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Additional Insured Coverage and Contractual Indemnity

Session ICM 008

Carla Cirelli WynnJoann M. Lytle

Information which is copyrighted by and proprietary to Insurance Services Office, Inc. ("ISO Material") is included in this publication. Use of the ISO Material is limited to ISO Participating Insurers and their Authorized Representatives. Use by ISO Participating Insurers is limited to use in those jurisdictions for which the insurer has an appropriate participation with ISO. Use of the ISO Material by Authorized Representatives is limited to use solely on behalf of one or more ISO Participating Insurers.


What is Indemnification?

• A duty to make good any loss, damage, or liability incurred by another and the right of an injured party to claim reimbursement for its loss, damage, or liability from a person who has such a duty.

• Black’s Law Dictionary 772 7th Ed. 1999

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Sample Indemnification Clause - Broad

• “To the maximum extent permitted by applicable law and whether or not caused, directly or indirectly, in whole or in part, by the negligence, willful misconduct or other fault of the party to be indemnified, Supplier will indemnify and hold harmless Client and its respective officers, directors, employees and agents, from and against any and all claims, causes of action, suits, investigations, and administrative or other proceedings, and all related demands, damages, liabilities, fines, penalties, assessments, costs, expenses (including attorney’s fees) of every kind and nature, related to or arising out of the sale of products by Supplier, any breach of this Agreement by Supplier and any act or omission of the Supplier.”

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Sample Indemnification Clause – Narrow

• Service Provider shall defend, indemnify and hold harmless Client … from and against any and all claims, demands, suits, judgments, losses, liabilities, damages, costs or expenses of any nature whatsoever … caused by any: (i) negligent act or omission of Service Provider, its officers, directors, agents or employees; (ii) failure of Service Provider to perform the Services in accordance with generally accepted professional standards; or (iii) breach of Service Provider’s representations and warranties, agreements, duties or obligations as set forth in this Agreement.

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Contractual Liability Exclusion

• Standard ISO CGL policies contain an exclusion for liability assumed in a contract:

This insurance does not apply to ...

b. "Bodily injury" or "property damage" for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement.

© ISO Properties, Inc., 2006

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Insured Contract Exception

This exclusion does not apply to liability for damages: (2) Assumed in a contract or agreement that is an "insured contract", provided the "bodily

injury" or "property damage" occurs subsequent to the execution of the contract or agreement. Solely for the purposes of liability assumed in an "insured contract", reasonable attorney fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of "bodily injury" or "property damage", provided:

(a) Liability to such party for, or for the cost of, that party's defense has also been assumed in the same "insured contract"; and

(b) Such attorney fees and litigation expenses are for defense of that party against a civil or alternative dispute resolution proceeding in which damages to which this insurance applies are alleged.

© ISO Properties, Inc., 2006 (emphasis added)

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Insured Contract Defined:

“That part of any other contract or agreement pertaining to your business … under which you assume the tort liability of another party to pay for ‘bodily injury’ or ‘property damage’ to a third person or organization. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement.”

© ISO Properties, Inc., 2006.

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Amended Insured Contract Definition

However, such part of a contract or agreement shall only be considered an "insured contract" to the extent your assumption of the tort liability is permitted by law.

Includes copyrighted material of Insurance Services Office, Inc., with its permission.


What is Additional Insured Coverage?

• Risk transfer method that allows one party to a business relationship to obtain coverage under another party’s policy.

• Unlike coverage for liability assumed in an insured contract, which covers the sums the insured incurs pursuant to an indemnity agreement, additional insured coverage allows an additional insured to have direct access to the named insured’s policy.

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Who are the Players?

• Additional Insured – the party seeking to take advantage of another party’s coverage.

• Named Insured – the party whose policy is providing coverage to the Additional Insured.

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Benefits for Additional Insured

• Supports indemnity obligation, which only has value if the indemnitor has assets to fulfill it.

• Defense coverage, without having to wait for a resolution of the indemnity obligation.

• Can be independent of, and provide broader protection than, the indemnity obligation, i.e., for the additional insured’s negligence.― Important where applicable state’s law prohibits indemnification

for one’s own negligence

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Disadvantages for Additional Insured

• No control over the defense.― Significant where both the Named Insured and

Additional Insured are sued.

• Limits must be shared among all insureds.• Often no business relationship with carrier.

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Implications for Named Insured

• Pros― Allows transfer of the obligation to defend and indemnify the

indemnitee to the insurer.

Cons― Erosion of limits.― Limits shared by all insureds.― Limits used to pay claims for which the Additional Insured may

be partly or entirely at fault.― Responsibility for deductible.― Higher premiums down the road based on loss experience.

