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Additional Insureds: Does Coverage Depend on Whether the Additional Insured was Negligent?

    Client Alerts
  • April 10, 2007

Companies involved in business transactions often ask to be named as an additional insured on another company’s insurance policy.  For example, a premises owner that does not want to be liable for injuries caused by a contractor who comes on the premises to do work may require the contractor to give the owner “additional insured” status on the contractor’s liability insurance policy.  On construction projects, general contractors are commonly named as additional insureds on insurance policies issued to subcontractors working on the project. 

The usual mechanism for adding a party as an “additional insured” to an existing insurance policy is an endorsement.  The Insurance Services Office (“ISO”) has developed a number of standard endorsements for this purpose.  The endorsement may identify the additional insured by name.  Sometimes the endorsement identifies additional insureds by category, such as every person or entity the named insured has agreed to add as an additional insured to its liability policy. 

Before 2004, the standard ISO endorsement language provided that the additional insured was covered for “liability arising out of” the named insured’s work or ongoing operations performed for the additional insured.  In the premises owner example above, the owner would be covered for liability “arising out of” the contractor’s work for the owner. 

Insurance companies argued that this language was intended to cover additional insureds only for their vicarious liability for injury caused by the named insured, but not for injury caused by the additional insured’s own negligence.  For example, a general contractor on a construction project may have vicarious liability for the negligence of its subcontractors, even if the general contractor was not directly negligent.  Insurance companies argue that the additional insured endorsement is designed to cover only that vicarious liability.  If the general contractor was independently negligent, insurance companies argue that the liability for that independent negligence should not be covered by the additional insured endorsement. 

Most courts, however, interpret the “arising out of” language broadly.  In one case, for example, the additional insured was the owner of a theater who had retained the named insured to upgrade lighting controls.  One of the lighting contractor’s employees injured himself climbing through a hatch on the roof.  The contractor’s policy named the owner as an additional insured for liability “arising out of” the contractor’s work for the owner.  The court concluded that the “arising out of” language only requires a “minimal causal connection or incidental relationship” with the event creating the liability.  In this case, the employee’s injury “clearly ‘arose out of’ the work he was performing,” because he could not have done the work without passing through the hatch.  The court further explained that “the fact that the defect was attributable to the [owner’s] negligence is irrelevant, since the policy does not purport to allocate coverage according to fault."(1)

Because of these court rulings, ISO revised the standard language for the additional insured endorsement in 2004.  The new language provides that the additional insured is covered for liability “caused, in whole or in part, by" the named insured’s acts or omissions in performing the named insured’s ongoing operations for the additional insured.  As applied to the owner – lighting contractor case, for example, the owner would not have been covered as an additional insured, because the accident was not caused by the contractor’s (the named insured’s) negligence but rather was caused by the additional insured owner’s independent negligence. 

For policyholders who wish to transfer certain risks to other parties’ insurance carriers, these revisions to the standard language for the additional insured endorsement mean that the policyholder must pay close attention to which endorsement is being used.  A company that wants to be named as an additional insured may want to request the pre-2004 ISO endorsement, in order to obtain the broadest coverage possible.  On the other hand, a company that is being asked to name another as an additional insured on its liability policy may want to specify the 2004 endorsement, to be certain that its liability policy does not cover the additional insured for the additional insured’s own negligence.

As always, anyone who has requested additional insured status on another company’s policy should insist on getting a copy of the policy.  The only way to be certain that your company has actually been named as an additional insured is to review the policy.  Reviewing the actual policy will also confirm the language of the additional insured endorsement, so that you can determine the breadth of the coverage available under that endorsement. 

One final word to the wise:  After an accident happens, examine carefully all policies on which your company has been named as an additional insured.  The additional insured endorsement may provide broader coverage than you realized.

(1) Acceptance Ins. Co. v. Syufy Enterprises, 69 Cal. App. 4th 321 (1999).