The facts in this matter are fairly routine, and illustrate the trap that an additional insured can fall into and lose coverage.

Specifically, this case points out that it is not enough for a GC just to routinely get certificates of insurance from its subs before they begin work on the job. In the event of a claim an additional insured has to provide timely and proper notice of the claim or it will lose its coverage.

In Liberty it was not disputed that the GC, Arrow Restoration (“Arrow”), was an additional insured under a liability policy issued by Great American on behalf of Diamond Restoration (“Diamond”) one of Arrow’s subcontractors.

In April 2006 one of Diamond’s employees was injured in an accident at the job site. That same day Arrow learned of the injury. In January 2007 Arrow was sued. In October 2007 Arrow third-partied Diamond into the lawsuit.

In January 2008 Arrow’s attorneys sent a copy of the third-party papers to Diamond’s insurance broker, and requested that they be forwarded “to the applicable insurer.” A copy of the suit against Arrow was not included in the papers. Diamond’s broker faxed the information to the wholesale broker who promptly sent the notice to Great American. In March 2008 Great American denied additional insured coverage to Arrow due to late notice. The court held that Great American’s denial of coverage was proper.

There are three important warnings from this case to those who want to make sure that they have additional insurance coverage:

1 – Under NY law an additional insured has an implied duty to provide its own notice to the insurance company in the event of a claim. This is true even if the policy does not specifically require separate notice by the additional insured, or if the insurance company had received actual notice of the claim from the primary insured or some other source.

2 – The notice of claim has to contain certain demands and documents to be legally proper. Those elements were missing from Arrow’s notice which was held to be ineffective. As the court stated, ” The letter did not include a tender of defense and indemnification from Arrow, or a copy of a written agreement wherein Diamond agreed to name Arrow as an additional insured under the Great American policy.” (The court actually stated this twice in its decision.) The court also emphasized that Arrow never sent a copy of the suit against it as part of its notice.

3 – Lastly, Arrow’s notice was not sent directly to Great American as required. The notice was sent to Diamond’s retail broker, which was an agent for Diamond and not Great American. The retail broker sent the information to the wholesale broker which forwarded the information on to Great American. Therefore care must be exercised to make sure that the notice of claim is actually sent to the insurance company or one of its agents.

In short, additional insureds must be diligent in protecting their coverage, and cannot rely on others to do this for them.