A recent decision from the First Circuit illustrates that follow-the-form excess coverage is not tantamount to mix-and-match fashion. Insituform Tech., Inc. v. American Home Assurance Co., 566 F.3d 274 (1st Cir. 2009). The court held that a contractor could not rely on a contractor rework-coverage amendment in the primary policy as a basis to avoid application of a “your work” exclusion in an excess liability policy.
Insituform entered into a subcontract to rehabilitate a certain section of the East Boston sewer. Following completion of the work, East Boston observed leakage from Insituform’s work. It was determined that Insituform’s work did not meet contract specifications and had to be repaired or replaced. Ultimately, on a $1 million subcontract, Insituform incurred expenses of more than $7 million in attempted repairs and, when its repair efforts were unsuccessful, replacing the pipes.
Insituform filed claims with its primary insurer and American Home, its excess umbrella liability policy insurer, seeking coverage of the repair and replacement costs. The primary CGL insurer paid its applicable policy limit, $1 million less a $250,000 deductible. American Home, however, denied coverage, citing policy exclusions for Insituform’s work.
The primary policy included a “your work” exclusion but overrode this exclusion in a “contractor rework-coverage amendment endorsement.” Id. at 275-76. The American Home policy did not include the endorsement. Nonetheless, Insituform sought coverage under a separate amendment to the American Home policy, denominated a “Contractor’s Endorsement,” which included a following-form hazards clause that excluded certain property damage. The Contractor’s Endorsement excepted some forms of damages from the exclusion:
However, if insurance for such Bodily Injury or Property Damage is provided by a policy listed in the Schedule of Underlying Insurance:
1. The exclusion shall not apply;
2. The insurance provided by our policy will not be broader than the insurance coverage provided by the policy listed in the Schedule of Underlying Insurance.
All other terms and conditions of this policy remain unchanged.
Id. at 277. Insituform contended that the “However Clause” in the Contractor’s Endorsement extended the primary policy’s “Contractor Rework Coverage Amendment” to the American Home excess policy, so that the excess policy afforded Insituform coverage for its claim.
The court concluded that the “However Clause” was not a broad “follow-form” clause and that the “Contractor’s Endorsement does not create new liability for American Home inconsistent with its other basic coverage and exclusion provisions.” Id. at 279. The court remarked that “the phrase ‘follow-form’ refers to the practice, common in excess policies, of having the second-layer coverage follow substantively the primary layer provided by the main insurer.” Id. at 279. The court pointedly noted that “‘follow-form’ is a loose term, and the American Home policy does not by any means ‘follow [the] form’ of the Liberty Mutual policy in all respects.” Id.
The court observed that, though the American Home policy provided secondary coverage, the policy had “a lengthy set of coverage provisions and exclusions of its own.” Id. The court remarked that it “is critical” that “the American Home policy contains the Liberty Mutual exclusions for ‘your product’ and ‘your work’ and related liabilities, but it does not contain the Liberty Mutual ‘Contractor Rework Coverage Amendment’ . . . that overrides those exclusions as to Liberty Mutual.” Id. More proximately, the court concluded that the American Home Contractor’s Endorsement “negates liability for the named hazards over and above existing exclusions elsewhere. Id. And “the only role of the However clause is to limit these new negations wherever Liberty Mutual would provide coverage.” Id. (emphasis in original). That is, “the savings clause created an exception to the exclusions in the endorsement, but did not override exclusions contained elsewhere in the same policy.” Id. (emphasis in original).
