Lesson 5 - Additional Insureds & the CGL Policy

Transcription

1 Lesson 5 - Additional Insureds & the CGL Policy Lesson 5 Intro p1 (1IC) This lesson explains what an additional insured is, the reasons that a named insured is willing to add another person or organization as an additional insured, the problems associated with doing so, and commonly used endorsements to provide additional insured status. Examples: Additional Insureds - Owners, Lessees or Contractors - Scheduled Person or Organization CG Additional Insured - Managers or Lessors of Premises CG Additional Insured - Lessor of Leased Equipment CG Additional Insured - Club Members CG Additional Insured - Church Members and Officers CG Lesson 5 Intro p2 (1IC) Lesson 5: Topic of Discussion This lesson consists of the following six topics: 1. Why name an additional insured? 2. Reasons to request additional insured status 3. Problems with additional insureds 4. Common additional insured endorsements 5. Automatic Additional Insured endorsements 6. Endorsement Forms - Business Auto Lesson 5 Intro p3 (1IC) Lesson 5: Learning Objectives 1. Define what an additional insured is. 2. Give the reasons that a named insured is willing to add another person or organization as an additional insured. 3. Provide examples of why another person or organization would want to be named as an additional insured. 142

2 4. Explain problems associated with additional insured status for both the named insured and the additional insured. 5. Explain the purpose and coverage provided for selected additional insured endorsements. 6. Understand why an insured would benefit from an automatic additional insured endorsement. Forms Used In This Lesson: None 143

3 Lesson 5 Topic A - Why Name an Additional Insured Lesson 5 Topic A Why Name an Additional Insured p1 (1IC) Learning Objective: Define what an additional insured is. Definition of Additional Insured As we have seen in the CGL Policy, many liability policies provide insurance protection not only for the named insured but also for automatic insureds. These individuals or organizations are made an insured by the Policy language. These parties are typically identified in the Who Is An Insured section of the Policy. Additional insured are those individuals or entities not normally provided insured status under the liability coverage form but for which the named insured desires or is required to provide such coverage to those individuals or entities. Lesson 5 Topic A Why Name an Additional Insured p2 (1IC) Define Additional Insured Learning Objective: Define what an additional insured is. We are about to study additional insureds. Named Insureds This insured is any person or organization whose name appears on the Declarations of the insurance policy, who has the broadest coverage available on the policy, and who may be responsible for premium. Automatic Insureds This is an insured by virtue of language which already exists in the policy (Who Is An Insured section) such as employees of the named insured or the named insured's real estate manager. Additional Insureds This refers to one or more persons or organizations other than the person or organization named on the Declarations of an insurance policy who are also covered for certain losses under the policy. These insureds are added by endorsement. Lesson 5 Topic A Why Name an Additional Insured p3 (1IC) 144

4 Why Name an Additional Insured Learning Objective: Give the reasons that a named insured is willing to add another person or organization as an additional insured. What creates the need to be named an additional insured; and, more importantly, why would the named insured want to add someone as an additional insured? There are two primary reasons. These are: 1. A close relationship between the named insured and the person or organization. 2. A contract requirement. Lesson 5 Topic A Why Name an Additional Insured p4 (1IC) Close Relationships Learning Objective: Give the reasons that a named insured is willing to add another person or organization as an additional insured. It is common for your clients to want to add others as an additional insured on their policies because of a close relationship. United Church United wants its clergy and church officers protected under the church's CGL Policy for liability arising from performing their church duties. The church also wants to extend liability coverage to its church members for liability arising out activities that the members perform on behalf of the church. American Club American has club members that perform activities on behalf of the club such as organizing club meetings and charitable events sponsored by the club. American wants the club's CGL Policy to protect those club members for liability that arise from performing those activities. American also wants to protect its club members for liability, not just for the activities performed on their behalf, but also from liability that arises from their members' participation in the club's activities, including social, service, recreational and sports activities. The Espanada Condominiums Espanada wants its unit owners to be protected under the condominium association's CGL Policy for liability arising out of the ownership, maintenance or repair of the common areas of the condominium. 145

