Washington Supreme Court Determines No Coverage Under Marine Policy for Independent Contractor

Last week, the Washington Supreme Court affirmed a trial court’s grant of summary judgment in favor of an insurance company, holding that personal injuries a general partner suffered while working as an independent contractor were not covered under the partnership’s insurance contract.  In Int’l Marine Underwriters v. ABCD Marine, LLC, Wash. Sup. Ct., Case No. 87231-7 (Nov. 27, 2013) (en banc), Albert Boogaard argued the comprehensive marine policy he purchased from International Marine Underwriters (IMU) to cover his general partnership, ABCD Marine, provided coverage for personal injuries he sustained while working as an independent contractor for Northland Services, Inc. (NSI).  Specifically, Boogaard contended that although he was a general partner, he qualified for coverage as a third party.  The Washington Supreme Court rejected his position and found his injuries were not covered under the policy.

ABCD Marine performed marine welding services as an independent contractor for NSI.  In order to perform work for NSI, ABCD Marine was required to execute an “access agreement.”  Under the agreement, ABCD Marine agreed to indemnify NSI for personal injuries resulting from its operations and to obtain a general liability policy for $1,000,000 that included an endorsement naming NSI as an additional insured.  ABCD Marine procured an insurance policy through its insurance agent, but did not obtain the necessary additional insured endorsements.  The policy did, however, provide coverage for “insured contracts,” which included contracts where the insured assumed liability of another party to pay for personal injuries to a third person.

Boogaard was seriously injured by an NSI employee while working as an independent contractor.  When Boogaard sued, NSI asserted a counterclaim pursuant to the access agreement.  Boogaard tendered defense of the counterclaim to IMU, which accepted the defense under a reservation of rights.  The trial court awarded NSI summary judgment pursuant to the agreement, finding that Boogaard must indemnify NSI and that he breached the agreement by failing to obtain the necessary endorsements.  While an appeal was pending, NSI and Boogaard entered a settlement agreement whereby the parties agreed that Boogaard would seek recovery only from IMU.  The trial court found the consent judgment reasonable.

IMU filed a declaratory judgment action seeking a determination that the insurance contract with ABCD Marine did not provide coverage for the NSI counterclaim.  Boogaard answered that IMU’s denial was in bad faith, that NSI’s counterclaims were covered, or alternatively, that IMU should be estopped from denying coverage.  IMU moved for partial summary judgment arguing that the policy intended to coverage the partnership’s negligence.  IMU acknowledged that the policy provided an exception for “insured contracts” that provides coverage for the torts of others which cause damage to third persons, but argued the provision did not apply because Boogaard was not a “third person” under the terms of the contract.  The trial court agreed and awarded IMU partial summary judgment.  The Court of Appeals agreed.

The Supreme Court affirmed the trial court and Court of Appeals.  Initially, the Court provided significant analysis interpreting whether the policy was intended to cover the personal injuries of a partner, such as Boogaard.  The Court found the circumstances of procuring the insurance contract and the partnership’s knowledge of other insurance that would have covered the injures, warranted a finding that the parties did not intend the policy to cover Boogaard’s injuries.  In addition, the Court analyzed the provisions of the Revised Uniform Partnership Act (RUPA), which has been adopted in Washington, analyze whether the partnership entity may permit Boogaard to be treated as a third party under the policy.  It found that RUPA treats a partnership as an aggregation of its partners for purposes of determining liability, which meant Boogaard was binding himself and the partnership when he executed the access agreement.  Accordingly, he could not be considered a third party under the contract.

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