Director of Investigations, Insurance Archeology



Indiana contractors seeking indemnity from their subcontractors will want to pay heed to a recently published opinion by the Court of Appeals of Indiana regarding a case in which a subcontractor’s failure to make the claims payment required in its self-insured retention endorsement left the contractor without coverage under that policy.

In what it called “a case of first impression,” the Appellate Court recently upheld a summary judgment by the Lake County Superior Court in favor of the insurer in a case styled Walsh Construction Company v. Zurich American Insurance Company.

Walsh Construction was sued by a motorist injured in a work zone of an Interstate Highway improvement project. The motorist alleged that the injury was due to an unsafe traffic pattern. Walsh Construction’s subcontractor, Roadsafe Traffic Systems, Inc. had been working on this section of the highway and had entered into a contract with Walsh Construction requiring it to provide a “safe traffic pattern” through the work zone. The contract also required Roadsafe to indemnify Walsh for any failure or negligence in its work and name Walsh Construction as an additional insured on its CGL policy.

When Roadsafe neither indemnified nor defended Walsh in court as its contract required, Walsh put Roadsafe’s insurer (Zurich American) on notice of the motorist’s claim, seeking a defense under Roadsafe’s policy. The policy Roadsafe had purchased was a policy that included a “$500,000 per occurrence self-insured retention endorsement” that required it to pay “all damages and ‘pro rata defense costs’ for each ‘occurrence’ until you have paid damages equal to the Per Occurrence amount.”  When Zurich denied Walsh’s request, Walsh filed a declaratory judgment action and Roadsafe joined in, seeking coverage for Walsh under its policy.  After a hearing, the court entered summary judgment for Zurich, stating that given these facts, Zurich had no obligation to cover Walsh as an additional insured on Roadsafe’s policy.

Walsh appealed the pro-Zurich judgment. The Court of Appeals determined that the question presented was “whether the SIR endorsement amended Zurich’s obligation under the CGL policy to defend Walsh.”  Walsh and Roadsafe argued that while the SIR endorsement amended Zurich’s obligation under the policy with respect to Roadsafe, it did not do so with respect to Walsh.

The Court found precedent for the rule that an insured’s duty to defend is not triggered unless and until the SIR has been exhausted, however it determined that “the question of whether a SIR applies only to the insurer’s relationship to the named insured or also applies to additional insureds was a question of first impression” for Indiana courts.

The Court noted that the language of the Zurich SIR endorsement obliged the named insured as follows:

If a Per Occurrence [amount that the named insured or any additional insured

Must pay] is shown….., [the named insured] shall be responsible for payment of all damages and ‘pro rata defense costs” for each ‘occurrence’[] until [the named insured] has paid damages equal to the Per Occurrence Amount…..”

The Court found that this and other parts of the policy “unambiguously manifest the intent of the parties (Zurich and Roadsafe) for the SIR endorsement to control their relationship such that Roadsafe assumed all costs and liability for the first $500,000 of any claim that might be made under the CGL policy, regardless of whether that claim was against Roadsafe or an additional insured.”  The fact that Roadsafe had not satisfied this requirement meant that Walsh’s coverage under that policy remained untriggered and because no claim was yet made against Roadsafe, it could not offer settlement to satisfy the SIR amount.

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