Additional insureds and the CGL form

Duty to Defend Additional Insureds

Other Issues

Additional Insured Considerations

Introductory Information

In today's business world, a company is often asked (or required) to add another entity on to 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 a standard form—for example, the Insurance Services Office (ISO) CG 20 15 04 13, Additional Insured – Vendors endorsement; or a blanket automatic endorsement, such as the endorsements for Additional Insured – Owners, Lessees or Contractors: CG 20 33 04 13 when the additional insured has a direct contract with the named insured, or CG 20 38 04 13 when the additional insured does not have a direct contract with the named insured.

What appears to be more popular in usage than standard ISO additional insured endorsements are independently filed endorsements of admitted insurers and manuscript endorsements. Many of these endorsements may use a combination of ISO wording and the insurers' own verbiage. (The red flag, to the extent the insurer provides a warning, is the phrase at the endorsement's bottom page reading: "Includes copyrighted material of the Insurance Service Office, Inc. with its permission.". Some of these endorsements, particularly those issued by excess and surplus lines insurers, provide no red flag warning, despite using ISO wording.)

The additional insured endorsement, furthermore, can be simple, like the two-sentence CG 20 02 11 85, Additional Insured – Club Members; or more verbose one, like the two-page CG 20 10 04 13, Additional Insured, Owners, Lessees or Contractors – Scheduled Person or Organization. Another trend growing in popularity are the insurers that include endorsements that list a variety of different additional insured settings. This avoids having the insurer issue more than one kind of additional insured endorsement on one policy. While this development is advantageous, the nature of the coverage still is important to review.

But regardless of the length or format of an additional insured endorsement, an insured 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. After all, the insured is sharing liability insurance with another entity and is more often than not paying the insurer to extend that insurance to apply to sums that the additional insured becomes legally obligated to pay as damages.

Additional Insureds and the CGL Form

If an insured adds another entity as an additional insured onto a general liability policy, this is usually done through an endorsement. Some of these endorsements can be attached to the named insured's CGL form at no additional charge; others result in additional premium for the named insured.

Named insureds under a CGL form should also take note that the limits of insurance paid out for claims are shared with additional insureds. For example, if the general aggregate limit on a named insured's CGL policy is $1,000,000, that is the most the insurer will pay regardless of the existence of additional insureds on the policy. And, any losses paid on behalf of an additional insured will decrease the aggregate amount available to the named insured.

In connection with this point, named insureds need to know that experience modification factors that may lower or increase the policy premium can be affected by the losses and claims of the additional insureds. If the named insured has a spotless loss history, but the insurer has paid out tens of thousands of dollars for claims against an additional insured, chances are that the premium for which the named insured is responsible will be higher at the next renewal date.

Premiums and sums paid as damages are not the only areas under a CGL form where named insureds and additional insureds relate. The CGL forms consider the named insured (using the terms "you" and "yours") and (additional) insureds as connected, yet distinct entities. Both are covered by insuring agreements and both are touched by exclusions and conditions. Note, however, that there are parts of the CGL form that apply only to the named insured, and parts that apply to all insureds, including additional insureds. For example, when an insuring agreement or an exclusion or a condition or definition uses the word "you" or "your," only the named insured is the affected party, not the additional insured. Another example is the medical payments insuring agreement—it applies only for the named insured, not additional insureds.

Also, even though there is a clear distinction between a named insured (you or your) and an additional insured, it is still a source of confusion for some. For example, when an additional insured's name appears on a scheduled endorsement, that person has sometimes been referred to as an additional named insured. This, of course, is incorrect because the only ones who should be considered additional named insureds are named insureds that are listed on an endorsement and are, in addition to the first named insured, shown on the policy Declarations. In fact, with the realization that some policies may include more than one named insured, standard CGL forms in 1985/86 began to incorporate the use of the term "first named insured" in the policy conditions to make clear who is to be given notice. However, even this step taken by insurers using standard forms does not guarantee situations that are free from problems.