5 Lesson 5 Topic A Why Name an Additional Insured p5 (1IC) Contract Requirement Learning Objective: Give the reasons that a named insured is willing to add another person or organization as an additional insured. It is common for individuals or entities to request additional insured status on your clients liability policies for business purposes. Lesson 5 Topic A Why Name an Additional Insured p6 (1IC) Contract Requirement continued Learning Objective: Give the reasons that a named insured is willing to add another person or organization as an additional insured. ABC Janitorial Services Silver Creek Retirement Center has contracted with ABC Janitorial Services to maintain its premises. As part of the contract, ABC is required to add Silver Creek as an additional insured on their CGL Policy. If ABC negligently causes "bodily injury" or "property damage", Silver Creek wants to be covered by ABC's Policy. Tadd s Floors 4 You Tadd is interested in providing carpet, tile and hardwood installation for Hillside Floor Coverings as an independent contractor. Hillside Floor Coverings requires that it be added as an additional insured on each independent contractor's CGL Policy. If Tadd negligently causes "bodily injury" or "property damage" while working on behalf of Hillside, Hillside Floor Coverings wants to be covered by Tadd's Policy. Association of Cars of Years Past The Association is hosting a car show at the local fairgrounds. The fairground requires the association to add it as an additional insured to its CGL Policy so that they will be covered by the Association's Policy in the event of a "bodily injury" or "property damage" loss to a third party. Lesson 5 Topic A Why Name an Additional Insured p7 (1IC) Contract Requirement continued Learning Objective: Give the reasons that a named insured is willing to add another person or 146

6 organization as an additional insured. The Ram Restaurant The Ram leases its space from Rainier Properties, Inc. Rainier is requiring it beadded as an additional insured to The Ram's CGL Policy so that it will be covered by The Ram's Policy in the event of a "bodily injury" or "property damage" loss. Meyers Printing Meyers Printing leases a $500,000 press from AJK Industries. The lease agreement requires that AJK be added to Meyers' CGL Policy as an additional insured so that AJK will be covered by Meyers Policy in the event of "bodily injury" or "property damage" arising from the printing press. Easy Tools Easy Tools is a tool manufacturer. Many of the large retail tool stores will not carry Easy Tools' products unless Easy Tools names the retail stores as additional insureds on its CGL Policy. Lesson 5 Topic A Why Name an Additional Insured p8 (1IC) Contract requirement continued Learning Objective: Give the reasons that a named insured is willing to add another person or organization as an additional insured. In each of the previous examples, your client needed to add the other party as an additional insured because of a business relationship. If your clients are unable or unwilling to provide the requested additional insured status, they may not be given the work or the contract for the work. The Association will be unable to use the fairgrounds for the car show. The restaurant may not get the lease it wants. The printer will not be able to lease needed equipment. The tool manufacturer loses important distribution outlets. You can see the importance of additional insureds as it impacts your clients business and business decisions. 147

7 Lesson 5 Topic B - The Reasons Behind Additional Insured Requests Lesson 5 Topic B Reasons to Request p1 (1IC) Learning Objective: Provide examples of why another person or organization would want to be named as an additional insured. What creates the need to be named an additional insured? While there are several reasons behind these requests, the primary reason is to provide additional insureds coverage for losses for which they may be legally liable due to their business relationship with your client. They want to protect themselves from liability that arises out of your client's activities. The "upstream" party such as the building owner or business owner wants to be added as an additional insured on the policies of the "downstream" party such as the tenant, service provider, contractor, or subcontractor. Service providers may be required to name customers as additional insureds while manufacturers, wholesalers and distributors may be required to named retailers as additional insureds. Lesson 5 Topic B Reasons to Request p2 (1IC) Reasons to Request continued Learning Objective: Provide examples of why another person or organization would want to be named as an additional insured. Others may wish to be named an additional insured because: 1. It may assure greater safety in a risk finance transfer. 2. It creates the potential for the availability of higher limits of coverage. 3. It can give them direct rights to your client's insurance. 4. It may protect them from the potential risk of subrogation. 5. It creates the potential to reduce the cost of their insurance. Lesson 5 Topic B Reasons to Request p3 (1IC) Reasons to Request continued 148

8 Learning Objective: Provide examples of why another person or organization would want to be named as an additional insured. Requesting Additional Insured Status may assure greater safety in a risk finance transfer. In addition to the request for your client to hold the other party to the contract harmless, the contract may also require your client to name the other party as an additional insured to your client's CGL Policy. Why are both necessary? There are situations when the courts may find a hold harmless agreement unenforceable. This usually takes place after the loss. As a result, the party that relied upon the hold harmless agreement to pay for a loss may now need to use its own funds. This isn t a desired outcome. By requiring additional insured status in conjunction with the hold harmless agreement, the other party can rely on your client s insurance coverage as an additional insured if the hold harmless isn t enforceable. Additional insured status for the other party assures it greater safety in a risk finance transfer a safetynet, if you will, for the hold harmless agreement. They can seek direct coverage as an insured under your client s insurance policy. Lesson 5 Topic B Reasons to Request p4 (1IC) Reasons to Request continued Learning Objective: Provide examples of why another person or organization would want to be named as an additional insured. Example: In a contract with Clark Construction, your client agreed to hold the construction company harmless for any loss arising out of his or her work for it. The hold harmless agreement requires your client to respond to certain legal liabilities for "bodily injury" or "property damage" that arise out of the client s work for Clark. It is important to Clark that your client be financially able to pay for losses that are part of the hold harmless agreement. Otherwise, Clark could find itself responsible for paying for a loss that it didn t plan for. As an additional insured on your client s CGL Policy, Clark knows that there is insurance in place (this is a risk finance technique) and that, if needed, the Policy will provide coverage for them as well as your client. Clark 149

