Part 1 of this
series deals with the connection between the named insured and the additional
insured and provides some areas to consider in a basic analysis of any additional
insured endorsement. Part 3 covers additional
exclusions, conditions, and other coverage restrictions.
& Stanovich Risk Managers, LLC
Insurance Services Office, Inc. (ISO) has changed many of its additional
insured endorsements to limit the protection provided to the additional insured.
Specifically, in mid-2004, coverage provided to an additional insured was limited
by their degree of liability.
Pre-2004 editions of ISO additional insured endorsements had been found to
provide coverage for the sole negligence of an additional insured. The culprit was the phrase "arising out of," which
has since been expunged and replaced with what one legal commentator referred
to as a "fault based additional insured standard."
The 2004 edition of the ISO additional insured endorsements requires that
injuries or damage be "caused in whole or in part" by the named insured's "act
or omissions" (or those acting on behalf of the named insured, such as subcontractors).
It is ISO's express intent to eliminate coverage for the additional insured's sole negligence. Nonetheless, the 2004 edition
of ISO's additional insured endorsements is intended to protect the additional
insured for their own liability, even if
their liability is the major (but not sole) cause of the injury or damage, provided
that the named insured's (or others acting
on the named insured behalf) acts or omissions played a part in causing the same injury
The "caused in whole" wording provides the additional insured coverage for
its vicarious liability—that is liability imposed on an otherwise blameless
additional insured based solely upon the relationship with the named insured.
Choosing not to follow ISO, several insurers, including some well-known national
insurers, have written their own additional insured endorsements. Use of an
insurer's own additional insured endorsements appears most prevalent if that
insurer provides a market for those engaged in the construction industry.
An analysis of an insurer's proprietary additional insured endorsement should
begin with a review of the scope of coverage provided to the additional insured
in the context of comparative liability.
One insurer's additional insured endorsement provides coverage to the additional
insured only if the bodily injury or property damage results from the negligence of the named insured. In the
2004 edition of its additional insured endorsements, ISO does not prescribe
a specific theory of liability—the only
requirement is the named insured must have, at least in part, caused the injury or damage by their acts or omissions.
In Maryland Casualty Company v. Regis Insurance Company
and Ran Holding Corporation ((1997) No. 96-CV-1790), the U.S. District
Court for the Eastern District of Pennsylvania ruled on the difference between
"act or omission" and "negligence":
Therefore, the requirement of negligence by the named insured may significantly
narrow the circumstances under which an additional insured would receive coverage—and
thus provide substantially less coverage than ISO in their 2004 edition additional
insured endorsements. Commonly alleged theories of liability against a named insured, such as strict liability
and breach of warranty, would seemingly leave the additional insured with no coverage—regardless
of how liability is imposed on the additional insured. An unexpected denial
of coverage and a named insured that is not in compliance with insurance requirements
One insurer continues to use the frowned upon "arising out of ongoing operations"
wording but attempts to limit coverage for the additional insured by stating
the insurance does not apply to any injury or damage arising out of the negligence
of the additional insured. Here, the additional insured may actually be covered
for its sole liability provided the theory of liability is not negligence. Probably not what was intended—but
this is what is written.
Some insurers' view of the world is each person or organization should remain
responsible for their actions. An interesting perspective considering that insurance
stands for the proposition of paying on behalf of persons or organizations whose
actions result in their being legally responsible.
At any rate, their point is that it defies good business practice to pay
on behalf of an additional insured if that person or organization contributed in any way to injury or damage. In other
words, the only time an additional insured should be protected on someone else's
CGL policy is if the additional insured is found vicariously liable. Vicarious liability
is liability imposed on additional insureds not for what they did, but for what
someone else did.
Vicarious liability is liability imposed on an additional insured not for
what they did, but for what someone else did. The notion of providing additional
insureds with vicarious liability coverage brings with it the question of whether
any real coverage is being provided to the additional insured. More importantly,
has the named insured discharged its obligations to the additional insured by
protecting them only for vicarious liability?
Considering how limited vicarious liability can be, there is a better than
even chance the coverage provided to the additional insured will fall below
what was agreed upon (or at least expected by the additional insured).
While often misunderstood, the following commentary by the Supreme Court
of Connecticut (Norman Pelletier, et al. v. Sordoni/Skansa
Construction Co., SC 16743 & SC 16747 (July 2003) plainly states why
an additional insured is not normally vicariously liable for the named insured:
"…a general contractor is not liable for the torts of its independent subcontractors."
While there are certainly exceptions to the above, they are just that—exceptions
and not the rule. Providing only vicarious liability coverage for additional
insureds does, indeed, provide little meaningful coverage.
