintained a right to insurance proceeds under an equitable lien theory, derived from the insurance covenant present in the mortgage.  The Court cited this rule as was initially pronounced in Laurel National Bank v. Mutual Benefit Insurance Co., 297 Pa. Super 473, 444 A.2d 130 (1982):

“As a general rule, if the mortgagor covenants to keep the mortgaged property insured for the better security of the mortgagee, the latter will have an equitable lien upon the proceeds of insurance carried by the mortgagor, in case of a loss, to the extent of his interest in the property destroyed, even though the policy contains no mortgage clause and is payable to the mortgagor.”

 

C. Assignees

Another issue that has arisen recently in the context of the homeowners’ policy is whether certain individuals and/or entities can attempt to recover insurance proceeds or benefits, which were assigned to them by the insured, directly from the insurance carrier.  A recent examination of Pennsylvania case law with respect to this particular issue evidences that the law is very much unsettled in this area.

An assignment is a transfer of property or a right from one person to another; unless qualified, it extinguishes the assignor’s right to performance by the obligor and transfers that right to the assignee.  The Insurance Adjustment Bureau, Inc. v. Allstate Insurance, 588 Pa. 470; 905 A.2d 462 (2006): Legal Capital, LLC. v. Medical Professional Liability Catastrophe Loss Fund, 561 Pa. 336; 750 A.2d 299 (2000).

Generally, non-assignment clauses are included in insurance policies for the protection of insurers. Such clauses are designed to guarantee that an increase of the risk of loss by a change of the policy’s ownership cannot occur without the consent of the insurer.  Because non-assignment clauses limit the amount of risk that the insurer may be forced to accept, courts will generally strike down an insured’s attempt to assign its policy to a new insured. Consistent with the general purposes of non-assignment clauses, however, courts are reluctant to restrict the assignment of an insured’s right to payment which has already accrued. Therefore, because an insured’s right to proceeds vests at the time of the loss giving rise to the insurer’s liability, restrictions on an insured’s right to assign its proceeds are generally rendered void.  Egger v. Gulf Insurance, 588 Pa. 287; 903 A.2d 1219 (2006).

In Egger, the Pennsylvania Supreme Court held that stipulations in policies forbidding an assignment, except with the insurer’s consent, apply only to assignments before the loss or death of the insured or the maturity of the policy.  While Egger was not a property insurance case, its holding allowing post-loss assignments is clear, and should be applicable to all types of insurance policies.

In Eggers, the Plaintiff died as a result of negligence on the part of Foulke Associates’ personnel, who were responsible for security and protection of the site where the accident occurred.  Foulke’s personnel did not arrive until twenty (20) minutes after Plaintiff’s initial fall, and failed to bring any first aid equipment to the scene, which contributed to the Plaintiff slowly bleeding to death from the injury.  Id.

Foulke maintained a primary policy of insurance and an excess policy, the latter issued by Gulf Insurance.  The Gulf policy contained a non-assignment clause, prohibiting assignment of the insured’s rights without prior written consent.  Shortly before the trial commenced, Gulf denied coverage under its excess policy.  At that point, Foulke entered into an agreement where the Plaintiff accepted a sum from the primary insurer, and an assignment of Foulke’s rights against Gulf.  The Plaintiff eventually filed suit directly against Gulf, which defended the lawsuit by arguing that the assignment was invalid.

The Court declared that the assignment was enforceable, and held that a post-loss assignment is valid because it does not increase the risk undertaken by the insurer.  Thus, the Court held that the Plaintiff had standing to sue the insurer directly.

On the same date Egger was decided, the Pennsylvania Supreme Court decided the case of Insurance Adjustment Bureau, Inc. v. Allstate Insurance, 588 Pa. 470; 905 A.2d 462 (2006).  In Insurance Adjustment Bureau, the policyholders’ house suffered a serious fire loss.  The insureds obtained the services of a public adjustment company, IAB, to work on their behalf in adjusting the claim.  The contract entered into between the insured and IAB provided that:

The insured agrees to pay the Public Adjuster for such services a fee of 10%…of the amount paid or agreed to be paid by the insurance companies in settlement of the loss, and reasonable expenses, hereby assigning to the Public Adjuster all monies due or to become due from the insurance companies.

Allstate was on notice of the agreement that was executed between the parties.  A month after the contract was executed, and after IAB investigated the fire, prepared inventories, secured estimates and negotiated with Allstate, the insureds terminated their agreement with IAB.  Id.  Thereafter, Allstate agreed to provide coverage for the loss.  IAB provided a letter to Allstate requesting that it honor the assignment, and include IAB as a payee on the settlement draft for insurance proceeds.  Allstate however, issued the settlement draft directly to the insureds, and did not name IAB on the settlement draft.  Id, at 465.

Subsequently, IAB filed suit directly against Allstate for breach of contract, conversion and breach of assignment, alleging that a written agreement between IAB and Allstate’s insureds assigned it the right to payment of insurance proceeds.

