Washington courts are familiar with litigation over liability under WISHA for employee injuries at multi-employer worksites (see, e.g., Stute v. P.B.M.C., Inc., 114 Wash.2d 454, 788 P.2d 545 (1990) and its numerous forebears). However, the issue of insurance coverage in such cases is less commonly opined upon, likely because worksite insurance coverage is so often triggered by fact determinations made in the underlying litigation.
The United States District Court for the Western District of Washington addressed this very issue in West American Insurance Company v. Hallmark Specialty Insurance Company, finding that when coverage for a worksite injury claim allegedly caused by the work of an insured, or someone working on an insured’s behalf, coverage could not be determined when the cause of the plaintiff’s injuries had not yet been determined.
The coverage dispute in West American arose out of a 2016 multi-employer worksite accident where contractor Daniel Fernandez was injured after he fell while working when a height and fall-protection system that was in use at the worksite failed. At the time of the fall, Fernandez was employed by John Bull Builders, LLC (“Bull”), a lower-tier subcontractor of Mako Steel (“Mako”), a contractor of Seattle Construction Services, Inc. (“Sea Con”), the general contractor for the site. Fernandez filed a lawsuit against Sea Con in 2019 in Clark County Superior Court wherein he alleged Sea Con was in control of the construction worksite, and that Bull and Sea Con negligently breached their duties to Fernandez to keep the worksite safe pursuant to Washington state safety standards and governmental regulations (the “underlying law”).
Sea Con’s insurer, West American Insurance Company (“West American”), tendered the defense and indemnity of the underlying lawsuit to Mako pursuant to the subcontractor agreement between Sea Con and Mako. Under the agreement, Mako agreed to defend, indemnify, and hold harmless Sea Con from any and all claims, demands, losses, and liabilities to or by third parties “arising from, resulting from, or connected with work performed or to be performed” by Mako, its agents / employees, and lower-tier subcontractors. Mako also agreed to maintain a commercial general liability (“CGL”) insurance policy during the term of the agreement and to add Sea Con to the policy as a “primary additional insured”.
Mako’s CGL policy, issued by Hallmark Specialty (“Hallmark”), contained two blanket additional insured endorsements. One was an “ongoing operations” endorsement which defined an “additional insured” as a person or organization listed on a schedule, “but only with respect to liability for ‘bodily injury’ … caused, in whole or in part, by: (1) [Mako’s] acts or omissions; or (2) The acts or omissions of those acting on [Mako’s] behalf[.]” The other endorsement concerned “completed operations” and defined an “additional insured” similarly: a person or organization listed on a schedule, “but only with respect to liability for ‘bodily injury’ or ‘property damage’ caused, in whole or in part, by ‘[Mako’s] work[.]’ ”
Mako’s CGL policy further provided that its insurance was excess over “[a]ny other primary insurance available to you covering liability for damages arising out of the premises or operations, or the products and completed operations, for which you have been added as an additional insured by attachment of an endorsement.” Sea Con’s West American policy (effective September 1, 2015, through September 1, 2016) contained similar language and declared itself excess over “[a]ny other primary insurance available to you covering liability for damages arising out of the premises or operations, or the products and completed operations, for which you have been added as an additional insured.”
After its receipt of West American’s tender, Hallmark tendered Sea Con’s defense to Bull and its insurer, Gemini Insurance Company (“Gemini”). Both Hallmark and Gemini accepted their respective tenders pursuant to reservations of rights. Hallmark agreed that Mako would share Sea Con’s defense with Gemini / Bull, but noted that it currently did not have any information to support a liability claim arising out of Mako’s ongoing operations and Sea Con is only an additional insured for claims arising out of the ongoing operations of Mako. Gemini accepted Mako’s tender with respect to indemnification but also noted that it, at that time, had no information to support the conclusion that Bull’s operations caused Fernandez’s alleged injuries and damages.
The underlying lawsuit eventually settled without motions practice and before any resolution of the merits of the case. The total settlement amount was split three ways among the insurers. Thereafter, West American filed suit against Hallmark for breach of its duty to defend Sea Con and to fund the settlement up to policy limits. West American further alleged that the Hallmark policy provided primary insurance coverage in the underlying lawsuit, and as such, Hallmark should be required to reimburse West American for the funds it expended defending its insured and the funds West American paid into the settlement payment. The insurers cross-moved for summary judgment on all claims.
The Court found that the cause of Fernandez’s injuries could not be determined on the record and that the cause must be decided before the Court can determine whether Sea Con is entitled to coverage as an additional insured under Hallmark’s CGL policy. In coming to its finding, the Court looked to the plain language of the CGL policy’s “additional insured” endorsements under which the covered liabilities were limited to injuries “caused in whole or in part” by the acts or omissions of a party or parties other than Sea Con. However, the Court held that the record did not contain sufficient evidence establishing the factual cause of Fernandez’s injuries as a matter of law. The Court further noted that its inability to resolve the coverage issue precludes it from determining the derivative issue of which policy was primary or excess.
This decision reinforces the general rule in defense and indemnity actions between insurers of contractors and subcontractors in litigation where the cause of the loss has not been determined. When the underlying lawsuit resolves without a causation determination, oftentimes causation will need to be litigated between the insurers in the subsequent lawsuit.
Read the full Fall 2024 Northwest Insurance Law Quarterly Newsletter here.