Perspectives | Avoiding Additional Un-Insured Status

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Avoiding Additional Un-Insured Status

Douglas H. Hartman, ARM

October 21, 2005
The Woodlands, Texas | Fall Conference of the Houston RIMS Chapter
Presentors: Brian O'Connor, O'Connor & Associates, Mary Gardner, Zurich North America, and Brian Gardner, Fee, Smith, Sharp & Vitullo.

This was our third consecutive year of attendance at this conference. Once again we came home with new and useful information -- somewhat troubling information about the insurance industry's attempt to limit coverage to additional insureds under commercial general liability insurance policies.

First, let us explain some of the background. Just about every organization with which we consult enters into contracts, such as leases, mortgages, construction, professional services and purchase orders. Typically these agreements require one party to provide a certificate of insurance. Often, a party may be required to indemnify or hold the other party harmless for bodily injury and property damage losses. Sometimes the party being indemnified asks to be named as an additional insured on the other party's insurance policy.

Not to worry, contemporary commercial general liablity insurance policies automatically grant additional insured status, provided they fit the definition of an insured contract. Insured contracts can be

  1. leases,
  2. railway sidetrack agreements,
  3. easement agreements,
  4. compliance with an ordinance to indemnify a municipality,
  5. elevator maintenance agreements and
  6. any other contract in which tort liabilities are being assumed.

Back to the presentation, “The Nuts and Bolds of Effective Contractual Risk Transfer,” the presenters brought to our attention new versions of addtional insured endorsements that have been in widespread use for some time. These amended forms were published by the Insurance Services Office “ISO” last year and have not yet found there way into any CGL's we have reviewed in our practice.

 

 

Briefly, here are the new forms and what the consequences of their changes mean:

Amended ISO Additional Insured Endorsements

CG 20 10 7-04 Additional Insured — Owners, Lessees, or Contractors — Scheduled Persons or Organizations

"This has been a terrific form," declared Mr. O'Connor, because granted coverage to additional insureds for liability arising out of work on a no fault basis and was "broadly construed" by courts. On the other hand, the new 7-04 version of this endorsement eliminated the "arising out of your work" phrasing. If you, the insured caused the loss, there was and still will be coverage under the new endorsement. Or, if the additional insured, while acting on your behalf, caused the loss, the additional insured was and still will be covered. However, if the additional insured was soley negligent — or if the additional insured is deemed to not be acting on your behalf, there may be no coverage under the new ISO endorsement.

CG 20 37 7-04 Additional Insured — Owners, Lessees, or Contractors — Completed Operations

This endorsement was designed to grant additional insureds completed operations coverage. However, according to Mr. O'Connor, the 7-04 amendments impose a new designated location condition and the contract has to be valid. In other words, don't assume that the completed operations liability you have either transferred or assumed in a contract will be insured.

CG 24 26 6-04 Amendment of Insured Contract Definition

This is a new endorsement that underwriters may use to carve out liability that is not caused "in whole or in part" by the named insured or the additional insured acting on behalf of the named insured. Another problem: this endorsement says that self-insurance is not insurance.

The simple advice offered by co-presenter, Mary Gardner, was to “avoid [these] ISO 2004 additional insured endorsements.” Mary gave us other useful advice, such as how to get your operating managers to comply with acceptable insurance and indemnification wording in contracts. She also presented a checklist for evaluating certificates of insurance.

Upon return to Montclair, we checked the 8th Edition of Malecki and Flitner's CGL Commercial Lines Coverage Guide (National Underwriter Company, 2005). The authors matter of factly highlighted these amendments but without the alarm sounded by the panelists. As David O'Connor said, “I believe all existing contractual risk transfers are imperiled by these changes.” He went on to say that it has been his experience that insurance brokers are 'clueless' about these ISO amendments.

 

Analysis, Strategy and Advice = Solution

In doing our risk identification work, we always try to gain an understanding of the kinds of agreements our clients enter into and whom they indemnify or hold harmless and who indemnifies or holds them harmless. We also ask for a list of holders to which they must issue certificates of insurance and for a list of certificates they collect from outside parties.

If you are unsure whether your contractual liability exposures have been propertly insured, we can help you conduct a proper exposure identification. If you are unsure whether your commercial general liability insurance covers the indemifications you have granted to other parties, we can review your insurance policies. Lastly, if you have not established risk identification, contract review, insurance certificate policies and procedures, we can help you implement a best risk management practices program.