Insurer Must Defend Additional Insured Who is Not Indemnitee Under Supplementary Payments Provision

The federal district court held that the insurer was obligated to defend the additional insured, rejecting the insurer’s argument that the additional insured was an indemnitee under the policy’s supplementary payments provision, negating the insurer’s having to pay defense costs. Charter Oak Fire Ins. Co. v. Liberty Mut. Fire Ins. Co., 2026 U.S. Dist. LEXIS 160253 (S.D. W. V. July 20, 2026).

ALL Construction, Inc. was the general contractor for a construction project. ALL subcontracted West Virgina Paving, Inc. (WVP) to provide paving for the project.

Carlottee Smith allegedly fell and was injured due to ALL and WVP’s negligent work. She sued both entities in state court. Smith and WVP settled and WVP was dismissed from the lawsuit. ALL, however, filed a third-party complaint against WVP seeking to require WVP to defend and indemnify ALL against Smith’s claims. ALL’s primary insurer, Charter Oak, then initiated this action against WVP’s insurer, Liberty Mutual.

Liberty Mutual’s motion to dismiss was denied. Liberty Mutual then took up ALL’s defense. The parties disputed whether Liberty Mutual must compensate Charter Oak for expenses Charter Oak incurred defending ALL before Liberty Mutual assumed the defense.

The subcontract required WVP to maintain liability insurance coverage for itself and ALL. The policy covered “any person or organization for whom” WVP was “performing operations when [WVP] and such person or organization have agreed . . . that such person or organization be added as an additional insured . . .”

Under its policy, Liberty Mutual agreed to defend insureds from suits seeking covered damages. Liberty Mutual also agreed to defend “an indemnitee of an insured” if both the indemnitee and the insured were named as parties to a covered lawsuit and provided certain conditions were met. One such condition was that “[t]he indemnitee and the insured ask [Liberty Mutual] to conduct and control the defense of that indemnitee against such ‘suit’ and agree that [Liberty Mutual] can assign the same counsel to defend the insured and the indemnitee . . .”

The policy further provided that “attorneys’ fees incurred . . . in the defense of [an] indemnitee, necessary litigation expenses incurred by [Liberty Mutual] and necessary litigation expenses incurred by the indemnitee at [Liberty Mutual’s] request will be paid as Supplementary Payments.” The insured was “responsible for [paying] all supplementary payments.”

Liberty Mutual argued it was not obligated to reimburse Charter Oak for costs it incurred defending ALL. Such costs constituted supplementary payments under the policy because ALL was WVP’s indemnitee. Charter Oak claimed that ALL was not an indemnitee for purposes of the Supplementary Payments because it was an insured. The provision conditioned Liberty Mutual’s duty to defend an indemnitee on “[t]he indemnitee and the insured asking [Liberty Mutual] to conduct and control the defense of that indemnitee . . .” This language suggested the “indemnitee” and “insured” are two different entities. Since ALL was a covered insured, the court agreed that ALL was not an “indemnitee” as the term was used in the policy.

Since ALL was not an “indemnitee” under the policy, costs and attorney’s fees incurred defending ALL were not “supplementary payments.” Accordingly, the policy obligated Liberty Mutual to pay for defense costs and fees Charter Oak incurred before Liberty Mutual assumed ALL’s defense.