Allstate filed preliminary objections to IAB’s Complaint for failure to state a cause of action.  Allstate argued that the assignment by the insureds was invalid because Allstate did not consent, and there was no contract between the parties upon which IAB could obtain relief.  Allstate also argued that the assignment was revocable, and thus, IAB’s sole cause of action was against the policyholder.  The trial court sustained Allstate’s preliminary objections.  The Pennsylvania Superior Court affirmed this holding concluding that the insureds made the assignment for collection purposes, and such an assignment was revocable under the circumstances.  However, the Court provided no guidance as to what it meant by use of the term “collection purposes.”  Id, at 478-479.

The Pennsylvania Supreme Court examined the case and noted that in cases of a written contract, the intent of the parties is the writing itself.  The Supreme Court stated that, “it is our view that the primary interpretative question raised by Allstate’s preliminary objections is not whether this language results in an assignment, but rather, what type of assignment the parties intended.  That is, was the assignment for purposes of collection, which accordingly should be deemed to have created an agency relationship that was revocable; or was it an assignment for purposes of security, which accordingly, should be deemed irrevocable upon its partial performance.”  Id, at 469.

The Court held that the Agreement on its face was ambiguous as to whether the parties intended to move beyond a principal/agent relationship to provide security for payment.  Thus, Allstate did not establish to the requisite certainty that solely a principal/agent relationship was intended to support a demurrer to the claims of IAB’s Complaint at the preliminary objections stage on the revocation ground.  Id, at 470-471.

The Court also held that Allstate’s argument that its non-assignment clause barred this type of arrangement was improper as the assignment was made post-loss, which did not in any way increase the risk insured by Allstate which would have triggered the non-assignment clause in the policy.  Id, at 471.

Interestingly, the Court found the assignment language in the contract to be ambiguous and remanded the case for discovery to determine the intent of the parties.  Because the contract was drafted by IAB, if there is no admissible evidence as to the intent of the parties, the ambiguous contract will be construed against IAB.  Thus, IAB may very well lose this case as it proceeds forward.

Moreover, several years prior to this case, the Superior Court of Pennsylvania decided a case where they steadfastly held that no breach of contract cause of action or third party beneficiary case could be asserted against a carrier in a context involving an insured contracting with a third party for assignment of proceeds.

In High Tech Enterprises, Inc. v. General Accident Insurance Company, 430 Pa. Super. 605; 635 A.2D 639 (1993), an automobile repair business fixed the insured’s vehicle and executed an agreement granting the company the right to collect and retain any and all damages by law against the insured’s insurance carrier by reason of the damage to the insured’s motor vehicle.  The insured did not obtain the carrier’s consent to this assignment.

The repair company filed an action against the insurance company for fraud on a contract, bad faith and breach of contract.  The Superior Court held that the insured was the true owner of any potential claim for unpaid insurance benefits, and that the non-assignment clause of the insurance policy was clear and unambiguous.  As such, the repair company, who was not a party to the insurance contract, never acquired a right to sue the insurer.  Id, at 609-610.

This prior decision appears to be at odds from the Eggers decision, which holds that a non-assignment clause in an insurance contract is not enforceable after the loss has occurred.

In High Tech, the Plaintiff also asserted a cause of action against the insurer based upon the contract theory that the repair company was a third-party beneficiary of the insurance agreement.  In making its argument, the Plaintiff contended that both the insured and the insurer intended that a business such as the Plaintiff’s collision repair business, would be a beneficiary of any insurance proceeds.

The Court reasoned that General Accident and its insured had otherwise agreed that no assignment of the insurance policy benefits could be affected without the insurer’s written consent, and written consent was not obtained.  As such, there was simply no expressed intention on the part of both contracting parties that any repair business benefit from the insurance contract.  Id, at 609.

The Insurance Adjustment Bureau case raises some very legitimate concerns for the insurance professional handling a typical fire loss claim.  The carrier in the case argued that it never entered into any agreement with IAB, and thus, cannot be subject to suit for breach of contract or breach of assignment.  Further, the carrier argued that if it would have named IAB on the settlement draft in contradiction to the specific instructions of its insured, that it could have been subjected to a potential bad faith claim by its insured.

While both of these arguments certainly have merit, the best practice for the insurance professional may involve interpleading the settlement funds in this type of situation, and filing a declaratory judgment action with the Court so that a determination can be made as to whether proceeds must be released in accordance with the assignment.

A bad faith action could possibly follow if the carrier acts in this manner as it would cause some immediate resentment by the insured; however, the carrier would be in a very strong position to defend against bad faith by showing that it acted in the best interest of all parties in interpleading funds as opposed to simply releasing them to the insured, which could result in a subsequent suit by the party against the insured for breach of contract or the carrier for breach of assignment.

 

III. The CGL Policy

The Commercial General Liability Policy obligates the insurer to closely examine the policy provisions and endorsements to identify any and all parties who may be considered an insured or additional insured.  These policies provide much broader coverage to persons and/or parties acting on behalf of the named insured.  In addition, much of the litigation with respect to these policies arises when small businesses enter into separate agreements to defend and/or indemnify other entities or request endorsements onto their policies to include other businesses as additional insureds.

A.  Additional Insureds and Agreements to Procure Insurance

An additional insured is a person, organization or other entity added to a named insured’s insurance policy for purpose of providing the additional insured coverage under the policy. This situation typically arises in the contractual setting where a party with lesser control over the risks involved in the contract or with greater bargaining power requires, under the terms of the underlying contract, that the other party confer on that party additional insured status under its existing or newly procured general liability policy. This additional insured status shifts the risks of the contract and provides the additional insured with direct rights and protection under the named insured’s policy.

