11/19/2009 07:27:37 AM EST
Federal Insurance Co. v. American Hardware Mutual Ins. Co.
In this Expert Commentary, Professor Jeffrey W. Stempel examines Federal Ins. Co. v. American Hardware Mutual Ins. Co., 2008 Nev. LEXIS 38 (Nev. May 29, 2008). The Court held that an additional insured endorsement providing coverage for claims “arising out of [the named policyholder’s] operations” provided coverage for a lawsuit filed by an employee of the named policyholder against the additional insured for alleged negligence in the maintenance of the warehouse where the employee was injured while performing repair services on a conveyor belt.
Specifically, the Court concluded that the additional insured endorsement was capable of more than one reasonable interpretation, including one providing coverage to the additional insured not only for vicarious liability but also for contributory negligence or even the sole negligence of the additional insured. In addition to applying the common rule of contra proferentem (construing ambiguous policy language against the drafter of the policy), the Court also embraced a presumptively broad view of the additional insured endorsement favoring coverage unless the endorsement’s language explicitly limited the scope of coverage available to the additional insured. Importantly, the Federal Insurance v. American Hardware Mutual Court also saw its holding as part of a larger trend toward a clear majority rule favoring broad application of the additional insured endorsement.
Stempel notes, however, that the Nevada Supreme Court clearly left open the door to future successful insurer use of more explicit language limiting the scope of additional insured coverage. In addition, the Court indicated that it would consider the reasonable expectations of both insurer and policyholder in construing such provisions and entertain submission of extrinsic evidence of drafting intent and party understanding of the policy provisions, including information regarding the customary and practical understanding of particular endorsements.
Stempel concludes that Federal Insurance v. American Hardware Mutual is important in that it gives policyholders another case favoring broader coverage for additional insureds and stands for the proposition that this is the clear majority approach of the courts nationwide. But the decision also opens up the possibility of insurers winning these cases in the future through use of more limiting language or introduction of extrinsic evidence favoring a narrower construction of the additional insured endorsement.