Product Update

Additional Insured Coverage Decisions in Contractual Risk Transfer

Some significant appellate court rulings on additional insured coverage are reported in this Contractual Risk Transfer release.

The variety of nonstandard additional insured endorsements used by some insurers continues to grow, as does the range of onerous coverage restrictions such endorsements can impose. An increasingly common variant in endorsement language makes the additional insured's coverage excess over its own liability insurance unless the additional insured has specified in the underlying contract that coverage must be primary (and/or noncontributory). Despite the fact that such provisions virtually always provide additional insureds with less coverage than they expect, courts will generally enforce the provisions, as a New Jersey court did recently. The widespread use of restrictive endorsement language like this makes it important for indemnitees seeking additional insured coverage to do two things: (1) make contract insurance requirements specific as to primacy of coverage by stating that additional insured coverage must be primary and noncontributory, and (2) request a copy of the additional insured endorsement language to make sure that it provides the scope of coverage asked for in the underlying contract.

Questions of how effectively standard additional insured endorsements address coverage for third-party-over suits against the additional insured still arise regularly. When the requirement that injury or damage must be caused "in whole or in part" by the named insured was introduced into CG 20 10 and other ISO endorsements in 2004, many insurance professionals feared that such a requirements would be enough in some cases to cover suits brought by an injured worker against a third party—someone other than the worker's employer—since there would never be allegations of negligence against the named insured employer itself because of its tort immunity under the workers compensation system. Those fears have been borne out in a number of jurisdictions, especially those that don't allow facts outside the allegations made in the third-party-over suit to be considered in determining whether coverage has been triggered. In some states, however, courts are willing to consider coverage within the context of employment law and to acknowledge the (usually) unspoken involvement of named insured employers in worker injuries that lead to third-party claims. One such state is Illinois, as illustrated by a recent appellate decision that "silence as to any acts or omissions of the employer" should not necessarily be a bar to coverage under CG 20 10 since such silence is merely the result of workers compensation tort immunity, not evidence that there was no negligence on the part of the named insured.

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