The Tenth Circuit in Marathon Ashland Oil Pipe Line
LLC v. Md. Cas. Co., 243 F.3d 1232 (10th Cir. 2001), made the following
observations (applying Wyoming law) on additional insured endorsements that
purport to provide coverage only for the vicarious liability of the additional
insured for the acts of the named insured:
As noted in Marathon, if the additional insured
has no liability, other than liability imposed on it for the acts of others,
the additional insured would have a right of indemnity against the named insured
regardless of any insurance provided to the additional insured by the named
As the right to be an additional insured is not constitutionally guaranteed,
there is nothing inherently wrong with providing little or no coverage to another
person or organization—provided everyone understands and has agreed to what
is and what is not being provided. Quite often, there is no common understanding
or agreement on what coverage is provided. As observed in Marathon, an additional insured may expect more
coverage than for their vicarious liability.
When a person or organization is added by an endorsement as an additional
insured to the CGL policy of another, that person or organization usually has
two CGL policies available to pay claims—the policy on which they are a named
insured and the policy on which they are an additional insured. Which policy
pays first? Or do they both pay and share the loss?
The ISO CGL December 2004 edition is clear on the issue of who pays when.
The following provides an example.
Dave's Plumbing has an ISO December 2004 CGL policy on which Dave is the
named insured. Fred's Construction also has an ISO December 2004 CGL on which
Fred is the named insured. To comply with a written agreement, Dave has added
Fred to his CGL policy as an additional insured using the ISO Additional Insured—Owners,
Lessees or Contractors (CG 20 10 07 04) endorsement.
A claim is made against Fred, who is found to have coverage for this claim
as an additional insured under Dave's policy. The "other insurance" condition
of both policies is identical—Dave's policy is primary (they pay first) including
payment of the claim against Fred. Fred's policy states it is excess over any other primary insurance
(remember, Dave's insurance is primary) in which Fred has been added by endorsement
as an additional insured. In short, Dave's policy pays first on Fred's behalf—if
Dave's policy is not enough, Fred's own policy will pay in excess of Dave's
Since Dave's insurance is primary, Dave's insurer's obligation to pay is
not affected by other insurance that is not also primary (remember, Fred's insurance is excess). This wording in Dave's
policy prevents his insurer from attempting to force Fred's insurer to share
payment of the loss and thus renders Dave's policy "noncontributory."
Some of older ISO CGL policies (issued prior to 1997) did not address in
the other insurance condition how additional insureds losses were to be handled.
For CGL policies issued before 1997 (using the same example), both Fred's and
Dave's insurers might have had to pay their share of the claim—contrary to what
either Dave or Fred wanted. The resolution to this problem that was sought by
some policyholders was to demand that Dave's policy not only add Fred as an
additional insured, but also expressly state the coverage provided to Fred was
primary and would not contribute with Fred's own insurance. The demand for primary
and noncontributory insurance coverage continues today.
It is not uncommon for insurers who write their own additional insured endorsements
to replace the standard other insurance condition with their own wording—which
may or may not provide what was agreed upon by the named insured and additional
insured. If the additional insured endorsement replaces or amends the standard
other insurance condition, a close examination of the new wording is highly
For example, one insurer's additional insured form states that if the named
insured has agreed in a written contract to provide the additional insured coverage
on a primary basis, they will consider the
insurance for the additional insured primary. In the very next sentence, the
insurer states that when their insurance is primary, and there is other insurance
available to the additional insured from any other source, the insurer will
share with that other insurance. When read together with the added condition
that the additional insured is required to tender the defense and indemnity
of any claim to any other insurer that also
insures against the same loss, it seems clear that this insurer intends to seek
contribution from any other insurer if at
all possible. Pretty hard to state with any confidence that the additional insured
has been granted "primary and noncontributory" insurance.
By contrast, another insurer's form is much clearer on this issue—if the
named insured has agreed to do so, the coverage provided to the additional insured
will be on a primary basis and will not seek contribution from the additional
Some insurers try to remain as excess insurance or reserve their right to
seek contribution from other insurance available to the additional insured—but
will not seek contribution from insurance
purchased by the additional insured as a named
insured. In other words, if the additional insured is also an additional
insured on the policy of another subcontractor, all bets are off, and the insurer
will pay only as excess or will only pay their share of a loss. Whether this
approach can be deemed "primary and noncontributory" is debatable. While there
are clearly merits to this approach, if the idea is not clearly expressed in
the endorsement, such attempts serve only to further confuse the "order of coverage"
Part 1 of this series deals with the connection
between the named insured and the additional insured. Part 3 covers additional exclusions, conditions,
and other coverage restrictions.
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