9 Construction can present a claim as an indemnitee or as an insured. Lesson 5 Topic B Reasons to Request p5 (1IC) Reasons to Request continued Learning Objective: Provide examples of why another person or organization would want to be named as an additional insured. 2. Additional insured status can give another party direct rights to your client's insurance. As an insured, additional insureds have direct rights to your clients CGL Policy. They can make their own direct claim under the Policy. If circumstances warrant it, they can also sue the insurance company to obtain the court s assistance in establishing their rights under the Policy, including the right to a defense. Lesson 5 Topic B Reasons to Request p6 (1IC) Reasons to Request continued Learning Objective: Provide examples of why another person or organization would want to be named as an additional insured. 3. Additional insured status may protect the other party from the potential risk of subrogation. An insurance company cannot subrogate against the named insured after it pays a loss under the CGL Policy. Example: As an insured under the Policy, the additional insured would enjoy this same benefit in most jurisdictions; therefore, an additional insured would not be subject to subrogation. Chef's Cuisine is one of the tenants renting space in a shopping center from Skylark Management Company. Chef added the Additional Insured Managers or Lessors of Premises (CG 20 11) endorsement to Chef's CGL Policy naming the landlord as an additional insured. One of Chef's employees accidently started a fire in the restaurant kitchen. The building's fire suppression system in the shopping center did not work properly so the fire was not contained immediately. The result 150

10 was fire damage to Chef's restaurant and to an adjacent dress shop. Chef's insurance company paid the property damage claim to Chef and to the dress shop. Even though Chef's employees started the fire, it was determined that Skylark was negligent in not properly maintaining the fire suppression system. The insurance company cannot subrogate against Skylark because they are an insured - an additional insured - on the Policy. Lesson 5 Topic B Reasons to Request p7 (1IC) Reasons to Request continued Learning Objective: Provide examples of why another person or organization would want to be named as an additional insured. 4. Additional insured status creates the potential for the availability of higher limits of coverage. Additional insureds may not only have access to the Limits Of Insurance on your client s CGL Policy on a primary basis, but they may also have access to their own CGL Policy insurance limits on an excess basis. Example: This creates the potential that the additional insured may be able to stack the limits from both policies in the event these higher limits are needed. Burnson Construction is named as an additional insured on one of its sub-contractor s CGL Policy. A large loss occurs and the limits on the sub-contractor s Policy are not enough to pay the damages for which Burnson was found responsible. Burnson, after exhausting the limits available under its sub-contractor s Policy, may have the limits on its own CGL Policy available. Lesson 5 Topic B Reasons to Request p8 (1IC) Reasons to Request continued Learning Objective: Provide examples of why another person or organization would want to be named as an additional insured. 151

11 5. Additional insured status creates the potential to reduce the cost of the additional insured's insurance. Since your client s insurance policy is providing primary coverage to additional insureds, the additional insureds own insurance may not be needed in the event of a loss. This results in better loss experience and possibly lower premiums for the additional insured s own insurance policy. From an underwriting standpoint, some insurance companies may require its named insured to be named as an additional insured on the policies of others. It is also possible that named insureds requiring additional insured status on the policies of others may see a reduction in their cost of insurance as their insurance company recognizes primary coverage will be provided elsewhere. Please complete the knowledge check found at Lesson 5 Topic B Reasons to Request p9 (1IC). 152

