Companies in the construction industry face the risk of disputes every day, and defending those disputes means incurring attorneys’ fees. While companies sometimes pay those attorneys’ fees out of pocket, they may be able to trigger insurance coverage — either their own policy or that of another party on the project — to fund their defense.
An insurer’s duty to defend is broad. In BP Air Conditioning Corp. v. One Beacon Ins. Group, the New York Court of Appeals addressed this issue. In 2000, Henegan Construction Company, Inc., the general contractor on a renovation project at the World Trade Center, subcontracted the HVAC work to BP Air Conditioning Corp., which in turn subcontracted the steam fitting work to Alfa Piping Corp. The purchase order between BP and Alfa contained an indemnification and hold-harmless clause and required Alfa to name BP as an additional insured on Alfa’s commercial general liability policy. An employee of another BP subcontractor was allegedly injured after slipping on an oil slick from a pipe-cutting machine at the site. The employee sued Henegan, which brought a third-party action against BP and Alfa. BP sought a defense from Alfa’s insurance carrier, One Beacon. When One Beacon declined to defend BP as an additional insured, BP sought a declaration of its rights that it was entitled to a defense under Alfa’s policy.
The court explained that an insurer’s duty to defend is “exceedingly broad,” triggered whenever the complaint’s allegations suggest a reasonable possibility of coverage. The merits of the underlying claim are irrelevant, and an insured’s right to a defense is a contractual right independent of any ultimate liability determination. One Beacon argued that BP’s entitlement to a defense required a prior determination of Alfa’s liability. The court rejected that argument, holding that additional insured coverage is not contingent on a liability finding and that an insurer’s duty to defend an additional insured is coextensive with its duty to defend a named insured.
Companies in the construction industry should review their insurance policies — and those of other project participants — to determine whether coverage can be triggered to fund their defense.