A case in point is Kotlar v. Hartford Fire Ins. Co., 100 Cal. Rptr. 2d 246 (Ct. App.2d Dist. Div. 7, 2000), involving a landlord and tenant relationship. The tenant not only agreed to add the landlord as an additional insured to its CGL policy but also to show proof of this status through the issuance of a certificate of insurance. Sometime prior to the policy's normal expiration, it was cancelled for nonpayment of premium. However, the landlord was not given notice and, in fact, did not learn of the policy's early cancellation until after someone fell on the premises and named the landlord as a defendant. When the landlord's tender of defense was refused by the tenant's former insurer, the landlord filed suit against the insurer and the tenant's insurance broker.

The insurer maintained it owed no duty to notify the additional insured of the cancellation under the insurance certificate. This certificate contained a provision in which the insurer promised it would endeavor to give the certificate holder and insured thirty days advance notice of cancellation. The state's insurance code, on the other hand, provided, in part, that notice of cancellation "shall be in writing and shall be delivered or mailed to . . . the named insured at the mailing address shown in the policy." The insurer pointed out that the statute required notice only to the named insured, explaining that the article "the" was singular and only referred to a single person or entity. The named insured to whom notice was owed, the insurer said, was the policy's first named insured. The court, however, was not persuaded by the insurer's argument, stating that the statute was not limited to a single named insured, but applied to all insureds named in the policy, including the landlord. The court also stated that the statute, requiring notice of cancellation to all insureds, was supported by public policy.

Another important point is that, technically speaking, all persons or entities automatically included within the who is an insured provision of the named insured's liability policy are considered to be additional insureds. At least one exception, sometimes overlooked, is when a named insured (entity) is added as an additional insured by endorsement on the policy of another. In cases such as this, it is only the entity that is a covered additional insured, not all of its employees, officers, directors, or partners. Additional Insured – Owners, Lessees or Contractors – Scheduled Person or Organization endorsement CG 20 10 04 13, for example, states that "who is an insured is amended to include the person or organization shown in the schedule,…". Referring to the "who is an insured" provision of the CGL form, it states: "If you are designated in the Declarations as: . . .  d. An organization. . . you are an insured. Your "executive officers" and directors are insureds. . .  And in paragraph 2., Each of the following is also an insured: a. Your "volunteer workers"… or your "employees"…".  The problem here is that an entity is a "you" (named insured) on its own policy, but when added by endorsement as an additional insured, it is not a "you" and, therefore, does not have the privilege, unlike the named insured (you), of having its officers, directors and employees covered as well.

This point is important to keep in mind because many indemnitees (i.e., those who are attempting to transfer the financial consequences of their liability to another, known as the indemnitor) require additional insured status in their contracts and stipulate they want the additional insured status to encompass its agents, affiliates, subsidiaries, directors, officers, and employees. Those indemnitors who agree to such contracts may be accepting more than they can deliver for reasons noted previously.

Finally, while the CGL policy of the named insured will provide liability coverage for an additional insured, the CGL policy will not act as a guarantor for the named insured's adding the additional insured onto the policy. If the named insured is required, or volunteers, to list a party as an additional insured on the named insured's CGL form, but then does not follow through with the listing, the CGL form will not automatically provide coverage for the additional insured. Further, the provisions of the CGL form will give no coverage to the named insured if the jilted additional insured should sue for that lack of follow-through; this is a breach of a contractual agreement—either written or verbal—and the CGL form does not apply to the upholding of performance agreements.

The foregoing does not mean that coverage is never provided to a person or entity that is shown on the certificate as an additional insured but not listed on the policy. It has happened in at least two situations where entities have been given additional insured status despite the absence of an endorsement to the named insured's policy—and for good reason. Despite the disclaimers, the certificate holders were provided additional insured status because the certificate would have otherwise served to their detriment for relying on it. Thus, the certificates controlled over the terms of the policy. These two cases are Sumitomo Marine & Fire Ins. Co. v. Southern Guar. and Columbia National Ins. Co., 337 F.Supp.2d 1339 (2004), and Marlin v. Wetzel County Board of Education, 569 S.E.2d 462 (2002).

