In his Daily Journal article, “Ruling Offers Insurance Companies Way Out,” John P. McGill explains that the 4th District Court’s decision in Forecast Homes Inc. v. Steadfast Insurance Co. (2010 DJDAR 2379) uses a “literal interpretation of an insurance policy’s language” and results in instructions for insurance companies to avoid “their obligations to pay under an additional insured endorsement.”

As is typical in the construction industry, Forecast Homes Inc. required its subcontractors to supply additional insured certificates naming it as an additional insured under the subcontractor’s policy. Steadfast Insurance Co. issued the policy provided by one of the subcontractors and included a provision that was interpreted to mean that “only the named insured, and no one else, could pay the self insured retention.” Under this decision, the named must pay regardless of whether the named insured is “bankrupt, dissolved, or apparently, even dead.” John argues that the court avoids the real question: “What difference does it make who pays?” The point of the SIR is that the insurer has coverage obligations, the subcontractor and contractor have an agreement, and all parties should be required to provide the benefit of the bargain to the other.

John P. McGill is a special counsel at Archer Norris and a member of the firm’s construction litigation team. He also serves as general counsel for a public works general contractor in the North Bay Area.

This article was originally published in the Daily Journal and subscription-based Daily Journal website at www.dailyjournal.com.