In Factory Mut. Ins. Co. v. Skanska United States Bldg., No. 18-cv-11700-DLC, 2020 U.S. Dist. LEXIS 95403 (Skanska), the United States District Court for the District of Massachusetts considered whether contractors on a construction job were additional insureds on the developer’s builder’s risk insurance policy. After a water loss occurred during construction, the builder’s risk insurance carrier paid its named insured for the resultant damage, and subsequently filed a subrogation action against two contractors. The defendants filed a motion for summary judgment, claiming that the anti-subrogation rule barred the carrier from subrogating against them because they were additional insureds on the policy. The court found that based on the particular language of the additional insured provision in the policy, the defendants were not additional insureds for purposes of the subrogation action.

Skanska arose from property damage that occurred during a construction project where Novartis Corporation (Novartis) endeavored to construct a biomedical research building in Cambridge, Massachusetts and retained Skanska USA Building, Inc. (Skanska) as the general contractor. In turn, Skanksa hired J.C. Cannistraro, LLC (JCC) as a subcontractor. Novartis secured a builder’s risk insurance policy from Factory Mutual Insurance Company (Factory Mutual). The policy defined “Insured” as Novartis and its subsidiaries, partnerships and joint ventures that it controlled or owned. The policy included another provision, titled “Property Damage,” which stated that the policy “insures the interest of contractors and subcontractors in insured property… to the extent of the Insured’s legal liability for insured physical loss or damage to such property.”

During construction, a threaded cleanout plug for a water line came loose, causing water to leak into the construction site. As a result of this loss, Factory Mutual paid Novartis for the damage, and subsequently filed a subrogation action against Skanska and JCC. The defendants filed a motion for summary judgment on grounds that they were additional insureds under Factory Mutual’s policy, which prohibited Factory Mutual from subrogating against them. While the defendants conceded that they are not named insureds in the policy, they argued that they are additional insureds under the Property Damage provision.

The district court acknowledged that the anti-subrogation doctrine provides that an insurer has no right of subrogation against its own insured. The court then turned its attention to the language of the policy to determine if the defendants qualified as additional insureds. The court based its opinion primarily on its analysis and interpretation of the Property Damage provision, particularly the phrase “to the extent of the Insured’s legal liability for insured physical loss or damage to such property.” The court found that because the word “Insured’s” in this provision was capitalized, it was referring to the term as defined in the policy, which was Novartis or a Novartis-controlled entity. As such, the court found the provision was meant to convey that the policy insured the contractors only to the extent of Novartis’ legal liability. Since Factory Mutual was seeking to subrogate against the defendants for their own negligence, the court held that the provision did not apply to the subrogation action. In further support of its opinion, the court noted that the provision referred to “contractors” in the plural but “Insured’s” in the singular, thereby indicating that the provision was intended to apply only to the extent of the named insured’s legal liability. The court also highlighted the fact that Novartis modified the contract with Skanska to preserve its carrier’s subrogation rights, and required Skanska to have its own insurance for the project. The court found that these facts, while not dispositive on their own, further supported finding that Novartis intended to retain its carrier’s subrogation rights.

Skanska establishes that not all additional insured provisions have absolute reach and that said provisions need to be reviewed with a fine-toothed comb to determine applicability. The relevant provisions in Skanska were found to only apply in limited circumstances. This case reminds us that even if a contractor is an additional insured on a policy, it may not be an additional insured for all purposes. The context in which the additional insured provision is invoked is relevant to determining whether it applies in the circumstances of the matter at issue.