NJ courts struggle to reach a uniform interpretation of the phrase “Caused, In Whole or In Part, By”
Risk transfer is a crucial component of business relationships in a broad range of industries. Typically accomplished by contract, requiring procurement of additional insured coverage in favor of the transferor is a commonly employed risk transfer mechanism. In the event that an incident giving rise to potential liability takes place, a transferor (for example, a general contractor on a construction project) will demand coverage as an additional insured under a policy of insurance issued to a transferee (for example, a subcontractor), which will then require looking to the terms of an additional insured endorsement that was added to the transferee’s policy for that purpose. Whether coverage is ultimately available, however, depends on the precise language of the additional insured endorsement, as well as whether the transferor’s liability is direct or vicarious.
We regularly encounter numerous iterations of additional insured endorsements, from blanket endorsements to those proving limited coverage only to scheduled entities. A common additional insured endorsement incorporated into general liability policies over the past decade – arguably due to its potential to be interpreted both broadly and narrowly – hinges availability of coverage on whether the liability of the purported additional insured was “caused, in whole or in part, by” the named insured’s acts or omissions.
The majority of US jurisdictions have found that the “caused, in whole or in part, by” language can be read to provide coverage for an additional insured where the additional insured is alleged to be either vicariously or, in-part, directly liable. Stated differently, the majority stance adopts a rather broad rationale that when allegations leave open even a small possibility that an additional insured’s liability may have been caused at least in some part by the named insured’s own acts or omissions, an insurer’s obligation to provide additional insured coverage is triggered.
New Jersey Law Is Unsettled
Until recently, the seminal case in New Jersey addressing this issue, Schafer v. Paragano Custom Bldg., Inc., 2010 N.J. Super. Unpub. LEXIS 356 (N.J. Super. Ct. App. Div. Feb. 24, 2010), certif. denied, 202 N.J. 45 (2010), although unpublished and having been denied certification by the state Supreme Court, diverged from the majority approach. The Schafer decision embraces a narrow interpretation of the phrase “caused, in whole or in part, by” to find that it only provides additional insured coverage for claims asserted against the purported additional insured for vicarious liability. In that case, after a general contractor was sued by an employee of its subcontractor in connection with his injury at a construction site, the general contractor sought coverage under its subcontractor’s policy that contained the “caused, in whole or in part, by” language. The Appellate Division found that the language of the endorsement provides coverage “as to liability caused by the acts or omissions of [the subcontractor],” meaning that it only covers claims against the general contractor for “vicarious liability,” and further explained that the language “does not provide coverage for a claim against [the general contractor] for its own direct negligence.” This ruling placed New Jersey in the minority of jurisdictions nationwide on this issue.
Last year, however, a New Jersey trial court highlighted that Schafer “diverges from the widespread and uniform interpretation” of such endorsements and characterized that case as an “anomaly,” while siding with the majority stance to hold that additional insured coverage depends on a finding of at least 1% liability against the named insured. Friedland v. First Specialty Ins. Corp., 2016 N.J. Super. Unpub. LEXIS 1841 (Law Div. Aug. 3, 2016).
Without definitive guidance from the New Jersey Supreme Court and no published decisions from New Jersey’s Appellate Division, it is clear that New Jersey’s trial courts have been struggling to reach a uniform interpretation of the “caused, in whole or in part, by” language. Since the decision in Friedland, we have seen New Jersey trial courts enter contradictory summary judgment rulings on this issue, adopting Schafer in some instances and Friedland in others.
Thus, it appears that until the “caused, in whole or in part, by” language is interpreted by a New Jersey high court, insurers (typically favoring Schafer) and purported additional insureds (generally favoring Friedland) will face off on this issue in trial courts throughout the state. In the meantime, only one basic notion remains clear: regardless of whether a court adopts Schafer or Friedland, New Jersey courts will require that there be, at a minimum, the ability to find (based on the underlying complaint) or the actual finding of liability against the named insured in order for purported additional insureds to secure additional insured coverage.