Product Update

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.