Arizona Court of Appeals Division One holds that when an insured’s and a third party’s writings and conduct establish that the insured was required to obtain additional insured coverage for the third party, the writings and conduct constitute a “written agreement” that require an insurer to provide additional insured coverage to the third party under a blanket additional insured endorsement.

Plaintiff KB Home Tucson, Inc. (“KB”) hired Subcontractor to perform work at a residential subdivision.  Defendant Charter Oak Fire Insurance Company (“Charter Oak”) provided liability coverage to Subcontractor, including blanket “additional insured” coverage to anyone Subcontractor was obligated to cover by virtue of a written contract or agreement.  KB’s written contracts with Subcontractor did not specifically require that it be named an additional insured, but KB annually sent letters to Subcontractor stating that KB “must be named as an Additional Insured.”  In response, Subcontractor would instruct its insurance agents/brokers, Defendants Drachman Leed Insurance, Inc. and American E&S Insurance Brokers of California (collectively the “Brokers”), to issue Certificates of Insurance to KB as an additional insured.  The Brokers also issued additional insured certificates to KB for insurance coverage provided to Subcontractor by another insurer, Evanston Insurance Company (“Evanston”), which issued a similar blanket additional insured provision as Charter Oaks. 

The City of Tucson and, separately, certain homeowners sued KB for construction defects.  KB tendered its defense to Charter Oak on all of the claims, and to Evanston on the homeowners’ claims.  Both Charter Oak and Evanston denied coverage.  KB filed suits against Charter Oak and Evanston claiming coverage, and against the Brokers for negligence, negligent misrepresentation, and fraud.  After KB settled with Evanston, KB’s suits against Charter Oak and the Brokers were consolidated.  Charter Oak and the Brokers each filed summary judgment motions on all claims, which the superior court granted.  KB timely appealed.

The ArizonaAppeals Court affirmed in part and reversed in part.  The Court first held that Charter Oak was not entitled to summary judgment because a reasonable fact-finder could find that KB had an “executed” written agreement with Subcontractor requiring Subcontractor to provide additional insured coverage.  Written documents prepared by or at the direction of KB and Subcontractor establish such an agreement, including KB’s annual letters to Subcontractor and the additional insured certificates prepared by Brokers at Subcontractor’s request.  Additionally, the signed contract between KB and Subcontractor required Subcontractor to comply with KB’s “rules and requirements,” which included a requirement that Subcontractor procure additional insured coverage for KB.  The Court cited decisions from other jurisdictions in support of its conclusion.

The Court next affirmed summary judgment for the Brokers.  KB’s negligence and negligent misrepresentation claims failed because the Brokers owed no duty of care to KB, a third-party non-client.  See Napier v. Bertram, 191 Ariz. 238, 242 ¶ 15, 954 P.2d 1389, 1393 (1998).  Furthermore, the additional insured certificates provided by Brokers made clear that they were informational only and conferred no rights on KB, thus negating the breach elements of the negligence and negligent misrepresentation claims.  Finally, the fraud claim failed because the additional insured certificates did not include any false information—they simply stated that KB was an additional insured if its written contracts required such coverage, as set forth in the pertinent insurance policies. 

The Court awarded KB attorneys’ fees and costs on appeal against Charter Oak since its claim arose out of contract, and awarded Brokers their costs on appeal against KB, but denied Brokers’ request for attorneys’ fees because KB’s tort claims did not arise out of contract.

Judge Cattani authored the opinion; Presiding Judge Portley and Judge Gemmill concurred.