Duty to Defend Additional Insureds

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 employers liability exclusion, for example), the policy should still apply to the additional insured who is not the employer of the injured employee making the claim. Some insurers will argue that, unless the named insured has coverage, the additional insured has no coverage. What the insurers failed to understand is that the policy is several in nature; in other words, like the separation of insureds conditions says, the policy applies separately to each insured against whom claim is made or suit is brought.

A problem arises, though, when it is not clear whether the additional insured has liability insurance, and this lack of clarity more often than not springs from the wording of the additional insured endorsement.

Some additional insured endorsements still make the designated entity an insured for liability "arising out of" the product, work or operations. However, it is no longer the majority of endorsements that are worded that way. What changed matters was when the courts decided that this wording was broad enough to give the additional insured coverage for its sole negligence, something insurers did not want to give in all instances. This reason is clear when one explores the meaning of the phrase "arising out of".

Some insurers would read 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. Put another way, 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.

As usual in such circumstances, the courts will provide the definitive interpretation on a case by case basis. Note that, at this time, most courts are not buying the more narrow vicarious liability only argument. Following are some examples of the judicial viewpoints.

In Shell Oil Co. v. AC&S, Inc., 649 N.E.2d 946 (Ill. App. 1995), the court was faced with interpreting the "arising out of" phrase and chose the broad viewpoint. In the case, Shell Oil had filed a declaratory judgment action to see if the defendant and its insurers had a duty to defend in a lawsuit by an employee of AC&S for injuries sustained while working on Shell's premises. The lower court sided with Shell and the appeals court agreed. The appeals court said that the "key language for determining potential coverage and the duty to defend is the phrase 'arising out of', and it means originating from, having its origin in, growing out of, or flowing from. The injuries arose from operations of AC&S on Shell's premises, and the injuries would not have occurred but for the employment and presence of the injured worker on Shell's premises." Thus, the policy covered any liability that would not have occurred, but for the operations of the named insured.

In Hormel Foods Corp. v. Northbrook Prop. and Cas. Ins. Co., 938 F. Supp. 555 (D. Minn. 1996), the court looked over an additional insured endorsement and offered a compelling argument in favor of the broad interpretation of the "arising out of" phrase. In that case, Hormel sued in a declaratory judgment action over the duty to defend due to a death at a hog processing plant, and the resultant lawsuit. Hormel was added as an additional insured on the general liability policy of Quality Pork Products (QPP) for liability "arising out of the ownership, maintenance, and use of" leased premises. When someone was killed by a machine on the premises and Hormel was sued, Hormel sought protection from the liability policy of QPP. QPP's insurer, Northbrook, denied coverage and said the additional insured provision only protects Hormel from negligence by QPP, that is, vicarious liability. The district court disagreed and said "if there is a causal relationship between the place covered by insurance and acts giving rise to legal liability, the liability is covered. The machine was so intimately and necessarily intertwined with the operations as to make the injuries flowing from it attributable to the ownership, maintenance, or use of the facility." Put another way, the term "arising out of" requires only a causal connection; it does not require proximate cause.

On the other hand, in Harbor Ins. Co. v. Lewis, 562 F. Supp. 800 (D.C. Pa. 1983), the court wrote that "by providing additional insured endorsements, the insurer is only insuring additional insureds against vicarious liability for acts of the named insured." However, note that this decision was clarified in Philadelphia Electric Co. v. Nationwide Mut. Ins. Co., 721 F. Supp. 740 (E.D. Pa. 1989) when that same court stated that "the Harbor case did not articulate a rule of law limiting the interest of additional insureds to vicarious liability." What the Harbor case did show was that contract language—the words and phrases on the additional insured endorsement—was crucial in interpreting the extent of coverage for an additional insured. In other words, if an insurer wants to limit coverage for an additional insured to vicarious liability only, that intent has to be written into the endorsement (as was done in the Harbor case); otherwise, the additional insured endorsement giving coverage to an additional insured for injuries "arising out of" the ownership of a premises or the operations performed by an insured will be seen as extending beyond mere vicarious liability to include liability for the negligence of the additional insured itself (as long as there is some causal connection between the claimed injuries and that negligence).

