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Ambiguous Additional Named Insured Endorsement Causes Employers Liability Carrier To Pay Bodily Injury Damages To Employee

Clark Lift West, Inc. employed Mr. Pierce.  One of Clark Lift’s clients was Southern Wine & Spirits.  While servicing a Southern Wine and Spirits conveyor belt, Pierce slipped on a piece of cardboard that was lying on the floor at the Southern Wine plant.  Pierce fell onto the conveyor belt and was hurt.

Additional InsuredPierce sued Southern Wine for negligently allowing the cardboard to be on the floor.  Southern Wine’s liability had liability coverage issued by Federal Insurance Company.  Clark Lift had liability insurance as well but it was with American Hardware Mutual Insurance.  Clark Lift’s policy named Southern Wine as an additional insured.

Because of the additional insured endorsement, Southern Wine’s insurance company Federal thought that Clark Lift’s American Mutual policy should defend against Mr. Pierce’s complaint.  When Federal tendered the defense, American Mutual refused.

Federal filed suit in the U.S. District Court asking for declaratory relief.  The District Court certified the case to the Nevada Supreme Court asking “[w]hether, under Nevada law, an additional insured endorsement provides coverage for an injury caused by the sole independent negligence of the additional insured?”  The Nevada Supreme Court accepted the certification and rendered its opinion in Federal Ins. Co. v. American Hardware Mut. Ins., 124 Nev. Adv. Op 31, 184 P.3d 390 (2008).

The additional insured provision called for coverage “but only with respect to liability arising out of [the named insured’s] ongoing operations performed for that [additional] insured.”

American Hardware argued that the intent of the parties was clear from the facts.  Southern Wine had its own liability policy with Federal.  According to American Hardware, this fact showed that the additional insured endorsement was only meant to insulate Southern Wine from third-party claims related to Clark Lift’s negligence.

The Nevada Supreme Court disagreed.  The Court found the language in the additional insured endorsement ambiguous.  In Nevada, ambiguities are always resolved in favor of the insured.  National Union Fire Ins. v. Reno’s Exec. Air, 100 Nev. 360, 365, 682 P.2d 1380, 1383 (1984).  Federal convinced the court that since its interpretation of the policy was just as reasonable as the one proffered by American Mutual, then the additional insured coverage should apply.

The Nevada Supreme Court concluded:

when an additional insured endorsement simply covers liabilities arising out of operations of the name insured [Clark Lift] performed for the additional insured [Southern Wine], that endorsement includes coverage for liabilities caused by the additional insured [Southern Wine]’s direct negligent acts, so long as those acts are connected to the named insured’s operation performed for the additional insured.

In other words, if you rely on standard policy language, you may be insuring risks greater than what you anticipate.

If you have questions about coverage issues in Nevada, please give us a call at Mills & Associates, 702-240-6060×114.

Mills & Associates Nevada Coverage and Bad Faith Lawyers 702-240-6060