In Ramara, Inc. v. Westfield Insurance Co., No. 15-1003 (3d Cir. Feb. 17, 2016), the 3rd U.S. Circuit Court of Appeals held that, under Pennsylvania law, the additional insured need only show “but for” causation to trigger the additional insured coverage under an endorsement providing coverage for liability caused in whole or in part by the named insured’s acts or omissions.
A garage owner, Ramara, Inc., contracted with a general contractor, Sentry Builders Corporation (Sentry), to perform work on its garage. Sentry subcontracted the cement and steel installation to Fortress Steel Services, Inc. (Fortress). Fortress agreed to provide additional insured coverage to Ramara and Sentry and provided a certificate of insurance reflecting that agreement. One of Fortress’ employees, Anthony Axe, was injured during construction and sued Ramara and Sentry, but not Fortress – his employer – as it was immune from legal action due to the Pennsylvania Workers’ Compensation Act.
Axe’s complaint alleged that he was Fortress’ employee, and that Ramara, acting through its agents, servants and employees, negligently supervised the work. Ramara tendered the suit to Fortress’ insurer, Westfield Insurance Co., but Westfield denied the tender because the complaint did not expressly allege that Fortress’ acts or omissions caused the employee’s injuries. The additional insured endorsement covered Ramara to the extent that its liability was caused in whole or in part by the acts or omissions of Fortress in its performance of ongoing operations for Ramara.
Applying Pennsylvania law, the 3rd Circuit held that, regardless of whether “but for” or proximate causation was applied, Axe’s complaint “clearly [] made factual allegations that potentially would support a conclusion that [the employee’s] injuries were ‘caused, in whole or in part’ by [the subcontractor’s] acts or omissions.” However, the 3rd Circuit did not limit its holding to these facts. Instead, the court waded into a “proximate cause” versus “but for” causation debate governing these endorsements. While the 3rd Circuit held that the allegations of Axe’s complaint would have satisfied either causation standard, the court held that “but for” causation should apply – in part based on Pennsylvania’s broad duty to defend, and in part, based on an “other insurance” endorsement that, when read in
pari materia, with the additional insured endorsement, indicated that a “but for” showing triggered the coverage.
The 3rd Circuit didn’t stop there either. It went on to address the boundaries of the four corners rule under Pennsylvania law in the additional insured context. The 3rd Circuit noted that the four corners rule does not permit insurers to make coverage determinations “with blinders on” or “bury its head in the sand and disclaim any knowledge of coverage-triggering facts.” Instead, in construing the factual allegations of the underlying claim, insurers must consider the context in which the underlying claim is being made. For example, when an employee is barred from suing his or her employer, the insurer should factor that into its evaluation of the underlying claim.
Tressler Comments
This is an important case with respect to the scope of additional insured coverage under Pennsylvania law and the application of Pennsylvania’s four corners duty to defend analysis. Furthermore, it is one of few federal appellate level cases that address the causation standard for triggering additional insured endorsements affording coverage for liability caused in whole or in part by the acts or omission of a subcontractor’s ongoing operations. Policyholders and insurers will surely take notice.