Some common contractual situations where a person or organization is likely to request being listed as an additional insured under an insurance policy are:

1. General contractors on a subcontractor’s policy;
2. Owners on a general contractor’s policy;
3. Landlords on a tenant’s policy;
4. Property managers on a landlord’s policy;
5. Distributors on a manufacturer’s policy; and
6. Retailers on a manufacturer’s policy.

While contractual obligations requesting the conferral of additional insured status on a party are common, widespread practices of the above listed settings, failure to recognize and protect against the dangers and/or pitfalls of this type of agreement could prove detrimental after a claim arises. Additionally, the specific type of endorsement utilized by the insurer for a particular additional insured significantly impacts the Court’s examination of coverage and the additional insured’s rights under that policy.

B.  Becoming An Additional Insured

A certificate of insurance is a document issued by an agent, broker or insurer which verifies that a particular insurance policy exists and provides certain information about the policy. This information typically includes items such as the name of the insurer, agency and insured, as well as, the types of insurance included, policy numbers, effective dates, limits, certificate holder, cancellation procedure, special provisions, etc.

In certain contractual settings, one party may ask that the other party provide a certificate of insurance to prove that the specific insurance required under the contract does indeed exist. However, it is imperative to note that a certificate of insurance by itself does not confer any rights under the policy, it is merely an informational document. In other words, a certificate of insurance alone does not make the holder an additional insured, nor does it give the holder any rights, under the insurance policy. In fact, the typical certificate of insurance states, in the top right hand corner, that:

THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR  ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW.

A common problem regarding certificates of insurance is when the insured party, who is contractually obligated to add the other party as an additional insured, provides a certificate of insurance stating as much, but fails to endorse that party as an additional insured onto the policy. While some states provide the aggrieved party with a promissory estoppel claim in this situation, others do not based on the fact that the language of the certificate itself provides the party with no assurance that he/she has been endorsed under the policy.

In Tremco, Inc. v. Pennsylvania Manufacturers’ Insurance Company, 2002 Phila. Ct. Com. Pl. LEXIS 39 (2002), Tremco, a manufacturer, contracted with Gooding, Simpson and Mackes, Inc. (GSM), a contractor, to supply certain roofing materials for a construction project. The contract provided that GSM was to deliver a certificate of insurance to Tremco, and add Tremco as an additional insured under GSM’s general liability insurance policy with Pennsylvania Manufacturers’ Insurance Company (PMAIC).  Id, at 2.

Thereafter, GSM provided Tremco with a certificate of insurance demonstrating coverage under its policy; however, Tremco was not properly endorsed as an additional insured to the policy until nearly two (2) years later.  Prior to the endorsement, a suit was filed against GSM and Tremco alleging negligence, breach of warranty and strict liability.  Tremco filed a declaratory judgment action against the carrier seeking coverage under GSM’S policy of insurance.  Id, at 2.

The Common Pleas Court of Philadelphia County held that without explicitly being named as an additional insured in the policy at the time the cause of action arose, Tremco could not maintain a breach of contract action against PMAIC.  Although Tremco was entitled to coverage under GSM’s policy with PMAIC, and was the holder of a certificate of insurance with regards to this policy, the Court declined to confer any rights under the policy to Tremco on these bases alone. The Court held that without proper endorsement on the policy, Tremco was not entitled to any protections offered by the PMAIC policy.  Id, at 13.

This issue arose again The Bedwell Co. v. D. Allen Bros., Inc., 2006 Phila. Ct. Com. Pl. Lexis 459 (2006).  In the Bedwell case, the School District of Philadelphia entered into an agreement with Synterra Ltd. and Turner Construction, which named Synterra and Turner as construction manager for the construction of a new elementary school. The School District also entered into an agreement with The Bedwell Company, which identified Bedwell as the general contractor on the project.  Bedwell subsequently entered into a subcontract with D. Allen Bros., Inc, which required the company to procure an insurance policy with Harleysville Mutual Insurance Company.  Id, at 2.  During the project, an Allen Bros. employee was killed after falling from scaffolding at the jobsite.  Id, at 3.

Synterra Ltd. and Turner Construction attempted to seek coverage as additional insureds under the Harleysville policy based upon the language of the certificate of insurance, which stated that the following were additional insureds under the policy:

…SCHOOL DISTRICT OF PHILADELPHIA, NEW ELEMENTARY SCHOOL 4<TH> ST. & LEHIGH AVE., PHILADELPHIA, PA., BEDWELL COMPANY AND THE SCHOOL DISTRICT OF PHILADELPHIA, ITS CONSULTANTS AND ARCHITECTS ARE INCLUDED AS ADDITIONAL INSUREDS

Synterra and Turner argued that since they were the School District’s consultants on the project that they should be included as additional insureds based on the language of the certificate of insurance. The Common Pleas Court of Philadelphia County disagreed, stating that:

[T]he identification of an entity on a certificate of insurance is not evidence that coverage exists for the entity as an additional insured. The specific certificate of insurance issued by Harleysville contains a disclaimer which states “the certificate was issued as a matter of information and confers no rights upon the certificate holder.” Furthermore, the certificate of insurance states “it does not amend, extend or alter the coverage afforded by the policy.” Id.  Hence, it is the language of the underlying policy which governs Synterra/Turner’s status as an additional insured. Id, at 9-10.