12 Lesson 5 Topic C Potential Problems p1 (1IC) Lesson 5 Topic C - Potential Problems Learning Objective: Explain problems associated with additional insured status for both the named insured and the additional insured. We have just seen examples of situations that support the need for your clients to add additional insureds to their CGL Policy. Before introducing and discussing various additional insured endorsements, it is important to understand how additional insureds can create potential problems for both the named insured and the additional insured. The named insured may not have a choice in the matter; they must either add the additional insured or lose the contract or lease. Nevertheless, they should be made aware of the potential problems with adding additional insureds to their insurance policy. Likewise, if your clients are added to policies of others as an additional insured, they should know of the potential problems when relying on someone else s insurance for protection. Lesson 5 Topic C Potential Problems p2 (1IC) Problems for the Named Insured Learning Objective: Explain problems associated with additional insured status for both the named insured and the additional insured. 1. Diminution of Policy Limits The number one problem for the named insured is the potential for diminution of policy limits. Regardless of the number of insureds (named, automatic or additional), there is only one "pot of money" per "occurrence". The more insureds, the more "fingers in the pot". Too many "fingers in thepot" increases the chances of the named insured having fewer dollars to pay damages for which it is held responsible. It makes sense that when more entities share the available limits, the limits may be used up more quickly when claims occur. 2. Unintended Coverage Granted to the Additional Insured 153

13 It is possible to provide unintended coverage for the additional insured. This does not usually happen on carefully constructed "standard" additional insured endorsements. However, some manuscript endorsements are so broad they provide unintended coverage. A manuscript endorsement is wording agreed to by the named insured and the insurance company when a "standard" endorsement is not available. 3. Compliance Problems Adding additional insureds places administrative burdens on the named insured as well as the insurance agency and its insurers. If your client does not meet the expectations of the additional insured, this could lead to compliance problems. Example: If the policy is cancelled or if the named insured reduces the level of coverage on the policy, the additional insured expects to be notified. Your client's administrative breakdowns may easily result in a breach of contract, which is not covered by the named insured's insurance policy. Lesson 5 Topic C Potential Problems p3 (1IC) Problems for the Named Insured continued Learning Objective: Explain problems associated with additional insured status for both the named insured and the additional insured. Diminishing Limits of Insurance Craig s Construction Company, Inc., does concrete work all over town and for different builders. As a result, six different entities have been added as additional insureds to Craig s CGL Policy. A large liability loss occurs, and now three of the additional insureds are each looking at Craig's $1M limit of liability on its CGL Policy. With four insureds, the Policy limits could quickly erode and potentially leave Craig's with an insufficient amount of coverage to pay for its claim. Unintended Coverage Provided to the Additional Insured 154

14 Rod, Inc. is a large-scale contractor building a condominium. He is hiring all kinds of sub-contractors. His insurance company attached an endorsement to his CGL Policy that states any and all subs are additional insureds under certain situations. The wording is so inclusive that it could extend coverage to a subcontractor that Rod did not intend to include. Lesson 5 Topic C Potential Problems p4 (1IC) Problems for the Named Insured continued Learning Objective: Explain problems associated with additional insured status for both the named insured and the additional insured. Compliance Problems Tim s Toys, LLC was required in a contract to name a major toy store as an additional insured before the store would carry its products. The contract also required Tim's to carry $1M limits for bodily injury and property damage. Tim's provided the store with a certificate of insurance reflecting the $1M coverage and additional insured status. Several months later and forgetting about the contractual requirement, Tim's changed its coverage to $500,000 in an effort to reduce expenses. A loss has now occurred, and the major toy store has just learned of Tim s apparent breach of contract when it failed to comply with the contractual requirement to carry $1M liability coverage. Lesson 5 Topic C Potential Problems p5 (1IC) Problems for the Additional Insured Learning Objective: Explain problems associated with additional insured status for both the named insured and the additional insured. 1. May lose control of defense and investigation The additional insured may lose control of his/her defense and investigation. 155

15 The insurance company, and not the additional insured, hires and directs the legal counsel. The insurance company may, at its discretion, investigate any occurrence and settle any claim or suit that may result. The insurance company does not have to have the permission of the additional insured before it can settle a claim or lawsuit. 2. "Other insurance" conflicts There may be "Other Insurance" conflicts for the additional insured. Insurance policies include "Other Insurance" provisions, which state that a particular policy is primary or excess and contributing or non-contributing when there is other insurance in force. Disputes between insurance companies over who pays first and how much can stall or limit claim payment. We'll look at this a little more closely in this section. 3. Limited coverage for the additional insured There may be limited coverage under current forms. There have been significant changes made to additional insured endorsements over the years. Each edition date may change the coverage provided for the additional insured. 4. Dependency on another party's Insurance It is not a good idea to depend on someone else's insurance. Limits, edition dates of the CGL Policy, exclusions and endorsements are outside of the additional insured's control. Lesson 5 Topic C Potential Problems p6 (1IC) Problems for the Additional Insured continued Learning Objective: Explain problems associated with additional insured status for both the named insured and the additional insured. Loss of Control Over Defense and Investigation 156

