Are You Insured? What Property Owners Need To Know Before Allowing Environmental Work

• Published date: 19 January 2023
• Subject Matter: Environment, Real Estate and Construction, Environmental Law, Real Estate
• Law Firm: Riker Danzig LLP
• Author: Environmental Practice Group

Property owners that allow access to their property for environmental work often seek to be included as "additional insureds" on insurance policies held by those doing the work. For example, this routinely occurs when a prospective buyer conducts due diligence on a seller's property, or when a previous owner or other responsible party is required to return to the property to remediate contamination. Typically, sale contracts and access agreements require the purchaser or the remediating party to ensure that its consultants and contractors/subcontractors name the property owner as an additional insured on their insurance policies, which in the event of an incident, would give the property owner the ability to make a claim under the policy for damages if those accessing the property do not make the property owner whole. Blanket additional insured language that is common in many general liability, auto and contractor's liability insurance policies includes as an additional insured any entity that is required to be named an additional insured by written contract. But if the property owner and the named insured (i.e., the consultant and/or contractor/subcontractor) do not have a direct written agreement between them that requires the owner to be included as an additional insured, this arrangement may not be enough. Buyers and sellers in these situations must carefully review additional insured policy language and consider their contractual arrangements with environmental consultants and contractors/subcontractors to ensure that they actually obtain additional insured status.

The Need for Privity of Contract

Courts in New York, Illinois, and Louisiana have denied coverage in instances where owners and contractors/subcontractors lacked privity of contract and instead relied on multiple agreements, such as between the owner and general contractor and then between the general contractor and subcontractor, to establish the owner's additional insured status. In Gilbane Bldg. Co./TDX Constr. Corp. v. St. Paul Fire & Mar. Ins. Co., 31 N.Y.3d 131 (2018), New York's highest court held that although the general contractor agreed with the owner to require all subcontractors to list the owner as an additional insured, the lack of a written contract between the owner and subcontractor precluded coverage for the owner.

In each case where coverage has been denied, courts have emphasized that the particular wording of the insurer's additional insured endorsement makes all the...