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Relationships Giving Rise to Additional Insured Coverage

• Construction― General contractor requires additional insured status on

subcontractors’ policies.• Vendor/Vendee

― Vendor requires additional insured coverage on manufacturer’s policy.• Service Agreement

― Customer requires additional insured status on service provider’s policy. Building maintenance Cafeteria operation

• Equipment Lease― Lessor requires additional insured status on lessee’s insurance.

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How Does One Become an Additional Insured?

• Generally requires both:

― a contract between the parties; and

― an additional insured provision in an insurance policy.

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Part A – The Contract

• An obligation to indemnify does not confer additional insured status.

• Does the contract contain an insurance provision?― Does it require that the other party name your client as an

additional insured?― Does it specify the type and amount of insurance coverage to be

provided?· CGL, Umbrella?· Primary or Excess?· Limits?

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Broad Additional Insured Provision

• During the Lease term, Tenant shall, at its own expense, maintain in full force a policy or policies of commercial general liability insurance, including property damage, that will insure Tenant and Landlord and such other persons, firms or corporations as are designated by Landlord, against liability for injury to persons and property occurring in or about the Premises. The liability under such insurance shall be not less than $2,000,000 for bodily injury and $100,000.00 for property damage.

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Scope Of Additional Insured Coverage

• How broad is it?• Does it essentially back-stop the Named Insured’s

contractual indemnity obligation?― Which clause appears first in the contract – indemnity or insurance?

• Does it cover more than the Additional Insured would be able to recover under the Indemnity Agreement?― What if the indemnity agreement contains a monetary cap?― What if the insurance provision states that the Additional Insured will

receive coverage in the minimum amount of $________?

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Part B – The Insurance Policy

• A contractual obligation to provide insurance is ineffective unless the Named Insured’s policy contains an Additional Insured Clause.

• The Additional Insured Clause can usually be found in an endorsement.

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Two types of Additional Insured Endorsements

• Both ISO endorsements and manuscript endorsements― Two varieties:

• Blanket additional insured endorsements – grant additional insured status to categories of Additional Insureds or to those whom the Named Insured is contractually obligated to insure.– Sometimes called automatic additional insureds.– If the contract does not specifically require insurance, the

endorsement is ineffective.• Scheduled additional insured endorsements – lists the name

of the additional insured.

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Whose Coverage is Primary?

• Formerly a hotly-disputed issue.• ISO attempted to resolve the dispute in the

CGL policy itself.• The 2001 and later versions of the ISO CGL

Policy (CG 00 01 10 01) contain an amended Other Insurance Clause (Section IV).

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2013 Revisionno requirement of endorsement



2013 ISO ChangesOther Insurance Clause

• Clarifies that coverage will be excess of any other insurance providing coverage to the policyholder as an additional insured, whether by endorsement or otherwise.

• Ties in with the new optional endorsement CG 20 01 Primary and Noncontributory – Other Insurance.


Optional Endorsement: CG 20 01 Primary and Noncontributory – Other Insurance


This insurance is primary to, and will not seek contribution from, any other insurance available to an additional insured under your policy provided that: 1. The additional insured is a named insured

under such other insurance.2. You have agreed in writing in a contract or

agreement that this insurance would be primary and would not seek contribution from any other insurance available to the additional insured.


ISO 2013 CGL ChangesOptional Other Insurance Endorsement

• ISO says the new endorsement is superfluous.• Practical effect: As is frequently demanded of

additional insureds, to allow "primary and noncontributory" to be shown on a COI.

• Absent the new endorsement, the ISO other insurance clause does not use the phrase "primary and noncontributory."


Impact of Anti-Indemnity Statutes on Additional Insured Coverage

• Recently, some states have enacted legislation prohibiting coverage for the additional insured’s own negligence where that negligence could not be transferred via an indemnity agreement.

• In states where additional insured status is within the jurisdiction of the anti-indemnity statute, an additional insured’s coverage cannot be broader than its protection as an indemnitee.

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Kansas Stat. S. 16-121

• For example, Kansas Stat. (“KSA”) S. 16-121 (2011) in relevant part provides:― (b) “An indemnification provision in a contract which

requires the promisor to indemnify the promisee for the promisee’s negligence or intentional acts or omissions is against public policy and is void and unenforceable.”

― (c) “A provision in a contract which requires a party to provide liability coverage to another party, as an additional insured, for such party’s own negligence or intentional acts is against public policy and is void and unenforceable.”

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Coverage for Additional Insured’s Own Negligence

• Prior to 2004, a number of ISO additional insured endorsements provided coverage for liability “arising out of” the Named Insured’s operations for the Additional Insured.

• A number of courts construed “arising out of” to be the same as “but for” causation.

• If the liability would not have arisen “but for” the named insured’s involvement, the additional insured has coverage.

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The 2004 Amendments to ISO’s Endorsements

• In response to these cases, in 2004, ISO amended some of its most commonly-used additional insured endorsements to make clear that the additional insured’s sole negligence is not covered.