16 Benum Construction was named as an additional insured on Charlie s Construction s CGL Policy. A claim was made against both Benum and Charlie s by someone injured at the construction site. Benum told Charlie s insurance company that they are not at fault for the injuries; in fact, it was the injured person s own fault. Benum does not want the insurance company to settle with the injured person because Benum's reputation would be ruined. Charlie s insurance company, after investigating the loss, settles with the injured party. Lesson 5 Topic C Potential Problems p7 (1IC) Problems for the Additional Insured continued Learning Objective: Explain problems associated with additional insured status for both the named insured and the additional insured. Other Insurance Disputes Disputes over the priority of coverage often arise when an entity purchases its own policy and also intentionally obtains coverage as an additional insured on the CGL Policy of another. It is generally understood that the intent of this arrangement is that the entity's own CGL Policy, the CGL on which the entity is listed as a named insured, is to apply as excess and not share its limits with the CGL Policy on which the entity is an additional insured. Example: The general contractor has his own CGL Policy and is also listed as an additional insured on the subcontractor s CGL Policy. If both policies are the 2013 ISO CGL Coverage Form, the sub-contractor s CGL Policy will provide primary coverage for the general contractor. The general contractor will have excess coverage provided by his own CGL Policy. Lesson 5 Topic C Potential Problems p8 (1IC) Problems for the Additional Insured continued Learning Objective: Explain problems associated with additional insured status for both the named 157

17 insured and the additional insured. More About Other Insurance Disputes The April 2013 ISO CGL Coverage Form other insurance wording generally (with some notable exceptions) complies with this intent when the additional insured has been listed by endorsement to the other party s CGL Policy. Problems can arise when the CGL Policy is an earlier edition date or the CGL Policy is an insurance company's proprietary form and not an ISO form. The other insurance language in either of these could include very significant differences, which could take away primary coverage for an additional insured. It should also be noted that the other insurance language in the ISO CGL 2013 edition applies to additional insureds that have been added to the insurance policy of another. Additional insureds added to the policy of another will have primary coverage under that policy and excess under their own CGL Policy. This wording does not provide the same coverage for automatic insureds. Automatic insureds, such as a real estate manager, could find themselves with two policies providing coverage on a primary basis. This will result in the policies sharing of limits, which might not have been the intent of either party. Lesson 5 Topic C Potential Problems p9 (1IC) Problems for the Additional Insured continued Learning Objective: Explain problems associated with additional insured status for both the named insured and the additional insured. Example of Other Insurance Dispute Benum Construction was also named as an additional insured on the CGL Policy for Kitchens 4 You. Benum required and understood Kitchens Policy to provide liability coverage on a primary, non-contributory basis. A loss occurs at which time Benum discovers Kitchens' CGL Policy states that coverage available to any additional insured applies only as excess to any insurance purchased by the additional insured. While Benum expected Kitchens Policy to pay on a primary basis, it is now looking to its own insurance policy for primary coverage. 158

18 Lesson 5 Topic C Potential Problems p10 (1IC) CG Endorsement Form Edition Dates Learning Objective: Explain problems associated with additional insured status for both the named insured and the additional insured. Limited Coverage for Additional Insured As we will discuss shortly, the 11/85 edition of the CG included additional insured status for liability arising out of the insured s work while the 04/13 edition provides coverage for liability caused in whole or in part by the named insured s acts or omissions or those acting on behalf of the named insured. In other words, the latest edition requires at least partial responsibility for the damages to be the named insured s or those working on behalf of the named insured. This does not provide coverage if the loss is solely caused by the additional insured. The 11/85 edition also provided coverage for liability arising out of the named insured s work, which included Completed Operations. Subsequent editions provide coverage caused in whole or in part by the ongoing operations for the Additional Insured of the named insured. Ongoing operations does not include completed operations. You can see the importance of knowing the edition date of the additional insured endorsement being used. Lesson 5 Topic C Potential Problems p11 (1IC) Problems for the Additional Insured continued Learning Objective: Explain problems associated with additional insured status for both the named insured and the additional insured. Dependency on Another Person's Or Entity's Insurance How does the additional insured know that the policy is still in effect, the required limits still carried, the edition date of the CGL Policy, and the endorsements or exclusions that apply? These factors are outside of the direct control of the additional insured; yet they potentially impact whether or not coverage will be available at the time of a loss. 159

