First Circuit Limits Definition of “You” to Policy’s Named Insured

In its recent decision in Wright-Ryan Constr., Inc. v. AIG Ins. Co. of Can., 2011 U.S. App. LEXIS 15502 (1^st Cir. July 27, 2011), the United States Court of Appeals for the First Circuit, applying Maine law, had occasion to consider whether the term “you” as used in a general liability policy is limited to the policy’s named insured, or whether it includes additional insureds.

This issue in Wright-Ryan arose out of a priority of coverage dispute involving two primary policies under which Wright-Ryan qualified as an insured.  The first policy, issued by Acadia Insurance Company, was issued directly to Wright-Ryan.  The second policy, issued by AIG to a subcontractor of Wright-Ryan’s, provided additional insured coverage to Wright-Ryan on a primary and non-contributory basis for all liability “arising out of [the subcontractor’s] premises or operations.”  Wright-Ryan was sued in a bodily injury lawsuit brought by an employee of the subcontractor.  Wright-Ryan tendered the matter to the subcontractor and to AIG directly, but when neither responded, Acadia defended the matter directly and ultimately settled the case.  Acadia and Wright-Ryan then commenced a declaratory judgment action against AIG to recover the settlement amount as well as Wright-Ryan’s defense costs.

The Maine federal district court concluded that Wright-Ryan qualified as an additional insured under the AIG policy, but that the AIG policy was excess to the Acadia policy.  Looking to the policies’ other insurance clauses, the First Circuit disagreed.  Both policies contained the following excess other insurance provision:

a. Primary Insurance  This insurance is primary except when b., below, applies.

. . .

b. Excess Insurance

This insurance is excess over:

(1) Any of the other insurance, whether primary, excess, contingent, or on any other basis . . . (a) That is . . . coverage for "your work"; . . .

(2) Any other primary insurance available to you covering liability for damages arising out of the premises or operations for which you have been added as an additional insured by attachment of an endorsement.

When this insurance is excess, we will have no duty . . . to defend the insured against any "suit" if any other insurer has a duty to defend the insured against that "suit".

The First Circuit focused on the word “you” as used in these provisions.  Acadia and Wright-Ryan argued that the AIG policy could not be considered excess over the Acadia policy since the word “you” in the AIG policy was limited to that policy’s named insured.  As such, they argued that the excess other insurance provision in the AIG policy should not even be considered in terms of the coverage afforded to Wright-Ryan.  AIG, however, argued that the word “you” as used in its policy should be read to include additional insureds, in which case the AIG policy would be excess to any other policy providing coverage for Wright-Ryan’s work.  The court rejected AIG’s contention, noting that the first page of each policy expressly stated that  “[t]hroughout this policy the words 'you' and 'your' refer to the Named Insured shown in the Declarations, and any other person or organization qualifying as a Named Insured under this policy.”  Further, Section II. of the policies, titled “WHO IS AN INSURED” extended coverage to certain individuals and entities not otherwise identified in the policies’ declarations, such as officers, employees and newly acquired organizations.  Absent from Section II. was any reference to additional insureds.  Thus, held the court:

Reading these provisions together, we find the definition of "you" to be unambiguous: it refers solely to a person or organization listed as a Named Insured in the policy Declarations or “qualifying as Named Insured” by virtue of being newly formed or acquired by a Named Insured.

Applying this definition to the AIG and Acadia policies, the court concluded that the AIG policy could not be considered excess to the Acadia policy, since the word “you” in the AIG policy referred not to Wright-Ryan, but rather to the subcontractor.   On the other hand, because the word “you” in the Acadia policy referred solely to Wright-Ryan, the coverage afforded under Acadia policy necessarily was excess to the coverage afforded to Wright-Ryan under the AIG policy.