In addition to holding that no coverage was afforded simply by being identified on the certificate of insurance, the Court also examined the additional insured endorsement and held that it did not entitle Synterra and Turner to coverage.  While many parties still attempt to obtain coverage solely on the basis that they are listed on an insurance certificate, the Pennsylvania Courts have determined that this is not a sufficient basis for obtaining the status of an additional insured.

C.  Additional Insured Endorsements

Additional insured status is obtained routinely by endorsement, which amends the policy by adding the named additional insured as an insured under that policy. This process involves an insured or his/her agent or broker requesting that the insurer issue an endorsement to add the person or organization to the policy as an additional insured. As a result of this request, an appropriate endorsement and certificate of insurance indicating that the coverage has been provided should be issued.

An endorsement can be created in one of two ways, either the party’s name is specifically listed on the endorsement as an additional party or the policy contains a blanket endorsement.

1. Scheduled Endorsements

A scheduled endorsement is one in which the named insured requests that his/her insurer list a specifically identified person, company or other entity by name on an endorsement. This endorsement then becomes part of the policy itself. A scheduled endorsement typically includes not only the name of the additionally insured person or organization, but also the locations of the covered operations.

2. Blanket Endorsements

In certain situations when the insurer is faced with repeated demands for additional insured status based upon the nature of his/her contracts, he/she may decide to use a blanket endorsement. This type of endorsement is most common in the construction and property rental industries.

Although the precise language of blanket endorsements varies from policy to policy, generally this type of endorsement extends additional insured status to any person and/or entity that the insured agrees to name as an additional insured under the policy. Many additional insured blanket endorsements limit coverage to liability arising out of ongoing operations performed by the named insured or on the named insured’s behalf, including acts or omissions of the additional insured in connection with the general supervision of such operations.  After additional insured status is confirmed, the insurance professional must determine exactly what types of coverage have been provided to the additional insured.

In the case of Township of Springfield v. William Ersek, D/B/A The Pro shop and Harry Ersek and the Travelers Insurance Co., 660 A.2d 672; 1995 Commw. Lexis 281 (1995), the Commonwealth Court of Pennsylvania found that the obligations owed to an additional insured are not governed by the underlying contract between the named insured and additional insured, but rather by the terms of the insurance policy itself. The Court stated that “the insurance contract between [the insurance company] and [additional insured] provides independent rights to the [additional insured]…”  Id, at 676.

Furthermore, the Commonwealth Court went on to state that the “clear language of the policy requires [the insurance company] to defend and indemnify the [additional insured]…” and that just like any other insurance coverage issue, “[i]t is the law in Pennsylvania that exceptions to general liability of the insured are to be strictly construed against the insurance company.” Id. at 676, 11; citing Miller v. Prudential Insurance Co. of America, 239 Pa. Super. 467, 362 A.2d 1017 (1976). Whether the provisions of a contract are clear and unambiguous is a matter of law to be determined by the Court.  Nationwide Insurance v. Cosenza, 258 F.3d 197 (3d Cir. 2001).  If there is room for error in interpreting an insurance policy, Pennsylvania Courts are careful to err in favor of coverage for the insured rather than wrongfully denying coverage  Motley v. State Farm Mutual Insurance Co., 502 Pa. 335; 446 A.2d 609 (1983).

Basically, this means that an additional insured is “An Insured” for purposes of the insurance policy’s coverage. “Additional insureds “are entitled to the same coverage as the named insured.” Miltenberg & Samton, Inc. v. Assicurazioni Generali, S.p.A., et al., 2000 Phila. Ct. Com. Pl. LEXIS 79, 24 (2000); citing Allan D. Windt, Representation of Insurance Companies and Insureds, 3^rd ed. § 11.30. Furthermore, the scope of the insurer’s obligations is governed only by the policy itself, not by any other contractual agreement between the named insured and additional insured. This means that the additional insured could enjoy a wider array of protection under the insurance policy’s provisions than what was agreed to in the original contract between the parties.

Just as with a named insured, an insurer must defend an additional insured for any claim that is covered under the policy and indemnify them for any liabilities incurred.  The obligation of an insurer to defend an action against the insured is fixed solely by the allegations in the underlying complaint. If the complaint alleges an injury which may be within the scope of the policy, the insurer must defend its insured until the claim is confined to a recovery the policy does not cover. Germantown Ins. Co. v. Martin, 407 Pa. Super. 326; 595 A.2d 1172, 1174 (1991).             