Because of the differences in interpreting "arising out of," ISO has attempted to amend the language in some of the current additional insured endorsements to reflect the intent. For example, endorsement CG 20 07 (1987 edition) Additional Insured – Engineers, Architects or Surveyors amended Section II, Who is an Insured, to state that the provision included "as an insured any architect, engineer, or surveyor engaged by you but only with respect to liability arising out of your premises or 'your work.'" Compare this with CG 20 07 04 13, which amends the provision to include as an additional insured "any architect, engineer, or surveyor engaged by you 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 of omissions of those acting on your behalf:  1. In connection with your premises; or 2. In the performance of your ongoing operations". Thus, the form attempts to eliminate coverage for an additional insured's sole negligence. 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.

One of the problems with this wording of injury or damage caused in whole or in part by the named insured is with third party over actions. The usual scenario is where an employee of a subcontractor is injured on the job, collects workers compensation, and then sues the general contractor for having failed to supervise the work, or sues the project owner for failing to provide a safe place to work. The general contractor and/or project owner, as an additional insured, requests defense and indemnity from the subcontractor. Given that the subcontractor (employer) will not be named in the suit filed by its employee, the question becomes whether the insurer is obligated to defend the general contractor or owner, since the additional insured endorsement requires that the bodily injury be caused in whole or in part by the named insured who, in this case, is the subcontractor (employer).

What we are seeing since the 2004 endorsement wording has found its way into the court system, given the varying fact patterns and influences of state laws, is that the decisions being rendered by the courts on this issue are as controversial as the endorsements themselves.

One case on this subject is Gilbane Building Company v. Empire Steel Erectors, L.P., 691 F.Supp.2d 712 (2010), which is complex in its various issues. In addition to addressing the "caused in whole or in part" wording of the ISO 2004 endorsements, the court also addressed another important issue dealing with the need for enforceability of underlying contracts calling for additional insured status. In this case, an employee of a subcontractor was injured while climbing down a ladder at a construction site. The underlying contract between the parties called for the subcontractor to secure liability coverage naming the general contractor as an additional insured.

As a result of this incident, the employee sued the general contractor, among others, for his injuries, claiming negligence. The general contractor sent letters to both the subcontractor and its insurer requesting a defense and indemnification. The subcontractor's insurer refused to defend and indemnify the general contractor based on language in the complaint and the additional insured endorsement. The general contractor then filed an action for declaratory relief seeking a declaration that it was an additional insured and that both the subcontractor and its insurer had breached their contractual obligations. The subcontractor and its insurer moved for summary judgment on the same issues. The court focused on several issues, including ambiguity, whether the factual allegations supported a covered claim, duty on the part of the subcontractor to indemnify and its insurer to defend the general contractor, and whether the underlying contract calling for additional insured status had to be enforceable in order for additional insured coverage to apply.

Getting to the point of this subject, the Gilbane court turned to the arguments by the subcontractor and its insurer that there was no duty to defend the general contractor because the additional insured provision had not been triggered by the language in the underlying complaint filed by the injured employee of the subcontractor. The court focused on the policy language requiring that injury be caused in whole or in part by the subcontractor (named insured employer), or those acting on its behalf. In doing so, the court reinforced a position taken a number of times, that is, that the words "caused in whole or in part" do not clarify what percentage of injury or damage must be caused by the indemnitor (named insured). Moreover, the court noted that, in most cases, it can be argued that some percentage of injury or damage was caused by the named insured or those acting on its behalf.

