EPIC INSURANCE BATTLES PART II: Additional Insured coverage v. Contractual Liability Coverage

 In honor of the release of the new Star Wars movie, let’s revisit another epic insurance battle: 

additional insureds v. contractual insureds.  

Who is stronger, more resilient, covered? 

Alas Dear Readers you know this is my favorite subject don’t you? Cant you tell? I talk about it all the time!  Star Wars?  NO!!  Additional insured coverage under a standard CGL policy.  Sigh……I do need to get a life.

But who isn’t drawn in by the under-dogged-ness of a true additional insured fighting for his right to be treated fairly and covered?  Who isn’t captivated by how one little word change in a policy endorsement can add nuance – and coverage – when none might have been intended?  Who doesn’t see metaphors between insurance and Star Wars?  Of course you do, my Dear Readers, so let’s compare the two again:

BROAD FORM CONTRACTUAL LIABILITY COVERAGE

Indemnittee is NOT an insured

Includes completed ops (generally)

Includes sole fault of indemnitee

Not tied to Named Insured’s work

Defense costs not covered separately

Defense costs included in total limits

ADD’L INSURED ENDORSEMENT COVERAGE

Indemnittee is an insured on policy

Excludes completed ops (generally)

May include sole fault of add’l insured

Tied to Named Insured’s work

Defense costs covered

Defense cost are in addition to total limits

 

Who wins the battle? It depends upon the type of loss.  It is always best to be an insured under a policy because the insurance company owes you a fiduciary duty to act in your interests.  You can enforce that duty by bringing a bad faith claim against the insurance company if it denies your claim without adequately investigating or protecting your interests.

As a contractual liability claimant, you are just any old third party.  You do not have privity to the insurance contract. Your claim arises out of the underlying contract between you and the named insured wherein you asked the named insured to indemnify you.  Thus, you must wait to enforce your claim until after liability and fault is determined on the underlying claim.

TAKEAWAY

 Be both.  Draft your underlying contract to insist upon both indemnity from the vendor or contractor, and also to be named as an additional insured on the vendor or contractor’s insurance policy.  This “Belt & Suspenders” approach will go far in assuring you have some risk transference and protection from the costs of claims.