• Additional Insured only has coverage with respect to liability for BI or PD caused, in whole or in part, by the Named Insured’s conduct.

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Comparison Of Pre- And Post-2004 Versions Of ISO CG 20 10

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Comparison Of 2004 and 2013 Versions Of ISO CG 20 10

2004 CG 20 10

A. Section II. Who Is An Insured is amended to include as an additional insured the person(s) or organization(s) shown in the Schedule, but only with respect to liability for “bodily injury”, “property damage” or “personal and advertising injury” caused, in whole or in part, by:

1. Your acts or omissions; or

2. The acts or omissions of those acting on your behalf;

in the performance of your ongoing operations for the additional insured(s) at the location(s) designated above.

2013 CG 20 10

A. Section II – Who is An Insured is amended to include as an additional insured the person(s) or organization(s) shown in the Schedule, but only with respect to liability for “bodily injury”, “property damage” or “personal and advertising injury” caused, in whole or in part, by:

1. Your acts or omissions; or2. The acts or omissions of those acting on your behalf;In the performance of your ongoing operations for the additional insured(s) at the location(s) designated above.However:1. The insurance afforded to such additional insured only applies to the extent permitted by law; and2. If coverage provided to the additional insured is required by a contract or agreement, the insurance afforded to such additional insured will not be broader than that which you are required by the contract or agreement to provide such additional insured.


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2013 ISO ChangesIMPLICATIONS:• Be aware of anti-indemnity statutes

• Be aware that additional insured coverage will not be broader than the underlying contractual requires

• When granting additional insured status, pay attention to the limits and coverage being provided.

• When requesting additional insured status, focus on the limits and coverage requested – you will no longer be able to fall back on the broader coverage afforded by the named insured’s policy.


I’ve provided my client additional insured and contractual indemnification…now what?

THE INDEMNITOR PERSPECTIVE…• Types of tender requests:

· Verbal · Formal written request immediately following service of

process· Eve of trial…

• Establish a process early on.

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Who Makes The Final Decisions?

• Risk Management Department?• Insurance Carrier?• Third Party Administrator?• Operations?

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Process

• Establish a process – Plan, Do, Check, Act.• Additional Insured Component?

― Yes Carrier confirms coverage.· Reviews contract.· Reviews TPA’s investigation/ fact pattern.· Reviews additional insured endorsement.

– Different ISO endorsements…know which one you have.

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Process – Additional Insured Component

• No Contractual indemnification only?― Third Party Administrator makes the call:

· Reviews contract.· Conducts investigation/fact pattern.· State law nuances… (enlist your attorney’s assistance if

confusing).– What type of Provision? – Broad/Intermediate/Limited?– Can Indemnitor indemnify Indemnitee’s own negligence?– Do Anti-indemnity statutes apply?

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The Waiting Game…

• Don’t keep your potential indemnitee (client) in the dark.― Best practice:· Acknowledgment letter soon after request is received.· If investigation is taking a while….let indemnitee know.· Don’t be shy about asking indemnitee to assist in the

investigation.– Accident reports – Statements, etc.

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Contractual Indemnification?

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Contractual Indemnification (No)

• Best practice – personal phone call to business partner explaining why indemnification provision doesn’t apply, etc.

• Exercise due care and empathy to situation, but stick to your guns.

• Alert Operations of any potential business issues…

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Nuggets of Wisdom

• Contract review/review /review• Good Risk Management

― Provide exactly what the business partner is requesting and no more.

― Do not give away broad form indemnification if not necessary.

― Understand if contractual indemnification you are providing is covered by your policy, otherwise it will be an uninsured risk for your company.

― Be transparent with your Indemnitees….explain the process, how they can help.

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Hypothetical Scenario I

· You own a concession services company , Cheap Eats, and you entered into an agreement with the newly- formed badminton team, the Kansas Killers , to provide concession services at the Killers’ stadium, including the sale of beer to their rabid, seersucker-clad fans.

· The Agreement includes an insurance provision in which Cheap Eats provides additional insured status to the Killers.

· Under the Agreement, Cheap Eats has no responsibility for security at the stadium .· During a heated match, a fight breaks out in the concession lines between the Killers’ fans and the fans of

their opponents, the Boston Birdies, over who should be served first by the Cheap Eats employees. · Cheap Eats’ employees become involved in the brouhaha when disgruntled fans begin throwing one

another on top of and across the concession counter.· The Killers’ security staff failed to notice and intervene – they were too busy getting autographs at the

arena’s entrance. · In the excitement of the melee, the individuals that started the fight slithered away, which precludes any

determination of whether those individuals were intoxicated at the time of the incident.· Injured bystanders have filed suit against the Killers under various theories of recovery. Several Cheap

Eats employees were also injured in the fight and sue the Killers.· The Killers now seek to tender all of these claims to Cheap Eats.