The Gilbane court pointed out that the injured employee of the subcontractor was statutorily barred from naming its employer in the underlying complaint, because the employer had a workers compensation policy in place. Further, the court noted that the employee's own negligence will always be at issue, even in an absence of an allegation to that effect in its pleading. In other words, the court was saying that the injured employee himself, while acting in the course and scope of his employment, could have been the cause of his own injuries. Thus, someone acting on behalf of the subcontractor potentially caused, in whole or in part, the injury involved, triggering the duty to defend.

As it turned out, however, in the latest case involving a coverage dispute, Gilbane Building Company v. Admiral Insurance Company, 664 F.3d 589 (2011), the United States Circuit Court, Fifth Circuit, reversed the district court's decision on the duty to defend the general contractor, but affirmed the judgment to indemnify. In other words, the court found that the insurer had a duty to pay damages, even though it had no duty to defend. In arriving at that decision, the appeals court stated that the additional insured endorsement required that the injuries be caused in whole or in part by the subcontractor (Empire) with the words "caused by" requiring proximate causation. Thus, from the appeals court's perspective, the insurer owed the general contractor (Gilbane) the duty to defend only if the underlying pleadings alleged that Empire, or someone acting on its behalf, proximately caused the employee's injuries.

Turning to the pleadings, the only allegations made by the injured employee were that the injuries sustained were directly and proximately caused by Gilbane's negligence and not the negligence of the employee's employer. Despite the allegations, the district court decided that the insurer had a duty to defend because the facts did not conclusively rule out any negligence on the injured employee's behalf and the circumstances were sufficient to implicate the employee's contributory negligence. The appeals court, however, disagreed with both of these decisions.

Despite the appeals court's decision that the insurer had no duty to defend, it upheld the district court's decision for indemnity. The rationale was based on the facts. This revealed in part that when the employee was injured while descending a ladder carrying an extension cord, he told a co-worker immediately after he fell that "his feet got wrapped up in the extension cord". The district court therefore concluded that the employee's own conduct was a contributing proximate cause in his damages in the underlying lawsuit, and that a jury would have found him or his employer, Empire Steel, 1% or more responsible for causing the occurrence and/or injuries at issue. Thus, under the terms of the policy, the district court concluded that the insurer had the duty to indemnify Gilbane, based on those findings that were not disputed by the insurer.

Just in case some people may find this Gilbane case to be somewhat unusual, since it held for indemnity, even though there was no duty to defend, the appeals court also referred to the case of D.R. Horton-Texas, Ltd. V. Markel International Insurance Company, 300 S.W. 3d 740 (2010), a ruling from the Texas Supreme Court that had a similar holding.

These kinds of decisions are important for purposes of third party over actions, particularly because an injured employee, who is subject to workers compensation coverage, can never implicate his or her employer because of the exclusive remedy of these statutory compensation laws. Without some kind of allegation also naming the employer, there can never be any duty of an insurer to provide defense for the other party named, particularly with respect to additional insured endorsements limiting coverage to injury or damage caused in whole or in part by the named insured.

Other Issues

Certificates of Insurance

One issue that often arises with the presence of additional insureds is the relevance of certificates of insurance.

Sometimes, the additional insured may receive only a certificate of insurance showing that it has been named as an additional insured on the named insured's policy. That certificate may show some policy numbers and the name of an insurance company, but it is no guarantee that the additional insured has the coverage it wishes or requires. So, the additional insured should insist on a certificate of insurance and a copy of the policy and the additional insured endorsement, and then read and compare the certificate with the policy and endorsement.

A certificate of insurance will list the policy period. However, this will not help the additional insured if the named insured cancels the policy or has it cancelled through nonpayment of premium. Cancellation notice goes to the first named insured and not the additional insured. So, the additional insured needs some mechanism beyond a certificate of insurance to assure itself that actual coverage exists when it is needed.

