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Many are familiar with the adage “when all you have is a hammer, everything looks like a nail.” Construed another way to advance the theme of this article, a person with only a hammer is likely to try and fix everything using the hammer, without considering other beneficial alternatives. Skilled contractors understand that a single familiar tool should not be used for all purposes and owners know it is vital to hire the right employees to build a successful company. However, owners sometimes overlook the importance of having skilled industry professionals handle specialized and construction specific business needs without realizing what is at stake. Given that many people are already familiar with accountants, insurance agents, and attorneys who regularly handle personal issues in daily life, it is common for some business owners to default to those same professionals in the construction context – without  recognizing there are better tools to address unique industry issues. 

In October 2019, the Washington Supreme Court issued a decision that should help contractors and owners in insurance coverage disputes moving forward. The case also serves as a reminder of the importance of engaging knowledgeable industry professionals. In T-Mobile USA, Inc. v. Selective Insurance Co., the Washington Supreme Court held that an insurance company (“Selective”) was bound by the representation of its agent after the agent issued a certificate of insurance that conflicted with common disclaimers in the insurance policy. The case involved two distinct legal T-Mobile entities, “T-Mobile Northeast” and “T-Mobile USA,” and the construction of a T-Mobile cell phone tower on a roof top in New York City. T-Mobile NE entered a contract with a New York contractor for construction of the cell tower. After the cell tower was complete, the building owner sued T-Mobile USA for damage to the building. 

T-Mobile NE’s contract required the contractor to obtain a CGL policy and to provide T-Mobile NE with “Certificates of Insurance” as evidence of the policy coverage. The contractor was also required to name T-Mobile NE as an additional insured on the policy. The policy stated that any third party entering a contract with the contractor would automatically become an additional insured in the event the contractor’s contracts required it to name others as additional insureds on the policy. Selective’s agent issued certificates of insurance that listed “T-Mobile USA, Inc. its subsidiaries and affiliates” as additional insureds, even though T-Mobile USA did not have a contract with the contractor (the contract was with T-Mobile NE). After the building owner sued the contractor and T-Mobile USA for damages, T-Mobile USA and the contractor tendered the claims to Selective. Selective accepted the contractor’s tender and rejected T-Mobile USA’s tender based on its determination that T-Mobile USA was not an additional insured under the policy. Eventually the building owner sued the correct T-Mobile entity, but by that time, T-Mobile USA had incurred defense costs that it believed were covered by Selective’s policy. 

T-Mobile USA is headquartered in Washington and it subsequently sued Selective in King County. T-Mobile USA alleged that Selective breached the insurance contract and exercised bad faith by refusing to defend T-Mobile USA as an additional insured. Eventually the case reached the Washington Supreme Court after a federal court of appeals requested the state court to weigh in on whether an insurer is bound by representations made by an agent when the policy specifically disclaims the agent’s ability to expand or modify coverage. Selective argued that the policy included multiple disclaimers that made it impossible for its agents to alter or expand the coverage, and that it was only obligated to provide the coverage outlined in the policy. It also pointed to language in the certificates of insurance that stated the certificate did not amend, extend, or alter the coverage under the policy. T-Mobile USA argued that preprinted boilerplate disclaimers were ineffective given that T-Mobile USA was expressly listed as an additional insured on the certificate provided by Selective’s agent.

Fortunately for the insured, the court relied on a basic rule of textual interpretation and explained that “the specific prevails over the general.” The court determined that Selective’s agent had apparent authority to act on Selective’s behalf and that the agent’s written representation was binding, despite the certificate and policy disclaimers to the contrary. It is important to note that the court ruled against the insurer after it determined that Selective’s agent had authority to act on the company’s behalf. To avoid coverage conflicts between policy provisions and certificates, the best practice is to confirm that appropriate coverages are in place without relying solely on the certificate of insurance. 

The foregoing decision does not go into detail about whether Selective’s agent was familiar with project specific needs or whether listing T-Mobile USA on the certificate of insurance was simply an oversight. However, it is not uncommon for contractors to pay for insurance policies and later find out that their agent failed to ensure adequate coverages and policy endorsements were in place. As demonstrated in the T-Mobile case, insurance companies regularly attempt to disclaim coverage based on broad policy exclusions and disclaimers. Consequently, it pays to work closely with knowledgeable agents who are familiar with your contractual obligations and company specific needs to protect your company’s interests. The same holds true in the legal arena, and contractors are best served by using legal professionals who are aware of the many intricacies unique to construction projects and disputes. At Campbell & Bissell, we regularly review and provide construction contracts that address industry specific nuances and we work closely with contractors on a daily basis. We also work with our clients’ insurance companies to navigate coverage issues for claims made by owners and other contractors. While there is no silver bullet that will eliminate all legal risk and liability, working with the right industry professionals will increase your likelihood of success and reduce your liability exposure.  

By: Tyler Waite