ADDITIONAL INSURED
ENDORSEMENT
In July 2004, many jurisdictions will implement revisions that will reduce coverage provided in various Insurance Services Office, Inc. (ISO) commercial general liability (CGL) additional insured endorsements and will also introduce a new, optional ISO endorsement that limits contractual liability coverage by restricting the definition of “insured contract.”
Background. Considerable debate and litigation has surrounded the extent of coverage provided to an insured that has been added by an additional insured endorsement to the CGL policy. Potential litigation over the extent of coverage has led some to question the value of having additional insured status.
For instance, the American Institute of Architect (AIA), Document A 201 (1997) – General Conditions of Contract for Construction, has removed entirely the requirement that the contractor name the owner as an additional insured on the contractor’s liability insurance. In their 1997 commentary, the AIA observed, “while some additional protection may be gained in this way [adding the owner as additional insured], it ultimately increases the cost of insurance to the contractor without measurably reducing the risk of disputes on the project.”
Sole Negligence of the Additional Insured. For several years now, most courts have interpreted additional insured endorsements quite broadly, particularly the phrase “arise out of operations” or “arising out of your ongoing operations.” Coverage was generally found to apply to the additional insured even if the Additional Insured’s negligence was the sole cause of the injury – it was not necessary for the named insured to have caused the accident.
Nonetheless, as far back as the 1940s, ISO and its predecessor, the National Bureau of Casualty and Surety Underwriters, have maintained their intent was to provide coverage for the additional insured only to the extent the additional insured was found liable for the activities of the named insured. Some commentators have referred to liability arising out of the named insured’s acts as vicarious liability.
Vicarious Liability. Black’s Law Dictionary (6th ed.) defines vicarious liability as:
The imposition of liability on one person for the actionable conduct of another, based solely upon a relationship between two persons. Indirect or imputed legal responsibility for the acts of another; for example, the liability of an employer for the acts of an employee, or a principal for torts and contracts of an agent [Emphasis added].
The concept of vicarious liability is expounded upon in an Illinois Appeals Court case, Great American Ins. V. West Bend Mut. Ins., 723 NE2nd 1177 (Ill App 2000). In that Liability for negligence may be imputed where the person to whom the negligence is imputed had a legal right to control the action of the person actually negligent. Negligence in the conduct of another will not be imputed to a party if he did not authorize such conduct, participate therein, or have the right or power to control it.
Independent Contractor – Named Insured. Although it is not always the case, the named insured on a CGL is usually an independent contractor hired by the additional insured. By definition, the person engaging or hiring an independent contractor (the additional insured) does not have a right to control the independent contractor (the named insured). Therefore, the additional insured, according to the Great American Ins. Court, cannot be vicariously liable for the acts of the named insured.
ISO Newly Revised Additional Insured Endorsements. In their Circular filing for the newly revised additional insured endorsements, ISO does raise the issue of whether the additional insured endorsement is to provide coverage only for the additional insured’s vicarious liability arising out of the named insured’s acts or coverage for the additional insured’s sole negligence.
Caused in Whole or in Part. The newly revised endorsements, which include the most commonly used ISO additional insured endorsements, will provide coverage for the additional insured but only with respect to liability for bodily injury, property damage, personal injury, or advertising injury caused in whole or in part, by the named insured’s acts or omissions or the acts or omissions of those acting on behalf of the named insured. The phrase “arising out of” has been eliminated.
When Coverage Applies. In injury or damage is caused in part by the additional insured and in part by the named insured (or caused in part by others working on behalf of the named insured – such as another independent contractor), coverage does apply to the additional insured. In other words, if the additional insured is concurrently or jointly negligent along with the named insured (or others acting on behalf of the named insured), the revised additional insured endorsement will provide coverage to the additional insured (to the extent of the additional insured’s liability). The additional insured does have coverage for their own negligence, provided it is in conjunction with the named insured’s negligence.
Further, if the named insured (or others acting on behalf of the named insured) is the sole cause of the injury or damage, the additional insured is also covered by the additional insured endorsement (to the extent of the additional insured’s liability). The latter falls under the principle of vicarious liability – and raises a genuine issue as to the extent of coverage, if any, actually provided to the additional insured.
When Coverage Does Not Apply. By contrast, if the additional insured is the sole cause of the injury or damage – and the named insured (or others acting on behalf of the named insured) did not contribute to the injury or damage, the additional insured will not have coverage. As it is the express intent of ISO to eliminate this sole negligence situation, it follow that coverage will not apply to the additional insured.
Coverage also does not apply if the additional insured is currently or jointly negligent with a person or organization other than the named insured or someone acting on behalf of the named insured.