B&C: Additional Insured Coverage Limits Reduced From $25M to $9M A Delaware state court ruled in favor of an umbrella insurer represented by Bates & Carey LLP in holding that additional insured coverage for a refinery owner: 1) did not apply to punitive damages, and 2) was limited to the minimum limits required by the refinery owner’s contract with the insured. Premcor Refining Group v. Matrix Service Indus. Contractors, 2008 WL 2232641, C.A. No. 07C-01-095-JOH (Del. Super. May 7, 2008). Based on the court’s order, the umbrella insurer’s maximum indemnity exposure for two underlying wrongful death lawsuits was reduced from $25 million to $9 million. In November 2005, two employees of the insured contractor died while performing maintenance work at the refinery pursuant to a contract with the refinery owner. Among other things, the contract required the insured to procure insurance that would provide coverage to the owner “for liabilities arising out of or relating to the concurrent, contributory or sole negligence” of the contractor. In addition to $1 million in primary coverage, the contract obligated the contractor to procure “excess liability insurance over coverages afforded by the primary…with a minimum limit of $9 million.” The decedent employees’ estates brought suit against the owner in Pennsylvania federal court, seeking, in part, punitive damages. The owner then sought coverage as “additional insureds” under the umbrella policy issued to the contractor. On behalf of the umbrella carrier, Bates & Carey LLP attorneys argued that “additional insured” coverage for the owner was limited to the $9 million “minimum limits” specified by the contract, based on several provisions of the umbrella policy specifying that the maximum coverage available to an entity whose status as an “additional insured” is based on a written contract is the lesser of the limits stated in the declarations, or the minimum limits the named insured agreed in the written contract to procure. The refinery owner contended that its status as an additional insured under the umbrella policy was not based on a written contract, such that those provisions should not apply. The owner also contended that the contract obligated the contractor to procure the same amount of coverage for the owner as it procured on its own behalf, such that the $25 million limit stated in the declarations of the umbrella policy should be available. Bates & Carey counsel also argued that the “additional insured” coverage potentially available under the umbrella policy did not extend to punitive damages because the policy stated that coverage for “additional insureds” does not apply to liability which arises and/or results “solely from the acts or omissions” of the additional insured. Under the applicable law, any punitive damages would only be awarded on the basis of the refinery owner’s own conduct, and could not be awarded on a joint and several basis. The court found in the umbrella insurer’s favor on both issues. As to the first issue, the policy unambiguously limited the amount of coverage available to entity whose status as an “additional insured” is based on a written contract to the minimum limits specified in that contract. Finding that the contract at issue “explicitly required the contractor to have no less than $9 million excess coverage,” the court held that the additional insured coverage available to the refinery owner was limited to that amount, rather than the $25 million limits set forth in the declarations. On the second issue, the court also agreed with Bates & Carey’s argument that, under the applicable law, any assessment of punitive damages against the refinery owner could only be considered a liability which arises solely from its own acts or omissions. As a result, the court agreed that the additional insured coverage of the umbrella policy did not extend to the owner’s potential liability for punitive damages. For more information, contact Richard Nicolaides, Jr., Mary Licari or Charles Hafner.