Furthermore, an additional insured can assert a bad faith claim against an insurer if the insurer fails to deal with the additional insured in a good faith manner. While there has yet to be a case in Pennsylvania that specifically states that an additional insured has a bad faith cause of action against an insured, in Rouse Philadelphia, Inc. v. OneBeacon Ins. Co., the court stated that there was no bad faith cause of action against the insurer because the moving party was found not to be an additional insured under the policy. 2005 Phila. Ct. Com. Pl. LEXIS 440, 3 (2005). The ensuing logical conclusion is that if the party was an additional under the policy, the court would have entertained the bad faith cause of action. If the court finds that the insurer acted in bad faith toward an additional insured, the court may award interest on the claim, punitive damages, court costs and attorney fees against that insurer.

However, it is important to note that the endorsement naming the additional insured itself can contain language limiting the scope of the additional insured’s rights under the policy.  In this case, the additional insured will be protected by the policy’s provisions to the full extent afforded by the language of the endorsement naming the additional insured.

Perhaps the most contentious aspect of the additional insured classification is whether an additional insured is covered under the insurance policy for his/her own negligence. The answer to this question lies in the language of the endorsement itself.

“Arising Out Of” Language

In many instances, the endorsement language naming an additional insured will read as follows:

Section II —WHO IS AN INSURED is amended to include as an insured any person or organization for whom you have agreed in writing to provide liability insurance, but only with respect to liability arising out of your operations or premises owned by or rented to you. (emphasis added).[1]

In Township of Springfield v. Ersek, Springfield Township leased the Pro Shop of the Springfield Township Country Club (“Pro Shop”) to William Ersek (“Ersek”). 660 A.2d 672; 1995 Pa. Commw. LEXIS 281. The lease required that Ersek obtain a liability insurance policy, and name the Township as an additional insured.  Ersek obtained a policy with Phoenix Insurance Company.  Thereafter, an employee of the Pro Shop was injured after he slipped and fell on the Pro Shop’s steps. The employee filed a lawsuit against the Township. The Township then joined Ersek as an additional defendant.  Id, at 674.

The Township then filed a separate declaratory judgment action against both Ersek and Phoenix asserting that the Ersek and Phoenix owed the Township a duty to defend and indemnify for the underlying action because the Township was an additional insured under the Phoenix policy.

Phoenix argued that any responsibility on its part to defend and indemnify the Township was based on the language of the underlying lease between Ersek and the Township.  However, as stated above, the Court found that Phoenix’s obligations to the Township were governed not by the lease, but rather, by the insurance contract itself.  Id, at 675-676.

The Phoenix policy provided coverage for the Township “with respect to liability arising out of operations performed by the named insured.” Id, at 676. The Court held that:

“Arising out of” has been defined as casually connected with, not proximately caused by.[2] We believe that not only Pennsylvania but other jurisdictions have interpreted similar insurance provisions such as the one found in the Phoenix policy to require the insurer to provide a defense and indemnify an additional insured for the additional insured’s negligence with occurred on the covered premises. Id, at 676-77.

(emphasis added).

The Court stated that, “this policy clearly provides coverage to the Township where an injury occurs on the Pro Shop premises as a result of the Pro Shop’s operations regardless of whether the negligence which gives rise to the claim rests with Ersek or with the Township.” Id, at 676. Had Phoenix sought to restrict coverage to only claims arising from the negligence of Ersek, it could have clearly stated so in the additional insured endorsement language, rather than stating that the Township was insured with “respect to liability arising out of Ersek’s operations.” Id.

Pennsylvania courts have consistently interpreted the language “arising out of” in an additional insured endorsement “as providing liability if the alleged injuries would not have occurred “but for” the operations or negligence of the named insured.” Maryland Casualty Company v. Regis Insurance Company and Ran Holding Corporation, 1997 U.S. Dist. LEXIS 4359, 9 (E.D. of PA, 1997).  This “but for” causation simply requires that there be some casual connection between the injury and the scope of the contractual obligations and/or operations.

In Philadelphia Electric Co. v. Nationwide Mutual Insurance Company and The Davey Tree Expert Company, the U.S. District Court for the Eastern District of Pennsylvania again examined the issue of whether an additional insured was covered under the insurance policy when its negligence gave rise to the claim. 721 F. Supp. 740, 1989 U.S. Dist. LEXIS 11895 (E.D. of PA, 1989).  In this declaratory judgment action, Philadelphia Electric Co. (“PECO”) sought defense and indemnification from Nationwide and Davey Tree in a pending personal injury suit.

The facts evidence that an employee of Davey Tree was injured while performing his job duties as a tree trimmer after a power line near where he was trimming trees arced and electrocuted him.  At the time of this incident, Davey Tree was performing work for PECO pursuant to a purchase order. The terms of the purchase order required Davey Tree to name PECO as an additional insured under its policy of insurance with Nationwide.  Id, at 2-3.

PECO’s coverage was limited by Endorsement 6, which provided that an additional insured could be added to the policy, but only to the extent of the interest listed on the Certificate of Insurance. Id, at 5. The Certificate of Insurance provided to PECO read as follows:

The Philadelphia Electric Company, its officers, agents and employees are added as Additional Insureds for any work performed by The Davey Tree Expert Company on their behalf. Id.