19 Please complete the knowledge check found at Lesson 5 Topic C Potential Problems p12 (1IC). 160

20 Lesson 5 Topic D - Additional Insured Endorsements Lesson 5 Topic D Additional Insured Endorsements p1 (1IC) Learning Objective: Explain the purpose and coverage provided for selected additional insured endorsements. Before selected additional insured endorsements are discussed, let s first have an understanding of the importance of the form number and edition date. Some additional insured endorsement forms have more than one edition date. Since coverage can vary greatly between or among edition dates, it is very important to know which edition date has been requested and which edition date is being used. Because the edition date is embedded in the additional insured endorsement s form number, let s review the components of an ISO additional insured endorsement s form number. Lesson 5 Topic D Additional Insured Endorsements p2 (1IC) Anatomy of an Additional Insured Endorsement Form Number Learning Objective: Explain the purpose and coverage provided for selected additional insured endorsements. The ISO Additional Insured endorsements to the ISO Commercial General Liability Coverage Form ALL begin with CG 20. The next two numbers are the specific form number for that specific endorsement. The final four numbers indicate the month and year of the edition date. Lesson 5 Topic D Additional Insured Endorsements p3 (1IC) Endorsement Forms Learning Objective: Explain the purpose and coverage provided for selected additional insured endorsements. 161

21 There are numerous additional insured endorsements designed to meet the specific needs of the various types of additional insureds. For this course, the additional insured endorsements listed below for attachment to the CGL Policy have been selected for review and analysis. Additional Insured Owners, Lessees or Contractors Scheduled Person or Organization CG Additional Insured Owners, Lessees or Contractors Completed Operations CG Additional Insured Managers or Lessors of Premises CG Additional Insured Lessor of Leased Equipment CG Additional Insured Vendors CG Refer to the slide to download these forms. Lesson 5 Topic D Additional Insured Endorsements p4 (1IC) Common Coverage Limitations In Many Endorsement Forms Learning Objective: Explain the purpose and coverage provided for selected additional insured endorsements. Even though there are various types of additional insured endorsements, recent editions of many additional insured endorsements have the same coverage limitations in common. Most of these additional insured endorsements only provide insurance protection for the additional insured for the sole negligence of the named insured (caused in whole) or for the joint negligence of the named insured and the additional insured (caused in part). However, this protection to the additional insured only applies to the extent permitted by law. 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 the named insured is required by the contract or agreement to provide for such additional insured. Also, payment on behalf of the additional insured is limited to the amount required by the contract or agreement; or what is available under the applicable Limits of Insurance shown in the Declarations, whichever is less. Lesson 5 Topic D Additional Insured Endorsements p5 (1IC) 162

22 Common Additional Insured Endorsements - CG Learning Objective: Explain the purpose and coverage provided for selected additional insured endorsements. We ve selected CG to discuss first for a good reason. There are several editions of this ISO endorsement that offer increasingly restrictive coverage. To understand the distinctions between these editions of the CG 20 10, you should understand: Completed Operations Liability: Legal liability results when injury to others or damage to property of others is caused by defective or improper workmanship. The exposure applies to the named insured's work. This exposure begins once the operations have been completed and the named insured leaves the work site. Negligence: Failure to exercise care that an ordinary prudent person would exercise. Negligence requires the following: Duty owed to another Breach of that duty Actual injury Proximate cause Sole negligence indicates negligence by a single party; contributory negligence indicates that more than one party has met the requirements for negligence in a cause of action. Lesson 5 Topic D Additional Insured Endorsements p6 (1IC) Additional Insured - Owners, Lessees or Contractors - Scheduled Person or Organization (CG 20 10) Learning Objective: Explain the purpose and coverage provided for selected additional insured endorsements. This endorsement is used when owners, lessees, and contractors have required that they be added to a contractor's or subcontractor s CGL Policy. This endorsement modifies the Who Is An Insured section of the CGL Coverage Form to include the person or organization shown in the schedule, but only for "bodily injury", "property damage" or "personal and 163

23 advertising injury" caused in whole or in part by the named insured's act or omissions or the acts of omissions of those acting on the named insured's behalf. These acts or omissions must take place in the performance of the named insured's ongoing operations for the additional insured at the locations designated in the endorsement. However, the insurance afforded to the additional insured only applies to the extent permitted by law. Also, if coverage is required by a contract or agreement, the insurance provided to the additional insured will not be broader than that which is required by the contract or agreement. This endorsement does not include any insurance protection for the completed operations exposure. If coverage provided to the additional insured is required by a contract or agreement, the most that will be paid on behalf of the additional insured is the amount required by the contract or agreement; or what is available under the applicable Limits of Insurance shown in the Declarations, whichever is less. Let's take a look at the endorsement verbiage to make sure you understand. Lesson 5 Topic D Additional Insured Endorsements p7 (1IC) CG 2010 The 11/85 Edition Learning Objective: Explain the purpose and coverage provided for selected additional insured endorsements. This additional insured endorsement has gone through several changes since the 11/85 edition. It is the endorsement that generates the most discussion because there are additional insureds that specifically request the 11/85 edition due to the broad protection it provides for the additional insured. The 11/85 edition provided coverage for the additional insured for liability arising out of your work for that additional insured by or for the named insured. By the CGL Coverage Form definition, your work includes completed operations. It is difficult to find insurance companies able and/or willing to provide the 11/85 edition. Refer to the slide to view the 11/85 Edition. Lesson 5 Topic D Additional Insured Endorsements p8 (1IC) 164