The wording on a certificate of insurance may contradict the wording or the intent of the insurance policy. The terms of the policy should prevail over those on a certificate; but for this to be the case, the insurer has to make it clear to the additional insured that the certificate is not an insurance policy, and that any coverage granted is done so through the policy and the additional insured endorsement. If this is not clear and unambiguous, a case could be made that the language on the certificate gives the additional insured more coverage than the insurer had intended. As an example of this, see International Ampitheatre Company v. Vanguard Underwriters Insurance Company, 532 N.E.2d 493 (Ill. App. 1988). In that case, the court found terms on a certificate of insurance ambiguous in relation to just what the policy covered and what it excluded, and so the insurer ended up covering a claim it had intended to exclude. For an example of a court's opinion as to what constitutes unambiguous wording on a certificate of insurance, see Pekin Insurance Company v. American Country Insurance Company, 572 N.E.2d 1112 (Ill. App. 1991). The wording on the certificate of insurance in that case was as follows: "This certificate is issued as a matter of information only and confers no rights upon the certificate holder. This certificate does not amend, extend, or alter the coverage afforded by the policies below. The insurance afforded by the policies described herein is subject to all the terms, exclusions, and conditions of such policies." The court in the Pekin case said that this was a clear showing that the certificate was not part of the policy and conveyed no rights to the certificate holder.

Another case to consider is United Stationers Supply Company v. Zurich American Insurance Company, 896 N.E.2d 425 (2008). In this case, the Appellate Court of Illinois, First District, Third Division, ruled that, where the certificate of insurance refers to the policy and expressly disclaims any coverage other than that contained in the policy itself, the policy should govern the extent and terms of the coverage.

In light of the fact that a growing number of entities today are using self-insured retentions (SIR), it is important that indemnitees desiring additional insured status know that such SIRs exist. Take, for example, the case where Entity A, which agrees to make Entity B an additional insured, also has a $1 million SIR. Entity B is going to be surprised to learn that its protection as an additional insured is not activated until after the exhaustion of the $1 million limit. There are cases where this has happened. One such case is Multicare Health System, d/b/a Multicare Good Samaritan Hospital v. Lexington Insurance Company, 2013 WL 4532248. The hospital became liable for damages when the named insured who was to show proof of insurance went bankrupt. What the hospital later learned was that named insured's professional liability policy with a $5 million limit had an SIR of $1 million.

The hospital sued the insurer alleging that the failure to include the $1 million SIR on the certificate was a material misrepresentation on which the hospital relied to its detriment. (The same kind of argument and reason noted earlier where the certificate holders in the Marlin v. Wetzel and Sumitomo Marine & Fire Insurance Company v. Southern Guarantee and Columbia National Insurance Company cases were able to obtain additional insured status.) The hospital effort failed, however. The United States Court of Appeals, Ninth Circuit, stated that it did not believe that the Washington Supreme Court would find a duty to disclose a self-insured retention on a certificate that does not contain a space for designating one. The court also stated that this was especially true since the hospital could have asked for a copy of the insurance policy.

What courts do not know, however, is that insurers are reluctant to issue certified copies of policies and by the time they are issued, the reason the policies are needed has long past. What some entities are doing to overcome this kind of problem is to add a provision in the contracts or agreements that the indemnitee and additional insured is to be informed of any SIR. Failing to do this could be a breach of contract. In fact, this was the precise result in the case of Spector v. Cushman & Wakefield, Inc. v. One Source Facility Services, Inc., 2012 WL 5950506.

Other Insurance Clause

Another issue that can arise with additional insureds concerns the other insurance clause that is on the CGL forms, with its question of primary insurance versus excess insurance. When an entity is named as an additional insured on someone's general liability policy, is that policy primary or excess insurance for the additional insured? The terms of the other insurance clause in the CGL form have to be reviewed for an answer to the primary/excess question.

