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Additional Insured Issues

How Will Courts Construe ISO's New Additional Insured Endorsements?

Joseph Postel | July 1, 2004

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Previous editions of the ISO additional insured endorsements provided coverage to the additional insured, "but only with respect to liability arising out of your ongoing operations performed for that insured." Courts read that to mean the named insured's work or operations need not be the proximate cause of the loss to satisfy the coverage condition, and the named insured's fault was immaterial to the coverage determination. With the new forms, however, fault will no longer be immaterial. How the courts will rule on these coverage changes is anyone's guess.

The new Insurance Services Office, Inc. (ISO), additional insured forms were scheduled for filing in July 2004. It can be anticipated that the lag time between the introduction of the new forms and litigation involving them will be substantial. Thus, no one will know for at least a couple of years how the courts will construe these forms. Nonetheless, insurers and insureds need to know now what to expect. This article attempts an educated prediction.

Is Fault Material?

Of particular note is the substantive change in the basic coverage language used in all or most of the forms. Up until now, ISO additional insured endorsements provided coverage to the additional insured, "but only with respect to liability arising out of your ongoing operations performed for that insured," or variations on that theme, such as "arising out of the use of your premises." Of course, "you" and "your" refer to the named insured as a result of the definition of those terms contained in the preamble to the ISO CG 00 01 commercial general liability (CGL) policy coverage form.

The case law throughout the country has been pretty consistent in imparting a broad reading to this language, with most courts holding that only a minimal connection, or at least one falling short of proximate cause, need be established between the named insured's work and the additional insured's liability in order to satisfy this condition. In other words, the named insured's work or operations need not be the proximate cause of the loss in order to satisfy the coverage condition. "But for" causation is enough.

Additionally, courts have been clear in distinguishing between "your work" and "your negligence," holding that because the endorsement uses "your work," there need not be any showing that the named insured was negligent in any way. As the New York appellate court succinctly put it 7 years ago, "fault is immaterial to this determination." Tishman Interiors Corp. of New York v Fireman's Fund Ins. Co., 653 NYS2d 367, 369 (NY App 1997).

With the new forms, however, fault will no longer be immaterial. The operative coverage language now provides coverage to the additional insured, "but only with respect to liability for bodily injury, property damage or personal and advertising injury caused in whole or in part, by your acts or omissions or the acts or omissions of those acting on your behalf." The first underlined passage represents ISO's attempt to tighten the required causal connection between the named insured's acts or omissions and the additional insured's liability. It is doubtful that many courts will deem this change as unambiguously requiring something more than "but for" causation, but that remains to be seen.

The second underlined passage is more likely to work a sea change in the way courts will decide additional insured coverage disputes. Numerous courts have already discussed the difference between "your work (or operations)" and "your negligence." Coverage lawyers and courts will no doubt rediscover these mainly older cases as a possible guide to construing the new forms.

A Construction Illustration

Let's begin with what is probably the most common scenario to which additional insured coverage applies: a subcontractor's employee is injured on a construction project and brings an "action over" against the general contractor for failure to provide a safe work place. Courts construing the old forms mostly held that the "arising out of" language equated with "but for" causation, and that "but for" the injured plaintiff's employment with the named insured, the accident would not have happened. The employment relationship itself, therefore, satisfies the coverage condition. Clearly, the employment relationship by itself will no longer be enough under the new forms, however. Instead, that general contractor will have to establish that there is at least a possibility that his liability to the subcontractor's employee arises out of his employer's (the named insured's) acts or omissions.

How is the general contractor going to establish that? At the duty to defend stage, the courts in most states will, at least initially, look only at the tort complaint. That complaint will, of course, contain no allegation that the employer's acts or omissions caused the loss, because the employer is not a defendant; the general contractor is the defendant. The employer cannot be a defendant, because it is immune from suit under the exclusive remedy provision of the workers compensation statute.

How Will Courts Respond?

Many insurers will no doubt take the position that their duty to defend the additional insured general contractor is not triggered, because there are no allegations in the tort complaint that the named insured employer was negligent. In strict "8 corners" jurisdictions, like Texas, where the court will not look beyond the tort complaint and the subcontractor's policy to determine whether there is potential coverage, this could make it difficult if not impossible for the additional insured general contractor to obtain even a defense from the subcontractor's policy.

In more liberal jurisdictions, like California and Indiana, where the insurer has a duty to investigate facts extrinsic to the tort complaint to determine if there is a potential of coverage, the additional insured general contractor will not be so easily thwarted, however, because the subcontractor's insurer will be required to investigate whether its named insured subcontractor/employer was negligent. That investigation is likely to turn up at least some evidence of employer negligence, and that would be enough to require the subcontractor's insurer to defend the general contractor.

In intermediate jurisdictions, like Illinois, which follow the 8 corners rule and do not require the insurer to investigate, but do require the insurer to defend if it knows of extrinsic facts creating a potential for coverage, the additional insured general contractor can probably obtain a defense by providing any information it has obtained through discovery and investigation to the subcontractor's insurer, assuming of course that the information indicates possible negligence on the part of the employer.

Casualty Insurance v Northbrook P&C

One case that will no doubt be cited often is Casualty Ins. Co. v Northbrook Prop. & Cas. Ins. Co., 501 NE2d 812 (Ill App 1986). Casualty involved the classic scenario for additional insured coverage litigation: the action over by the subcontractor's employee against the general contractor. The additional insured endorsement in that case was the old CG 20 09 form, which contained the same basic coverage grant as the old CG 20 10, but also contained an exclusion for:

bodily injury or property damage arising out of any acts or omission of [the additional insured general contractor] or any of his employees, other than general supervision of the work performed for [the additional insured general contractor] by [the named insured/subcontractor/employer].