Nationwide argued that it was only obligated to defend and indemnify PECO if PECO became vicariously liable for Davey Tree’s negligence, not for PECO’s own negligence.  Id. The Court found that:

The contract language in this case contemplates a wider scope of coverage than the language in Harbor. If the parties had intended coverage to be limited to the vicarious liability type suggested by the defendants, language clearly embodying that intention was available – that is the lesson of Harbor. Here, the language of the Certificate of Insurance should be read to include all liability arising in connection with Davey Tree’s work, including PECO’s own negligence. This interpretation does not negate the operation of Endorsement 6 to the Nationwide Policy. That provision prevents PECO from enjoying blanket coverage under the policy for liability unrelated to the work of Davey Tree. Id, at 7-8.

In Maryland Casualty Company v. Regis Insurance Company, the U.S. District Court for the Eastern District of Pennsylvania was again asked to interpret whether the additional insured endorsement extended coverage to the negligence of the named insured. 1997 U.S. Dist. LEXIS 4359, (E.D. of PA, 1997). The endorsement read as follows:

It is agreed that the “Persons Insured” provision of this policy is amended to include the person or organization named below, but only with respect to liability sought to be imposed upon the Additional Insured as a result of an alleged act or omission of the Named Insured or its employees. Id, at 3.

(emphasis added).

The Court held that “[t]he Court does not find that “as a result of”, used in the Additional Insured Endorsement, imposes a greater causation requirement than the “but for” causation applied by courts in cases with clauses using “arising out of.” Id, at 13. After interpreting this clause the same way the courts interpreted “arising out of,” the Court went on to state that “[h]ad Regis sought to restrict coverage to vicarious liability, it could have clearly so stated in the Additional Insured Endorsement.” Id, at 18.

As the above case law illustrates, Pennsylvania courts broadly construe the scope of coverage provided to an additional insured under the additional insured endorsement. However, the courts specifically note in a number of these cases that the insurer could restrict coverage by including such restrictions in the endorsement. This raises the question as to what type of language is necessary to properly limit the scope of coverage available to an additional insured.

The following is the current language of ISO form CG 20 10 07 04, which was designed to have a limiting effect on the coverage available to an additional insured:

Section II — Who Is An Insured is amended to include as an additional insured the person or organization shown in the Schedule, but only with respect to liability for “bodily injury,” “property damage” or “personal and advertising injury” caused, in whole or in part, by:

1. Your acts or omissions; or

2. The acts or omissions of those acting on your behalf; In the performance of your ongoing operations for the additional insured at the location designated above

In Harbor Insurance Company v. Andrew L. Lewis and Joseph L. Castle, Trustees for Reading Company and Edward and Patricia Scarborough and City of Philadelphia, the U.S. District Court for the Eastern District of Pennsylvania found that the endorsement language in the Harbor Insurance Policy did preclude coverage to the additional insured, the City of Philadelphia, who was found joint and severally liable with the named insured, Reading Railroad Company. 562 F. Supp. 800, 1983 U.S. Dist. LEXIS 17433 (E.D. of PA, 1983).

The endorsement read as follows:

ADDITIONAL INSUREDS

IT IS AGREED THAT THE INSURANCE AFFORDED BY THIS POLICY SHALL APPLY TO THE FOLLOWING ADDITIONAL INSUREDS BUT ONLY TO THE EXTEND OF LIABILITY RESULTING FROM OCCURRENCES ARISING OUT OF NEGLIGENCE OF READING COMPANY AND/OR ITS WHOLLY OWNED SUBSIDIARIES:

          …

CITY OF PHILADELPHIA

 The Court held that:

Where the endorsement states that additional insured coverage is provided, “but only to the extent of liability resulting from occurrences arising out of negligence of Reading Company,” the insertion of the phrase “occurrences arising out of” is meant to incorporate these limitations on Harbor’s duties. Accordingly, but for these limitations, it is clear that the provision would provide coverage to the City, “but only to the extend of liability resulting from [the] negligence of Reading Company”…Moreover, endorsement number 8 must be read in its entirety. The endorsement does not provide blanket coverage to the additional insureds where Reading is held negligent; it provides “the insurance afforded by this policy.” The insurance provided by the policy was strictly tied to the actions of the named insured. Id, at 12-13.

The Court interpreted the endorsement language to only cover additional insureds in the case where they were held vicariously liable for the negligence of the named insured.

Based upon the case law in this area, insurers can limit the scope of coverage afforded to an additional insured by stating as much in the endorsement. However, careful attention must be given to drafting a clear and unambiguous limiting endorsement. Otherwise, the Court is likely to find in favor of broad coverage for the additional insured. The language used must explicitly state that the endorsement limits the insurer’s liability to the additional insured to cases where the additional insured is found vicariously liable for the acts or omission of the named insured.

D.  Competing Policies

Another issue that arises under additional insured endorsements is what effect the additional insured’s own insurance has when a claim arises under the additional insured endorsement. “Other insurance exists where there are two or more insurance policies covering the same subject matter, the same interest, and against the same risk.” Harstead v. Diamond State Ins. Co., 555 Pa. 159, 165; 723 A.2d 179 (Pa. 1999).

While one might naturally assume that the policy naming the additional insured would provide primary coverage for the loss, this is not always the case. Often times, this type of loss will trigger the additional insured’s own policy, and that policy may actually serve as the primary or as a contemporaneous coverage.