Language in the other insurance clause of the standard CGL form starts off with "if other valid and collectible insurance is available to the insured". So, the discussion of whether the general liability insurance is primary or excess is based on the assumption that there is other valid and collectible insurance; in other words, the additional insured has his or her own general liability policy as well as the other general liability policy on which he or she has been named as an additional insured.

Assuming this point, the other insurance clause then states that "this insurance is primary except when b. (excess insurance paragraph) applies". The excess insurance paragraph lists several specific examples of when "this insurance" is excess; for a description of these examples, see General Provisions of the CGL. However, the example that is most relevant to an additional insured states that "this insurance is excess over any other primary insurance available to you covering liability for damages arising out of the premises or operations, or the products and completed operations, for which you have been added as an additional insured by attachment of an endorsement". In other words, the additional insured's own general liability policy is declaring it is excess coverage over that general liability policy on which he or she has been listed as an additional insured. It can thus be said at this time that, if both the additional insured's CGL form and the named insured's CGL form have that paragraph in the other insurance clause, then the additional insured endorsement has attempted to make the additional insured a primary insured on the liability policy to which the endorsement has been attached; the additional insured's own CGL form is excess coverage.

These kinds of situations may be alleviated with standard ISO endorsements. One of the commercial liability amendments introduced in 2013 is an optional primary and noncontributory—other insurance condition endorsement, CG 20 01. When this endorsement is issued, it revises the other insurance condition so that coverage is provided to an additional insured on a primary and noncontributory basis, subject to two conditions. First, the additional insured is a named insured on other insurance available to it and, second, there is a written contract or agreement stating that the named insured's CGL policy will be primary and that the insurer will not seek contribution from any other insurance available to the additional insured. This amendment is stated not to have any impact insofar as coverage changes, simply because this has always been the intent. Now, however, the intent is clarified in writing. (The caveat here is that this only applies to ISO standard provisions. Some insurers, particularly those in the excess and surplus lines market make what insurance is available to additional insureds on an excess basis and subject to notice provisions that can only be gleaned from reading the policy provisions, which often are not available.)

Additional Insured Considerations

Litigation notwithstanding, requests to add additional insured to general liability policies are one of the most common occurrences in the daily insurance routine. Great thought, then, should go into the reason for the request, and the nature of the entity making the request. In other words, those who want to be additional insureds cannot simply ask to obtain that coverage and expect to receive protection in time of need. There are too many different kinds of endorsements, most of which in use today are either manuscript or independently filed ones. Asking simply for an additional insured endorsement and nothing more is like shooting in the dark.

Remember that the requirement to add an additional insured to one party's insurance policy is a performance obligation. It requires that one of the parties do something. Failure to comply with the requirement is a breach of contract that is not insurable by a general liability policy. Since breach of contract generally isn't covered by any general liability insurance that a party carries, that party may find itself on its own to defend any action arising from failing to another party as an additional insured.

This is the same type of thing as failing to live up to other terms of the contract—failing to pay the rent, failing to manufacture the goods in a certain way, or failing to complete a job in a certain time frame. They also are breaches of contract that aren't covered by general liability insurance.

In addition to thinking of indemnification clauses and additional insured requirements in contracts as separate items, there are a number of areas that should be considered before agreeing to name an additional insured on a liability policy. Among them are:

—Direct access to the policy

Additional insureds may be given direct access to the named insured's policy for both defense and settlement, a fact that often is overlooked in the haste to negotiate the terms of a contract. An additional insured has the same rights under the policy as other "insureds". They can turn claims arising from additional insured activities directly over to the insurance carrier without consulting with the named insured. That consultation should occur when the decision is made to name the company an additional insured.

—Right to Defense

In addition to paying judgments, the additional insured coverage provides defense for claims to which the coverage applies. This means that the insurance carrier does have to defend the additional insured as well as the named insured if both are involved in the same claim. This could require separate defense strategies and sets of counsel, especially if the interests of the named and additional insureds conflict.