24 This endorsement has several recent edition dates, each providing more limited coverage than the previous edition. It is important to understand the coverage distinctions of each edition date. 11/1985 This edition date uses "your work" (instead of "your ongoing operations" as used in other editions). Since the term "your work" is associated with "completed operations", this edition includes "completed operations" for the additional insured. This edition date provides the broadest coverage for the additional insured. 10/1993 This edition replaces "your work" with "your ongoing operations" performed for that additional insured. Since the term "your work" is associated with "completed operations", its replacement with "ongoing operations" attempts to eliminate completed operations coverage for those additional insureds covered by this endorsement. After all, once work is completed it is no longer ongoing. Who Is An Insured (Section II) is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of your ongoing operations performed for that insured. 03/1997 The endorsement name changes to: ISO CG Additional Insured - Owners, Lessees or Contractors - Scheduled Person or Organization Who Is An Insured language remains the same as in the 10/1993 edition. 10/2001 This version of the endorsement adds a specific exclusion for losses due to the completed operations of the named insured. ISO CG Additional Insured - Owners, Lessees or Contractors - Scheduled Person or Organization With respect to the insurance afforded to these additional insureds, the following exclusion is added. This insurance does not apply to "bodily injury" or "property damage" occurring after: 1. All work, including materials, parts or equipment furnished in connection with such work, on the project (other than service, maintenance or repairs) to be performed by or on behalf of the additional insured(s) at the site of the covered operations has been completed; or 2. That portion of "your work" out of which the injury or damage arises has been put to its 165

25 intended use by any person or organization other than another contractor or subcontractor engaged in performing operations for a principal as a part of the same project. 07/2004 The 2004 version eliminates the "arising out of language of earlier versions. The revision is designed to eliminate coverage for losses due to the sole negligence of the additional insured. It does contain the specific exclusion for completed operations. ISO CG Additional Insured - Owners, Lessees or Contractors - Scheduled Person or Organization 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) designed above. 04/2013 The 2013 version added wording to further limit the coverage to the Additional Insured to apply only to the extent permitted by law. Also, if there is a contract or agreement, insurance afforded to such additional insured will not be broader than that which is required by the contract of agreement and payment will be limited to the amount required by the contract or agreement; or the available applicable Limit of Insurance. However: 1. The insurance afforded to such additional insured only applies to the extent permitted by law; and 2. 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; or the available applicable Limit of Insurance. C. With respect to the insurance afforded to these additional insureds, the following is added to the Section III -Limits Of Insurance: If coverage provided to the addtional insured is required by a contract or agreement, the most we will pay on behalf of the additional insured is the amount of insurance: 1. Required by the contract or agreement; or 2. Available under the applicable Limits of Insurance shown in the Declarations; whichever is less. 166

26 This endorsement shall not increase the applicable Limits of Insurance shown in the Declarations. Lesson 5 Topic D Additional Insured Endorsements p9 (1IC) Additional Insured Owners, Lessees or Contractors Completed Operations (CG 20 37) Learning Objective: Explain the purpose and coverage provided for selected additional insured endorsements. What if your client is required to provide completed operations coverage for an additional insured and the 11/85 edition is not available from your insurance companies? This endorsement can be used to provide completed operations coverage for the additional insured. (This endorsement is not necessary if the 11/85 edition of the CG is used.) In many situations, you may need to use both the CG 2010 and CG to meet contract requirements. Let's read the endorsement wording before proceeding. This endorsement modifies the Who Is An Insured provision of the CGL Coverage Form to include the person or organization shown in the schedule, but only for "bodily injury" or "property damage" caused in whole or in part by the named insured s work ( your work ) at the location designated and described in the schedule performed for that additional insured and included in the products-completed operations hazard. However, coverage afforded to the Additional Insured only applies to the extent permitted by law. Also, if coverage is required by a contract or agreement, the insurance afforded to such additional insured will not be broader than that which is required by the contract or agreement and payment will be limited to the amount required by the contract or agreement; or the available applicable Limit of Insurance, whichever is less. Lesson 5 Topic D Additional Insured Endorsements p10 (1IC) Additional Insured Managers or Lessors of Premises (CG 20 11) This endorsement is used to change the Who Is An Insured provision of the CGL Coverage Form to include the real estate manager or owner of the premises that the named insured leases. It extends liability coverage for the ownership, maintenance, or use of that part of the premises leased to 167

