Exclusions Held Not To Apply To Additional Insureds

The Montana Supreme Court recently declared that exclusions in a commercial general liability policy did not apply to an additional insured. In Swank Enterprises, Inc., et al. v. All Purpose Services, Ltd, the court found coverage on behalf of a general contractor who was an additional insured under a subcontractor’s commercial general liability policy, even though the subcontractor was barred from coverage by the policy’s business risk exclusions. 

The policy’s “severability of interests” clause provides each insured with separate coverage for any claims or suits as if different policies applied to the named insured and the additional insured.  The business risk exclusions of the policy only applied to the named insured because these exclusions used the terms “you” and “your,” which the policy defined as the named insured without mention of the additional insured.  The court noted that although the business risk exclusions for the applicable year only specifically referred to the named insured, the subsequent year’s policy changed and specifically applied the business risk exclusions to both the named and additional insureds.  The court relied on the well-established rule that exclusions are narrowly and strictly construed against the insurer and found coverage for the additional insured.

This decision is important because it extends coverage to innocent third-parties who contracted for coverage and have claims and suits brought against them as a result of another party’s negligent or intentional acts or omissions.  The court confirms that the responsibility for the defense and indemnity of an insured rests on its insurance company.  In the end the parties received what they contracted for: the additional insured received the insurance coverage that it contracted for with the named insured for claims or suits brought as a result of the named insured’s acts or omissions and the insurance company was bound by its insurance contract, in which it had agreed to insure the additional insured.

Melissa Birnbaum