The reason that this case is instructive is that, in effect, the CG 20 09 form conditioned coverage on the additional insured's liability arising out of the named insured's negligence since, presumably, the additional insured could not be liable for negligent supervision of the named insured unless the named insured was negligent. The issue on appeal was whether Schal, the general contractor, was entitled to a defense from the general liability insurer of the subcontractor/employer, Mid-American, despite the absence from the tort complaint of any allegation that Mid-American was negligent. The court held that the absence of such allegations did not negate the duty to defend. The court's reasoning is well worth quoting because it directly bears on how the new forms will undoubtedly be construed:

Casualty's argument that, because the underlying complaint contains no allegations of negligence against Mid-American, Schal's general supervision of Mid-American's operations would not subject Schal to liability, ignores Mid-American's inchoate immunity under the Workers' Compensation Act to a suit by its employee, Krkljus. In addition, merely because Krkljus has not sued Mid-American does not mean that Schal could not be held liable by virtue of its general supervision of Mid-American. [501 NE2d at 815-16]

The key point of this case, then, is that the tort complaint's silence as to any acts or omissions of the employer indicates not that the employer committed no acts or omissions, but only that the employer is statutorily immune to suit.

U.S. Fire v Aetna

Another case that will be cited by additional insured general contractors is U.S. Fire Ins. Co. v Aetna Life & Cas. Co., 684 NE2d 956 (Ill App 1997). The manuscript endorsement at issue in that case was remarkably similar to the new ISO form, providing coverage to the additional insured, "but only with respect to acts or omissions of the named insured in connection with the named insured's operations at the applicable location designated." Like the Casualty case, U.S. Fire involved the classic additional insured coverage litigation scenario: an injured employee of the subcontractor brings an action over against the general contractor. The court said as follows:

First, USFI asserts that it has no duty to defend defendants in the Startz action based on the plain language in the endorsement and the allegations in the Startz complaint. USFI argues that, under the explicit terms of the endorsement, defendants are additional insureds only where the claim arises out of Gateway's operations and Gateway's acts or omissions and the Startz complaint is bereft of any facts at all relating to Gateway's acts, omissions or operations.

Defendants contend that the facts asserted in the Startz action raise, at a minimum, the potential that Gateway's acts or omissions caused Startz's injuries, thus triggering, as a matter of law, USFI's broad duty to defend additional insureds under the USFI policy.

* * * *

Startz was injured at the Argonne jobsite when he tripped on conduit protruding from a concrete slab. The Startz complaint alleges causes of action under the Structural Work Act and common law negligence. Gateway was not named as a defendant. However, the complaint alleges that, at the time of the accident: (1) Startz "was employed by Gateway" on the Argonne premises in the furtherance of the Argonne project; (2) "the duties and responsibilities of [Startz] required that he work on and about the aforesaid conduit protruding from [a] concrete slab"; and (3) Startz "was working on and about the aforesaid conduit protruding from [a] concrete slab when [he] tripped on conduit protruding from [the] concrete slab while moving re-bars [sic], thereby proximately causing injuries to [him]."

A comparison of the allegations in the complaint and the endorsement raises the potential for coverage and, in turn, a potential for coverage is all that is necessary to trigger USFI's duty to defend. When injured, Startz was an employee of Gateway (the named insured), was performing tasks required of him ("in connection with the named insured's operations"), and was working at the Argonne construction project ("at the applicable location designated"). Defendants' alleged liability to Startz potentially could have arisen from an act or omission on the part of Gateway, whether or not the act or omission rises to the level of negligence. Such a possibility is sufficient to trigger the duty to defend on the part of Gateway's insurer (USFI) under the additional insured endorsement. [684 NE2d at 960, 962-63]

This highlighted passage will no doubt generate a great deal of debate in coverage litigation. What did the court mean? Did the court mean that acts or omissions could trigger Structural Work Act liability without constituting negligence? That is a dubious proposition. See Cox v Lumbermens Mut. Cas. Co., 439 NE2d 126, 129 (Ill App 1982) ("We reject Lumbermens' argument, however, that a cause of action can arise under the Structural Work Act from conduct which is less than negligent. Fault of some kind is required although it may range from passive negligence to willful misconduct.")

Did the court instead mean that the terms "acts and omissions" and "negligence" are not synonymous? That is also a dubious proposition. Many other cases do, in fact, use the terms synonymously. See, e.g., Schultz v Northeast Illinois Regional Transp. Corp., 775 NE2d 964 (Ill 2002) ("contributory negligence is a "careless act or omission on the plaintiff's part tending to add new dangers to conditions that the employer negligently created or permitted to exist"). Apparently, this is what the court meant, however, because the court cited the following proposition from an unpublished federal decision in Pennsylvania: "[T]he plain and ordinary meaning of 'act or omission' is not 'negligence.'" Id. at 962, citing Maryland Cas. Co. v Regis Ins. Co., 1997 WL 164268 (ED Pa 1997).


If acts or omissions not constituting negligence can satisfy the condition of coverage under the new forms, then little has changed, and we are back to the old no-fault forms. Only time will tell if other courts accept the argument that "acts and omissions" does not necessarily mean negligent acts and omissions.

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