An unsigned change order was enough to trigger additional insured coverage, a New York appeals court ruled, highlighting the importance of precise policy language.
On February 5, the Appellate Division, First Department, ruled that James River Insurance Company must defend A1 Specialized, Inc. in an underlying tort action, despite the change order requiring such coverage never being formally signed by the parties.
The case arose from insurance policies James River issued to Arsenal Scaffold Inc. The policies provided additional insured coverage to entities where required by written contract or written agreement for losses caused in whole or in part by Arsenal's acts or omissions in the performance of Arsenal's work for such additional insureds.
Arsenal prepared a change order for A1 Specialized that specifically contemplated naming A1 as an additional insured when the change order was signed. Arsenal then commenced work consistent with the terms of the change order and provided A1 a certificate of insurance indicating that A1 was an additional insured in regards to general liability as per written contract or agreement. The parties never signed the change order itself.
When A1 sought defense in an underlying lawsuit, James River refused, arguing that without signatures on the change order, there was no valid written agreement triggering additional insured coverage. Supreme Court in New York County agreed with the insurer and dismissed the complaint against James River.
A1 appealed, and the Appellate Division reversed.
The appeals court focused on what the James River policies actually required. The policies called for a written agreement but did not explicitly require that the agreement be signed. That distinction proved critical.
The court explained that an unsigned document may qualify as a written agreement requiring a party to be named as an additional insured, provided the additional insured provisions in the insurance policy itself do not explicitly require that the agreement be signed. If the agreement is unsigned, it may still be enforceable, provided there is objective evidence establishing that the parties intended to be bound.
The record established that the change order was unsigned. However, James River's insurance policies did not require a signed writing, merely a written agreement. The court found that the record established A1 and Arsenal intended to enter into the agreement set forth in the change order. Arsenal had commenced work consistent with the change order and issued the certificate of insurance to A1.
The court also examined whether the change order's language made signing a condition precedent to Arsenal's obligation to name A1 as an additional insured. While the agreement contained language specifying when Arsenal must name A1 as an additional insured, it did not contain language making the signing of the change order a condition precedent to Arsenal's obligation to name A1 as an additional insured.
Since the change order qualified as a written agreement requiring Arsenal to name A1 as an additional insured, the court found that James River is required to provide A1 a defense in the underlying litigation. The duty to defend was triggered because the amended complaint filed in the underlying tort action contains allegations that are potentially within the scope of coverage provided by James River's policies and suggest a reasonable possibility of coverage.
The Appellate Division reversed the lower court decision, vacated the declaration, denied James River's motion, reinstated the complaint against the insurer, and granted A1's motion for partial summary judgment. The matter was remanded for a hearing on A1's costs incurred in defending against the underlying action.
The decision serves as a reminder for insurers to carefully draft policy language if they intend to require signed agreements as a prerequisite for additional insured coverage. When policies use the term written agreement without explicitly requiring signatures, unsigned documents supported by objective evidence of intent to be bound may be sufficient to trigger coverage obligations.
For carriers looking to avoid similar disputes, the solution is to make policy language explicit. If signatures are necessary to trigger additional insured coverage, the policy should state that requirement clearly.
