Coordinating Persons Insured in Primary and Excess Liability Policies
February 2001
Too often little attention is paid to exactly
how coverage follows the various insureds from underlying policies into umbrella/excess
layers. Learn three important points to review when coordinating coverage: the
named insureds; the additional insureds; and insured-versus-insured provisions.
by Richard
G. Rudolph
Seaver Rudolph and Associates
Coordination of an umbrella or excess liability policy with an underlying
liability policy is a bit more complex than just obtaining a concurrent policy
term and a correct schedule of underlying insurance. All too often, we assume
that the umbrella/excess policy will follow the form of the underlying coverage,
and we fail to pay adequate attention to exactly how coverage follows the various
insureds from the underlying coverage into the umbrella/excess coverage.
There are three important points to review when coordinating an underlying
liability policy and the umbrella/excess policy: who are the named insureds;
how are additional insureds handled; and how does any "insured-versus-insured"
wording read.
Past/Unnamed Entities
The named insured wording in the standard liability policy is broad and can
be made even more so through a comprehensive schedule of entities or through
the so-called omnibus named insured wording. An example would be "ABC Company
and its subsidiaries, divisions, and affiliated or associated entities, as currently
exist, as existed in the past, or as hereinafter constituted," or some similar
wording to the same effect
The standard liability policy also contains an exception to coverage for
past entities and unnamed partnerships or joint ventures. It is always prudent
to remove any past entity exclusion or exception when a past entity is to be
covered in the underlying liability coverage. However, it is hazardous to use
the "omnibus" named insured wording alone without modifying the standard unnamed
partnership/joint venture exclusionary wording. It is reasonable to assume the
coverage exception would still apply because the "unnamed" partnership or joint
venture included in the "omnibus" wording is not named specifically in the named
insured wording. That difficulty can easily be solved by specifically naming
all partnerships and joint ventures as part of the "omnibus" named insured.
An example of such wording would be "ABC Company, Inc., CBA Partners, a general
partnership, and their subsidiaries, divisions, etc."
This good work and attention to detail becomes wasted, though, when we assume
that the umbrella/excess policy insured wording follows the form of the underlying
liability policy and the umbrella/excess policy is not examined for exclusionary
or exception language which would bar coverage for unnamed entities (past entities,
partnerships, or joint ventures). If the umbrella/excess policy simply identifies
the named insured as the "lead" or first named insured on the underlying liability
policy, any past entity or any partnership or joint venture remains unnamed
on the umbrella/excess policy, and the exclusionary or exception wording would
be activated.
Thus, care must be taken in assuring that the full named insured wording
provided on the underlying liability policy is also duplicated on the umbrella/excess
policy. Further, any exclusionary wording or coverage exceptions must be removed
or restricted so as to not apply to the full named insured wording, creating
a contradiction between named entities and specific exclusions or exception
language for those types of entities. While the issue of conflicting policy
terms would likely be resolved in favor of the insured, reaching that solution
will probably require litigation and will delay any settlements.
Changes in Underlying Coverage
A second problem arises when we assume that the umbrella/excess policy provides
following-form coverage for any additional insureds added to the underlying
policy after that policy's inception date (including entities added by means
of "automatic" or "blanket" additional insured endorsements to the underlying
policy). A few umbrella/excess policies carry a provision rendering the policy
void if the underlying coverage has been changed. While this provision protects
the underwriter from post-policy issuance reductions in underlying coverage,
it can be used against an insured by an underwriter who maintains the simple
endorsement of an additional insured is a change in underlying coverage that
serves to void the umbrella/excess policy. Most insurers do not hold that draconian
interpretation, but the time to find out is not after the claim has occurred.
This problem can easily be avoided by requesting that the underwriter remove
the provision for changes in underlying coverage (probably not very likely)
or provide an endorsement stating that the endorsement of an additional insured
on the underlying policy does not constitute a change in underlying coverage
for purposes of the change in underlying coverage provision.
"Insured-versus-Insured" Exclusions
Lastly, some umbrella/excess liability policies have an "insured-versus-insured"
endorsement. This provision protects the underwriter from financing an internal
squabble between related entities. However, with the addition of outside or
third-party entities as additional insureds, it may serve to reduce or eliminate
coverage when a loss occurs which happens to involve the named insured and one
of the additional insureds.
For example, Company B is performing work for Company A at their office site,
and Company A requires Company B provide them with additional insured status.
Across town, well away from the site, a vehicle owned by Company B negligently
strikes a vehicle owned by Company A. When Company A files a claim against Company
B, the umbrella/excess insurer denies coverage because Company A is an insured,
citing the "insured-versus-insured" exclusion. Clearly, such a denial does not
conform with the underwriting purpose behind most "insured-versus-insured" exclusions,
but some of these exclusions are worded broadly enough to support denials of
this kind.
If the umbrella/excess policy contains "insured-versus-insured" wording,
this difficulty can be solved by requesting the wording be amended to read "named
insured-versus-named insured." Since additional insureds are not "named" insureds
according to the "Who Is an Insured" provision, this modification of the "insured-versus-insured"
wording maintains the intent of the exclusion and protects the parties appropriately.
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