Determining the priority of coverage requires a review of the “Other Insurance” clauses in the applicable policies.  Remember that regardless of what the parties had initially agreed to in their underlying contractual obligation, the additional insured’s rights are governed by the terms of the insurance policy itself. Township of Springfield, supra.

The following is an example of an Excess Insurance clause:

4. Other Insurance If other valid and collectible insurance is available to the  insured for a loss we cover under Coverages A or B of this Coverage Part, our obligations are limited as follows:

a. Primary Insurance This insurance is primary except when b. below applies. If this insurance is primary, our obligations are not affected unless any of the other insurance is also primary. Then, we will share with all that other insurance by the method described in c. below.

b. Excess Insurance

This insurance is excess over:

(2) Any other primary insurance available to you covering liability for damages arising out of the premises or operations for which you have been added as an additional insured by attachment of an endorsement.

The issue becomes complicated when both policies contain excess insurance provisions. When this occurs, the court looks to the competing clauses in the policies to determine whether they can be reconciled with one another. R.R. Donnelley & Sons Co., et al. v. Fireman’s Fund Insurance Co., et al., 2004 U.S. Dist. LEXIS 24583, 14 (E.D. of PA, 2004). “Courts must reconcile competing other insurance clauses when it is possible to do so.” Id; referencing Nationwide Ins. Co. v. Horace Mann Ins. Co., 200 PA Super 245, 759 A.2d 9 (2000). These clauses are only found irreconcilable when they are mutually exclusive. The court stated that these provisions are mutually exclusive when “following the express terms of one policy would be in direct conflict with the express dictates of another policy.” National Ins. Co., supra; citing American Casualty Co. v. PHICO Ins. Co., 549 Pa. 682; 702 A.2d 1050, 1053-54 (1997).

In R.R. Donnelley & Sons, et al. v. Fireman’s Fund Insurance Co., et al., the Court examined two (2) policies both implicated by the loss, and containing competing excess clauses. 2004 U.S. Dist. LEXIS 24583, 14 (E.D. of PA, 2004). Donnelley, an additional insured under the Fireman’s Policy, also had his own liability policy with Zurich. The Zurich Policy contained the following other insurance clause:

b. Excess Insurance.

This insurance is excess over: …

(2) Any other primary insurance available to you covering liability for damages arising out of the premises or operations for which you have been added as an additional insured by attachment of an endorsement.

 Id. at 15, quoting terms of Zurich Policy No. CG 0001 (7/98 Ed.)    at 9.

The Fireman’s Policy contained the same clause relieving it of liability if Harris is an endorsed additional insured on another primary policy.  Harris however, was not an endorsed additional insured on Donnelley’s policy, and thus, the Court held that other insurance provisions were not irreconcilable and determined that Zurich’s policy was in fact excess in this instance.  Id, at 15.

Although there is no direct case law on this subject matter dealing with excess insurance provisions found to be irreconcilable and mutually exclusive of one another in a property insurance context, this issue has been examined in other types of cases.[3]

“Where the other-insurance clauses of two policies each purport to make their policy’s coverage excess over the other, the clauses are irreconcilable, and therefore, mutually repugnant.” Allstate Insurance Co. v. Tokio Marine & Nichido Fire Insurance Co., Ltd., 464 F. Supp. 2d 452, 462-63; 200 U.S. Dist. LEXIS 88890, 31 (E.D. of PA, 2006); referencing Progressive Northern Insurance Company v. Universal Underwriters Insurance Company, et al., 2006 PA Super 101, 898 A.2d 1116, 1120 (2006). When excess insurance clauses are found to be mutually repugnant, each must be disregarded, leaving both policies to apply as primary insurance and each insurer to share in the loss. Progressive Northern Ins. Co., supra, at 14; referencing Nationwide Ins. and American Casualty Co., supra. “In Pennsylvania, liability payments are apportioned by equal shares-that is, “each insurer match[es] dollar for dollar payments up to the limits of the lower policy, and …any remaining portion of the loss [is] paid from the larger policy up to its limits.” Allstate Ins. Co., supra, at 31; citing American Casualty Co., supra, at 1053.

E. Insured Contracts

Generally, commercial liability policies contain a Contractual Liability exclusion which bars coverage for liability arising from the insured’s contractual obligations with another party. The following is an example of a contractual liability exclusion:

2. Exclusions

This insurance does not apply to:

b. Contractual Liability “Bodily injury” or “property damage” for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement.

See, ISO form CG 00 01 10 01 (2000).

 However, the exclusion then proceeds to carve out an exception, which is commonly referred to as an “insured contract.”

This exclusion does not apply to liability for damages:

(1) That the insured would have in the absence of the contract or agreement; or

(2) Assumed in a contract or agreement that is an “insured contract”, provided the “bodily injury” or “property damage” occurs subsequent to the execution of the contract or agreement. Solely for the purposes of liability assumed in an “insured contract”, reasonable attorney fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of “bodily injury” or “property damage” provided:

(a) Liability to such party for, or for the cost of, that party’s defense has also been assumed in the same “insured contract”; and

(b) Such attorney fees and litigation expenses are for defense of that party against a civil or alternative dispute resolution proceeding in which damages to which this insurance applies are alleged. Id, at 2.

