Contracts as a Risk Management Tool

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Additional Insured

Contract issues that relate to an Additional Insured include:

Who is covered?

Scope of coverage

When coverage ends

Edition date available from insurer

Type of policy

An important point is that insurance status as an "Additional Insured" can provide better response for someone than depending on business or other contracts.

Additional Insured endorsements
One example of an Additional Insured endorsement is CG 20 09, which is to be used when no contractual liability is provided in the CGL policy.

Another example would be CG 20 10. The November 1985 edition covers the Additional Insured for loss arising out of "your work", including completed operations of the named insured. The October 1993, March 1997, and October 2001 editions cover the Additional Insured for loss arising out of your ongoing operations. According to one citation case in California, the 1993 edition removes completed operations protection for the Additional Insured.

A new endorsement, CG 20 37 10 01, provides completed operations protection for the Additional Insured.

CG 20 33 is an endorsement for blanket Additional Insured. The ISO version does not provide completed operations for the Additional Insured.

Company-specific blanket Additional Insured endorsements are used on larger accounts. Such endorsements reduce paperwork, when required by contract. They can also provide broader coverage than required by a construction contract.

Excess / umbrella policy issues
Some policies require notification when adding Additional Insureds to any underlying policy. Some other policies, however, provide Additional Insured status as long as the underlying policy reflects the change.

If you are using any form of blanket Additional Insured on any underlying policy, verify that that is acceptable to the umbrella / excess policy layers. The insured definition of "Additional Insureds" may include prior entities, subsidiaries, etc. But this raises an issue. Will the policy agree to drop down to primary for defense and damage payment for these insureds without applying the self-insured retention?

Subrogation to Additional Insured
Truck Insurance Exchange v. County of Los Angeles (2002)
In the case of Truck Insurance Exchange v. Country of Los Angeles, Truck Insurance Exchange (Truck) sued the County of Los Angeles (County) to recover costs that Truck incurred to defend its insured Santa Marta Hospital (Santa Marta) in a medical malpractice action.

Truck sought reimbursement of those defense costs from County based on the doctrine of equitable subrogation, to enforce Santa Marta's rights under an indemnity agreement. Truck and County both moved for summary judgment.

The trial court determined that Truck was not entitled to subrogation against County because County was an Additional Insured under the policy that Truck had issued to Santa Marta, and granted summary judgment to County.

Truck appealed the judgment. Truck contended that County equitably should bear all of Santa Marta's defense costs because County caused Santa Marta to incur the defense costs. Truck also argued that County's status as an Additional Insured under the Truck policy does not defeat Truck's right to equitable subrogation, because County's liability for Santa Marta's defense costs is not a liability within County's coverage.

We agree that County's status as an Additional Insured does not prevent subrogation, because the policy does not cover County's liability arising from its own negligence. We conclude that Truck is entitled to equitable subrogation, because County's negligence caused Santa Marta to incur the defense costs and County equitably should bear all of the defense costs. We therefore would reverse the summary judgment.

Primary non-contributing wording
When considering transferring primary insurance, first determine the objectives of the transferee. Is the objective to:

Protect its own limits?

Provide another recovery method?

Provide additional limits?

Create a buffer for its own retention or deductible?

Or some combination of the above?

There would be an impact on reporting requirements of the transferee's own insurance, requiring modification of the Other Insurance clause in both the primary policy and the transferee's insurance.

If the objective is to avoid claim reporting to their own insurance and/or the response of their own insurance, then their own policy should be revised to read "excess over any other valid and collectible primary and/or excess policy to which they have been added as Additional Insured." Verify that the excess language also includes obligation for client's carrier to respond if the other carrier fails to respond to defense or fails to provide adequate or appropriate defense. Clarify reporting requirements of losses.

If the objective is to obtain access to additional limits, the policy should be sufficient with primary participating language in the standard forms. The policy to which they have been added as Additional Insured needs to be revised to act as primary for them, even though they have another primary policy of their own. Note that this attempt to transfer initial payment to the other party's insurer may fail, as seen in Century Surety Co. v. United Pacific Insurance Co., Et Al, 6/19/2003, App. 2nd.

Retentions / deductibles
So far, there is no settled case law on the multiple application of primary retentions or deductibles. Instead, there have been pro-rata application of limits per most appellate decisions.

One court citation has held that the insured is entitled to complete response of limit within one policy year if that is enough to satisfy judgment.
When there are multiple coverage parts with the same carrier, there may be differing retentions / deductibles. Use bridging language to agree between coverage parts.

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Not only are policy forms, clauses, rules and court decisions constantly changing, but forms vary from company to company and state to state. This material is intended as a general guideline and might not apply to a specific situation. The authors, LunchTimeCE, Inc., CEfreedom, and Insurance Skills Center, and any organization for whom this course is administered will have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of information contained in this course.