Legal Decisions Concerning "Insured Contract" and Causation and Additional Insured Coverage in Contractual Risk Transfer
This release of Contractual Risk Transfer surveys
legal decisions concerning the commercial general liability (CGL) definition of
"insured
contract" and the
permissibility of considering extrinsic facts when determining whether coverage
is triggered under standard additional insured endorsements.
Contractual liability coverage under a standard CGL policy depends on the
existence of an "insured contract." One category of "insured
contract" comprises business-related indemnity agreements in which the
insured assumes the tort liability of another party. That straightforward
definition has proved not to be as straightforward as it seems, raising a
number of legal questions. The survey of case law on CGL contractual liability
is expanded in this release to examine insurer challenges to coverage on two
bases: (1) that some claims of "liability assumed in a contract" are
actually breach of contract claims and therefore not covered by general
liability insurance and (2) that limited form indemnity agreements do not
involve any actual "assumption" of liability and thus do not qualify
as "insured contracts." A number of significant court decisions on
these issues are added to the contractual
liability discussion.
Standard additional insured endorsements apply only when underlying injury
or damage has been "caused, in whole or in part," by an act or
omission of the named insured. Rules for establishing this causal connection
between the named insured's behavior and an injury to the named
insured's employee that results in a claim against the additional insured
are complex. A recent decision of the US Seventh Circuit Court of Appeals
recognized a new source of extrinsic evidence in establishing that
connection—third-party contribution claims against the named insured employer.
The case is added to the
discussion of coverage for employee third-party actions against an additional
insured.