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Scenario IQuestions

• Were the Killers negligent?• If so, are they entitled to insurance coverage

from Cheap Eats’ carrier?• Remember that Kansas has an anti-indemnity

statutes – does that matter?• Can Cheap Eats’ carrier be required to

defend/indemnify the Killers for the lawsuit brought by Cheap Eats’ employees?

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Hypothetical Scenario 2

• Light up the Night is a fireworks company.• LUTN enters into a contract with Sloppy Township to put on a fireworks display at Sloppy’s

fairgrounds.• The contract between Sloppy Township and LUTN requires LUTN to provide insurance

coverage to sloppy as an additional insured, with limits of not less than $1,000,000.• A Sloppy resident, Joe Plunger, attends the fair and heeds a call of nature.• He decides to take a shortcut to the port-a-potty and leaps over a low retaining wall, plunging

30 feet into a hole dug by Sloppy Township’s employees.• Mr. Plunger sues Sloppy Township and recovers a $5,000,000 judgment.• Sloppy demands defense and indemnity from LUTN’s insurance carriers.• LUTN has a GL policy with limits of $2,000,000 per occurrence and an umbrella policy with

limits of $3,000,000 per occurrence.• Sloppy Township has its own GL policy with limits of $10,000,000 per occurrence.• The Sloppy GL policy has a $1,000,000 deductible.

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Scenario 2 - Questions

• How much insurance coverage is Sloppy entitled to from LUTN’s GL carrier?

• Does LUTN’s umbrella carrier have any obligation to provide coverage?

• Assuming LUTN’s GL carrier pays its $2,000,000, who pays next – Sloppy’s GL carrier or LUTN’s umbrella carrier?

• Is Sloppy’s $1,000,000 deductible “other insurance”?

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Joann M. LytlePartner, Insurance Coverage Group

McCarter & English LLPJoann Lytle represents corporate policyholders in insurance coverage disputes. She has recovered millions of dollars in insurance assets for a wide range of companies, including those in the manufacturing, food services, banking and natural resources industries. She has handled disputes involving commercial general liability, umbrella/excess liability, errors and omissions liability, directors and officers liability, and employment practices liability policies. Ms. Lytle represents policyholders in litigation, arbitration and mediation and provides insurance coverage advice and counseling to her clients on an ongoing basis.

In 2013 and 2014, Ms. Lytle was selected as the exclusive Pennsylvania winner of the Lexology Client Choice Award in the field of Insurance/Reinsurance. She has also been recognized as a Best Lawyer in America since 2008 and has been selected as a Pennsylvania Super Lawyer. Chambers has also recognized Ms. Lytleas one of the “Leaders in Their Field” in the 2014 Chambers USA Guide.

PRACTICE GROUP Insurance Coverage

CONTACTMellon Bank Center1735 Market StreetSuite 700Philadelphia, PA [email protected]

EDUCATION

Harvard Law School, J.D.,cum laude, 1990

La Salle University, B.A., maxima cum laude, 1987

BAR ADMISSIONS Pennsylvania New York

U.S. Court of Appeals, Third Circuit

U.S. District Court, Eastern District of Pennsylvania

U.S. District Court, Middle District of Pennsylvania

U.S. District Court, Southern District of New York

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Carla Cirelli Wynn, AICAVP, Strategic Claims Management

Global Risk Management

• Carla Cirelli Wynn is the AVP, Strategic Claims Management at ARAMARK. In this role she leads a team of 20 multi-line claims professionals. Carla is responsible for the claims management function at ARAMARK for all lines of insured claims, international and domestic, in an effort to minimize financial loss to the company and protect the ARAMARK brand.

• Prior to that position at ARAMARK, she was the Director, WC Programs where primary responsibilities included educating ARAMARK’s field operations on WC best practices across the United States, claims management and cost containment related to ARAMARK’s WC program.

• Prior to joining ARAMARK in 2004, she was a claims consultant for a large regional insurance broker in Philadelphia where she provided multi-line claims consulting services to the client’s diverse client base. Carla began her career as an insurance defense paralegal, later transitioning into Risk Management in 2000.

• She is a licensed property and casualty insurance agent in Pennsylvania. She has a Bachelor’s Degree in Criminal Justice from Temple University and received her AIC designation in 2004. She serves as Vice President of the RIMS Delaware Valley Chapter, served on the Workers’ Compensation Research Institute (WCRI) Advisory Committee for Pennsylvania, and has been a past program advisory board member and speaker for Risk & Insurance’s annual National Workers’ Compensation & Disability Conference and Expo.

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Documents

iso material

media type

iso properties

assumption of liability

omission of service

failure of service provider

insured contract exception

property damage