Today let’s talk about the role of an additional insured under a typical Commercial General Liability (CGL) insurance policy. I handle legal issues concerning Additional Insureds almost daily in my practice. Business agreements in this past decade have increasingly been requiring one party or the other to add an Additional Insured to their CGL policy. For this reason we often handle litigation enforcing such clauses when a loss arises out of the work of the named insured – the policyholder.
Here is an example of how this can play out:
Railroad hires TS Contractor to provide flagging and traffic control services at a railroad highway crossing under repair. Railroad requires TS to have insurance in place before undertaking the work, and also requires TS to add the Railroad as an Additional Insured to its insurance policy. During construction, the Railroad work supervisor dismisses a TS flagger for lunch while construction work temporarily ceased. While the flagger was away, a car drives onto the crossing. It is hit by an oncoming train and several deaths occur. The Railroad settled the ensuing lawsuit for $12.5 million before trial. Is the insurance company liable to the Railroad for paying this amount?
Yes. In Ohio Casualty Ins. Co. v. Union Pacific R. R. Co., 469 F.3d 1158 (8th Cir. 2006) the 8th Circuit Court of Appeals affirmed a judgment against the insurance company and in favor of the railroad. It ruled that Union Pacific was considered to be an additional insured under the insurance policy provided by the flagging contractor. Since the accident arose at least in part as a result of the flagger’s “work,” the policy covered the whole loss.
This scenario highlights a number of legal issues that pertain to Additional Insureds. First, the obligation to provide coverage usually comes from a specific endorsement form added to the policy. ISO Additional Insured endorsements typically amend the “Who is an insured” section of a CGL policy to include anyone with whom the insured agrees in a written contract to provide indemnity for damages arising out of the policyholder’s “work” or “operations.” This was the agreement in the Ohio Casualty case above. The endorsement there was enforceable and was not ambiguous. Ambiguity in a policy will favor the policyholder. This means that if a policy provision is ambiguous, the court will find against the insurance company and in favor of coverage for the insured.
Second, in most states an insurance company must cover the whole loss. This includes those damages that do not exclusively arise out of the work of the Named Insured. Using the Ohio Casualty case above as an example, there were other potential causes in that case for the grade crossing accident that were alleged by the plaintiffs. They claimed that the crossing was at an improper angle, there was excess vegetation, the railroad was not attentive to traffic, and gates and lights should have been present. None of these allegations – or potential causes – arose out of the policyholder’s work at the crossing site. Nonetheless the court found that the insurer owed the full amount in subrogation to the Railroad. It reasoned that the words “arising out of” as used in the policy had a broad connotation.
“That the collision occurred at a railroad crossing does not alter the fact that it occurred at a construction zone for which Tri-State was responsible. The very purpose of the Tri-State contract was to provide Union Pacific traffic control services for the construction zone at which the fatal collision occurred. In addition to flaggers, Tri-State was to furnish, place, install and maintain quality traffic control devices, including warning signs.”
Id, at 1165. Tri-State’s failure to do so could be causally connected to the loss, even if it was not the sole cause or the whole cause. Id. This case stands for the proposition that any connection between the policyholder and the accident will trigger coverage in full for the additional insured – even if the additional insured was at fault for only a portion of the loss.