The right to defense is the same for both the named and additional insureds. Defense is provided when there appears to be coverage under the policy and coverage limits still are available.

—Dilution of limits

Judgments against both parties will be paid from the same set of limits. Every time an additional insured is added to a policy the coverage limits are diluted. Instead of the named insured carrying a dedicated $1,000,000 of coverage for each occurrence, it is carrying $1,000,000 per occurrence that it may have to share with all additional insureds that are involved in the claim. This sometimes comes as a shock to the named insured after the claim is turned over to the insurance carrier.

—Is the request reasonable?

At times it seems as if some companies want to be added as additional insureds as a matter of routine. There should be a legitimate reason behind the request; the coverage should not be granted just because a company asks for it. Often, a party that is in the superior bargaining position automatically requests additional insured status as part of its standard requirements. It is worthwhile to question the request if a logical reason for it is not evident. Companies often will reconsider in the face of legitimate questions. The additional insurance requirement should be viewed as an area of negotiation and not a pre-set requirement.

—Proper flow of coverage

In general, the party that has control over the work or property provides the primary insurance. As examples, the tenant who is occupying the building usually adds the building owner as additional insured. The manufacturer that is producing the product usually names the vendor as additional insured. The subcontractor who is installing the equipment usually names the contractor or owner as additional insured.

There are exceptions to this coverage hierarchy. However, it is worthwhile to think through the relationship before automatically agreeing to provide additional insured status.

—Control of coverage

The additional insured is at the mercy of the named insured in regard to scope and continuation of coverage. The evidence of additional insured status usually takes the form of a certificate of insurance or a policy endorsement. An additional insured rarely has the opportunity to review the named insured's entire policy and claims history. Aggregate limits may be impaired; limiting endorsements may be attached. Additional insureds probably will not be notified if the policy is canceled.  All of these factors could add up to problems when claims arise and the additional insured turns to the named insured's policy for protection.

—Other insurance

An additional insured may have access to two policies that apply to a claim: the policy on which it is named an additional insured and the policy that covers its general business activities. The company usually wants the policy on which it is an additional insured to be primary when both policies apply. There may be a conflict, however, between the other insurance clauses of the two policies. This could occur if they have identical other insurance clauses or if the clauses contradict one another. With either of these situations, the policies both may contribute to the loss on a pro-rata basis or a court could decide which is primary, which defeats the intention of the insureds.

In order to avoid this problem, the named insured's policy should be amended with the primary and noncontributory—other insurance condition endorsement, CG 20 01 that was newly introduced by ISO in 2013. If this is difficult to negotiate, the additional insured could ask that its commercial general liability policy be amended to apply as excess to other coverage to which the additional insured endorsement is to apply. Either one of these methods should result in giving the additional insured primary coverage, which, by the way, has always been the intent anyway.

—Unintended coverage

The additional insured endorsement should limit the coverage to the extent of the relationship between the named and additional insureds. Standard ISO endorsements attempt to limit it to the applicable relationship, and care should be taken to do the same with additional insured endorsements that are manuscripted for special situations. The coverage should be limited to the specific work being performed, the specific contract requiring the coverage, or the specific relationship being insured (such as tenant-landlord). There are some who believe that the additional insured may be able to tap into the named insured's policy for broader coverage than was intended if the additional insured endorsement is not limited in this way.

Restrictions also should be placed on the amount and length of coverage being provided by the endorsement or more coverage might be provided than was intended. If only $1,000,000 of general liability coverage is required for the additional insured, the endorsement should reflect only that amount of coverage.

In other words, the extent of the additional insured coverage that is provided should be consistent with the breadth of the indemnification clause. 

Too often, requests for additional insured status are handled as just routine activity. They are "processed" by companies entering into contracts and by those who arrange insurance coverage. However, insufficient understanding of what additional insured status means, or a failure to study the reasoning behind the coverage request, can result is a serious misapplication of coverage—or no coverage at all.

Reviewed November 18, 2019 

Originally published 11/11/2015