Like many policy terms of art, “insured contract” is expressly and specifically defined under the policy. Typically, it is defined as follows:

9. “Insured contract” means: That part of any other contract or agreement pertaining to your business (including an indemnification of a municipality in connection with your work performed for a municipality) under which you assume the tort liability of  another party to pay for “bodily injury” or “property damage” to a third person or organization. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement. Id, at 13.

In other words, in order for the underlying contract to be interpreted as an “insured contract” under the policy, it must contain the following criteria:

1. The insured’s express and unambiguous assumption of  tort liability in the contract or agreement;

2. The contract or agreement in which the insured assumes liability must relate to the insureds business;

3. The insured must assume the tort liability of another party (i.e. if  the insured is independently liable, the contract is not an “insured contract.” The contract is also not an “insured contract” if the insured is found vicariously liable without an express assumption of liability); and

4. The assumed laibility asserted against the insured must be rooted in tort law, rather than breach of contract, etc.

In The Hertz Corporation v. Gray Smith, et al., the Pennsylvania Superior Court expressed how narrow the “insured contract” exception to the contractual liability exclusion is construed. 441 Pa. Super. 575; 657 A2d. 1316 (1995). In Hertz, Gray Smith (“Smith”) agreed with Hertz to be held contractually liabily for any damage to the automobile he rented from Hertz regardless of fault. Thereafter, Smith, while driving the Hertz rental car, was involved in a two-car automobile accident.  Id.

Subsequent to the accident, Hertz demanded payment from Smith for the damages to the rental vehicle. While Smith’s own insurer, St. Paul, paid the other driver’s claim, it refused to pay for damages sustained to the rental vehicle asserting that these particular damages did not fall within the scope of the policy’s coverage.  After Hertz filed an action against Smith seeking payment for damages to the rental vehicle, Smith joined St. Paul as an additional defendant in the suit.  Id.

St. Paul relied on the policy’s contractual liability exclusion in denying Smith’s claim for damages to the rental car. Alternatively, Smith turned to the covered contract (insured contract) exception to this exclusion as his basis for coverage. Under the policy, covered contract was defined as:

****

that part of any other contract or agreement under which you assume the tort liaiblity of another to pay damages for covered bodily injury or property damage to others if such contract or agreement is related to your business, and is made before the bodily injury or property damage happens.

Tort liability means a liability that would be imposed by law without any contract or agreement.

**** Id, at 580.

The Court concluded that contract between Smith and Hertz was not a covered contract under the policy since Smith was contractually responsible for any damage to the rental vehicle. In other words, Hertz’s complaint against Smith, which was sounded in breach of contract, did not trigger the covered contract exception since it only applied to assumed tort liability. The Court stated that “[t]he purpose of insured contract coverage, therefore, is to provide benefits for tort liability that an insured contractually assumes, not liability that is based on breach of contract”. Id, at 581.

Another case demonstrating how narrowly insured contract provisions are construed is Tremco, Incorporated, et al. v. Pennsylvania Manufacturers’ Insurance Company.  2002 Phila. Ct. Com. Pl. LEXIS 39 (2002). In Tremco, the Common Pleas Court of Philadelphia County stated that the only person provided coverage under the insured contract exception is the named insured on the policy. This meant that the other party to the underlying contract could not seek protection under the policy as a third party beneficiary based on the insured contract provision. Id, at 23-24.

It is important to note that a contractual obligation on the part of the insured to obtain insurance for another party is not the same as assuming the other party’s tort liability. If a contract contains a provision that requires a party to provide insurance covering the other party, this provision in itself does not render the contract an “insured contract.” In this case, if the party that fails to name the other party as an additional insured on his/her insurance policy, the injured party may only be left with a breach of contract claim.

F. Indemnification

One final issue that arises frequently with respect to the CGL policy is a request made by a party against an insurance policy for defense/indemnification pursuant to an agreement entered into by the insured.  A party requesting indemnification (the indemnitee) is not an insured under the policy.  Basically, indemnification agreements involve one party agreeing to assume or take on the tort liability of another party with respect to services provided or use of property under a contract. These agreements are enforceable under Pennsylvania law; however, they are strictly construed against the indemnitee. Ruzzi v. Butler Petroleum Co., 527 Pa. 1, 8; 588 A.2d 1, 6 (1991).  Furthermore, if a party wishes to indemnify himself against his own negligence, he “must do so in clear and unequivocal language.  No inference from words of general import can establish such indemnification.” Id.

Indemnification clauses must meet the standards that were initially established under what is know as “The Perry/Ruzzi Rule.”  This standard comes from case law first examined in Perry v. Payne, 217 Pa. 252, 66 A. 553 (1907), which was later reaffirmed by the Pennsylvania Supreme Court in Ruzzi v. Butler Petroleum Co., supra.

The Perry/Ruzzi Rule set forth precedent that “a contract of indemnity against personal injuries should not be construed to indemnify against the negligence of the indemnitee, unless it is so expressed in unequivocal terms.  The liability on such indemnity is so hazardous, and the character of the indemnity so unusual and extraordinary, that there can be no presumption that the indemnitor intended to assume the responsibility, unless the contract puts it beyond doubt by express stipulation.  No inference from words of general import can establish it.” Id.

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