In May 1999, KB Home Tucson, Inc., hired GRG Construction Co., Inc., to perform work at a residential subdivision in Tucson. Their contract lasted approximately four years. Charter Oak Fire Insurance Company (Charter) provided liability coverage for GRG. It included additional insured coverage for any entity GRG was obligated to cover under a written contract or agreement. Drachman Leed and American E&S were GRG's insurance agents/brokers who, at GRG's direction, issued certificates of insurance requested by KB relating to GRG's policy with Charter and a policy with another insurer, Evanston Insurance Company.

Editor’s note: This court case discussion, for purpose of length and clarity, does not include the portion of the claim involving Evanston Insurance Company.

Charter issued two annual general liability policies to GRG during the relevant time periods. The policies included a blanket additional insured endorsement that amended the policy’s Who Is An Insured section. The wording granted additional insured status to entities requiring that status under a written contract or agreement. The agreements had to be in effect during an applicable policy period and before any loss occurred. GRG's written contracts with KB contained several requirements including the following:

After the parties signed the contract, KB sent annual letters to GRG describing its insurance requirements, including a statement that KB “must be named as an Additional Insured on the General Liability Policy.” In response, GRG directed Drachman Leed to provide KB a copy of Charter's blanket additional insured endorsements and insurance certificates listing KB as an additional insured for commercial general liability and automobile insurance.

In May 2001, the City of Tucson filed a claim against KB alleging deficiencies in streets and sidewalks within KB's residential subdivision project. KB sued GRG and other subcontractors for reimbursement for repair costs and attorney's fees incurred in defending against the city's claims. KB tendered its defense to Charter on all of the claims.

Charter denied coverage, stating that there was no written contract or agreement requiring that GRG add KB as an additional insured. KB filed a separate action against Charter for declaratory relief, breach of contract, and breach of good faith and fair dealing. Charter, Drachman Leed, and American E&S filed separate motions for summary judgment on all of KB's claims. After the superior court ruled in favor of Charter, Drachman Leed, and American E&S, KB appealed.

On appeal, the court noted that Charter's obligation to provide additional insured general liability coverage to KB turned on whether GRG was required under a written contract or agreement to include KB as an additional insured. The court said: “… because there was written evidence from which a fact finder could conclude either that (1) there was a written agreement between KB and GRG requiring GRG to include KB as an additional insured on GRG's general liability policies with Charter, or (2) the ‘rules and requirements’ provision in GRG's written contract with KB contemplated the type of requirement subsequently evidenced by written correspondence and completed conduct of the parties.” The appeals court reversed the superior court’s granting of summary judgment in favor of Charter.

With respect to Drachman Leed and American E&S, the appellate court affirmed the superior court’s ruling in their favor, finding that KB could not prove negligence, breach of the duty of care, negligent misrepresentation, or fraud.

Finally, the appellate court vacated the award of costs, fees, and sanctions to Charter.

KB Home Tucson, Inc., vs. Charter Oak Fire Ins. Co.-Arizona Appellate Division Filed November 25, Reversed in Part and Affirmed in Part. 2014-2014 WL 6678662.