The commercial general liability (CGL) coverage form has a “who is an insured” section in which it describes “an insured” to whom the provisions of the CGL form apply. However, that section does not deal with entities known as “additional insureds,” those that are added as insureds to the CGL form by way of endorsements.

In today's business world, a company is often asked (or required) to put another entity on its commercial general liability coverage form as an additional insured. This is usually done by issuing an endorsement to the CGL form, adding the other entity as an insured. The endorsement can be fine-tuned to a specific entity or can be a blanket additional insured endorsement. Furthermore, the wording of the additional insured endorsement can be simple or more complex.

But regardless of the length or format of an additional insured endorsement, the insured and the insurer should realize that a decision to make some entity an additional insured on a general liability policy should not be dismissed as just a simple business decision that has no real consequences. There can be legal and financial consequences arising from that decision.

As an example, if the insurer is going to provide liability coverage for an additional insured through an endorsement to a CGL form, the insurer must also live up to the duty to defend. After all, the insurer states that it has “the right and duty to defend the insured against any suit seeking … damages.” This statement obviously includes an additional insured within its scope. However, the duty to defend is limited by the declaration that “we will have no duty to defend the insured against any suit seeking damages … to which this insurance does not apply.”

So, for example, if an exclusion on the CGL form clearly applies to the named insured and the additional insured, there is no duty to defend on the part of the insurer. If, however, an exclusion applies solely to the named insured, the policy should still apply to the additional insured. Some insurers will argue that unless the named insured has coverage, the additional insured has no coverage. What the insurers fail to understand is that the policy applies separately to each insured against whom a claim is made or suit is brought (the separation of insureds clause).

Who's Covered?

Disputes over whether the insurer has to indemnify and defend the additional insured can arise when there is a lack of clarity in the wording of the additional insured endorsement.

For example, some additional insured endorsements still make the designated entity an insured for liability “arising out of” the product, work or operations. This phrase can cause coverage disputes, with some reading the phrase very narrowly, limiting an additional insured's role as an insured only to vicarious liability — that is, no coverage for any negligence of the additional insured that is independent of the activities of the named insured. Put another way, the liability of the additional insured flows only from the liability of the named insured.

Others would say “arising out of” deserves a broader interpretation — so broad that the additional insured's own activities could lead to liability coverage under the named insured's CGL form. Therefore, if the activities of the additional insured (instead of the named insured) cause injury to someone, the named insured's CGL form will apply to a claim as long as there is some connection between the additional insured's activities and the named insured's operations or premises.

Because of the differences in interpreting “arising out of,” the insurance services office (ISO) amended the language in some of the current additional insured endorsements. The phrase “arising out of” was dropped and replaced with language limiting coverage for the additional insured to bodily injury and property damage “caused in whole or in part by your (the named insured) acts or omissions.” Thus, the form attempts to eliminate coverage for an additional insured's sole negligence, in that unless the named insured is responsible in whole or in part for resulting injury or damage, the additional insured has no coverage. (Of course, with this wording, namely, in whole or in part, if the additional insured can show that the named insured is at least one percent at fault, the additional insured may have coverage, regardless of how much of the fault rests with the additional insured.)

Another consideration when it comes to defending additional insureds can arise if the additional insured endorsement uses the phrase “your work.” Since this term is used in a completed operations context in the CGL form, an intent by the insurer to limit coverage and defense for additional insureds to ongoing operations can be disregarded by a court. Current ISO additional insured endorsements do use the phrase “in the performance of your ongoing operations” in order to clarify the extent of coverage for the additional insured. However, note that it is possible in some fact patterns to argue that coverage still applies after the work has been completed. The reason is that the trigger of coverage can be interpreted by courts as when the time liability occurs (that is, the negligent act), and not the time when injury or damage occurs.

Finally, the additional insured may have direct access to the named insured's policy. The additional insured can turn claims arising from its activities directly over to the insurer without consulting the named insured and seek defense coverage. Moreover, in such a situation as well as others, the additional insured and the named insured could end up being involved in the same claim. This would require the insurer to provide separate defense strategies and counsels if the interest of the additional insured and the named insured conflict.

These are just a few of the many points to consider when entertaining a request to put an additional insured on the general liability policy. It has to be more than just a routine business decision.