Additional Insured Endorsements—A Potential Minefield (Part 1)
January 2006
It's a standard, run-of-the mill, you've seen
one you've seen them all recommendation—make sure you get listed on someone
else's commercial general liability (CGL) policy as an additional insured. Maybe
more importantly, you have just agreed to list someone on your CGL policy. What
did you give? What did you get?
by Craig
F. Stanovich
Austin
& Stanovich Risk Managers, LLC
Considering that all additional insured endorsements are not created equal,
the need for some analysis becomes apparent. But where do you start? How do
you compare one additional insured endorsement to another? This analysis becomes
more complicated when your client hands you an additional insured endorsement
that contains an insurer's own unique wording.
Here are some areas to consider in a basic analysis of any additional insured
endorsement. How much weight to give any particular area depends on a great
number of variables—not the least of which is the actual wording (or lack of
wording) in the contract that requires your client to list another organization
as an additional insured.
Connection to Named Insured
The coverage afforded an additional insured is usually restricted in some
manner. Aside from the issue of who may be liable for the injury or damage, usually some connection between the named insured and
additional insured must first be established.
Vendor
Let's say a cell phone manufacturer, Cell Maker, Inc. (the named insured),
using the Insurance Services Office, Inc. (ISO), Additional Insured—Vendors
endorsement (CG 20 15 07 04), lists as an additional insured on their CGL policy
a retailer (vendor) who sells Cell Maker's phones. A claim is made against the
retailer/vendor for injuries suffered by a customer caused by a cell phone.
The retailer sends the claim to Cell Maker's CGL insurer, seeking protection
for the claim as an additional insured.
It quickly becomes apparent the cell phone that caused the injury was made
by a competitor of Cell Maker and not by Cell Maker. As the retailer/vendor
is an additional insured only for the cell phones manufactured by Cell Maker, the necessary
connection has not been established between the retailer and Cell Maker. The
retailer/vendor is not covered as an additional insured for this claim.
Leased Equipment
Here's another example. A restaurant leases a walk-in freezer from a leasing
company. As required by the lease contract, the restaurant (named insured) lists
as an additional insured on their CGL policy the leasing company (lessor), using
the ISO Additional Insured—Lessor of Leased Equipment endorsement (CG 20 28
07 04). While visiting the leasing company's premises to inspect an oven she
is considering leasing, the restaurant owner falls and severely injures her
knee.
She brings suit against the leasing company, who in turn seeks coverage as
an additional insured under the restaurant's CGL as an additional insured. Again,
the connection is not sufficient—the injury was not caused in any way by the
leased walk-in freezer. The lessor has no coverage as an additional insured
under the restaurant's CGL policy for the restaurant owner's injuries.
Contractors
The use of additional insureds, and the coverage disputes that result from
additional insured coverage, are so common in the construction industry that
any discussion about additional insureds must include a mention of contractors.
Office Project. Gerald's General Contracting,
Inc., compels every subcontractor, including Paul's Painting, Inc., to add Gerald's
as an additional insured to the subcontractor's CGL policy using the ISO Additional
Insured—Owners, Lessees or Contractors endorsement (CG 20 10 07 04) listing
the covered operations as the new office building project (wouldn't it be nice
if insurance requirements were this clear?). Paul's complies and provides Gerald's
General Contracting with the requested certificate, including the express notation
that Gerald's General Contracting is an additional insured via CG 20 10 07 04
for the office project.
School Project. For a separate school project
in which Paul's Painting is not in any way involved, Gerald's General Contracting,
who is the general contractor for the school project, has borrowed Paul's scaffolding.
Unfortunately, the scaffolding at the school collapses, and several people are
injured, including a passerby. Gerald's General Contracting is quickly besieged
with claims and lawsuits—all of which are sent to Paul's Painting's CGL insurer
by Gerald's General Contracting, demanding defense and indemnity as an additional
insured. Gerald's General Contracting is considerate enough to include along
with the claim documents the certificate of insurance from Paul's issued for
the office building project that conclusively demonstrates Gerald's is an additional
insured on Paul's CGL policy.
No Connection. Paul's insurer denies any
obligation to defend or indemnify Gerald's General Contracting. Gerald's is
an additional insured on Paul's CGL only for ongoing
operations performed by Paul's Painting at the new office building project.
Lending the scaffolding to Gerald's does not fit within "the performance of
ongoing operations for the additional insured at the locations designated."
The connection between Paul's (the named insured) and Gerald's (the additional
insured) is not sufficient to even suggest the possibility of coverage for Gerald
as an additional insured under Paul's CGL.
In sum, unless the requisite connection between the named insured and additional
insured is established, coverage is not available for the additional insured,
regardless of fault or any other terms contained in the additional insured endorsement.
In other words, this is the first cut—if you can't get past this issue, there
is no coverage for the additional insured.
Part 2 deals with the scope and order of coverage,
and Part 3 addresses additional exclusions, coverage
restrictions, and conditions.
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author's employer or IRMI. Expert Commentary articles
and other IRMI Online content do not purport to provide legal, accounting, or other
professional advice or opinion. If such advice is needed, consult with your attorney,
accountant, or other qualified adviser.