27 the named insured and shown on the schedule. Let's take a look at the wording. Lesson 5 Topic D Additional Insured Endorsements p11 (1IC) Additional Insured Managers or Lessors of Premises (CG 20 11) continued Learning Objective: Explain the purpose and coverage provided for selected additional insured endorsements. Example: A tenant rents space from a building owner. The building owner requires the tenant, your client, to add the building owner as an additional insured to the tenant's CGL Policy. The language in the endorsement which makes this change is as follows: 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 arising out of the ownership, maintenance or use of that part of the premises leased to you and shown in the Schedule and subject to the following additional exclusions: However the endorsement also includes language that excludes coverage under certain situations. The exclusion applies as follows: This insurance does not apply to: 1. Any occurrence which takes place after you cease to be a tenant in that premises. 2. Structural alterations, new construction or demolition operations performed by or on behalf of the person(s) or organization(s) shown in the Schedule. Example of Exclusion 1: The tenant moves from the premises. The building owner is sued as a result of a slip and fall that occurs after the tenant moves. Although the building owner is still named as an additional insured on the tenant's policy, no insurance protection will be provided. Example of Exclusion 2: 168

28 The building owner hires a contractor to replace a wall at the premises. A passerby is injured. Although the building owner is named as an additional insured on the tenant's policy, no insurance protection will be provided. Like the two previously discussed endorsements, coverage only applies to the extent permitted by law. Also, if coverage is required by a contract or agreement, the insurance afforded to such additional insured will not be broader than that which is required by the contract or agreement and payment will be limited to the amount required by the contract or agreement; or the available applicable Limit of Insurance, whichever is less. Lesson 5 Topic D Additional Insured Endorsements p12 (1IC) Errors & Omissions Alert There is a two part test for coverage to apply. The premises must be leased to the named insured and shown in the Schedule. The premises could be leased to the named insured but not shown in the Schedule. - No Coverage. The premises could be shown in the Schedule but not leased to the named insured - No Coverage. The best approach is to show "leased premises as described in the lease" as the Designation of Premises (Part Leased to You) in the Schedule. This reduces the possibility for error. Lesson 5 Topic D Additional Insured Endorsements p13 (1IC) Additional Insured Lessor of Leased Equipment (CG 20 28) This endorsement is designed to add a person or entity that leases equipment to the named insured and, as a condition of the lease, requires to be added as an additional insured. This endorsement modifies the Who Is An Insured provision of the CGL Coverage Form to include as an additional insured the person or organization shown in the Schedule, but only for "bodily injury", "property damage" or "personal and advertising injury" caused in whole or in part by the named insured's maintenance, operation or use of the equipment. However, coverage only applies to the extent permitted by law. 169

29 Also, if coverage is required by a contract or agreement, the insurance afforded to such additional insured will not be broader than that which is required by the contract or agreement and payment will be limited to the amount required by the contract or agreement; or the available applicable Limit of Insurance, whichever is less. There is no insurance protection for the additional insured for any "occurrence" that takes place after the equipment lease expires. Lesson 5 Topic D Additional Insured Endorsements p14 (1IC) Additional Insured Lessor of Leased Equipment (CG 20 28) continued Learning Objective: Explain the purpose and coverage provided for selected additional insured endorsements. Example: Your client, who owns an office building, contracts with a company to provide coffee equipment and service for the occupants of the building. The coffee equipment service requires your client to add it as an additional insured to your client s CGL Policy for losses related to the leased equipment. If the coffee equipment service is named in a claim because the coffee machine malfunctions and burns a customer of your client, the coffee equipment service is provided protection as an additional insured to the extent permitted by law and as long as the injury was not caused by the sole negligence of the coffee equipment service. Lesson 5 Topic D Additional Insured Endorsements p15 (1IC) Additional Insured Vendors (CG 20 15) Learning Objective: Explain the purpose and coverage provided for selected additional insured endorsements. This endorsement provides insured status under a manufacturer s or distributor s policy to named persons or organizations with respect to their sale or distribution of the named insured s products. This endorsement modifies the Who Is An Insured section of the CGL Coverage Form to include as an 170

30 additional insured the person or organization (referred to as vendor) shown in the Schedule, but only for "bodily injury" or "property damage" arising out of "your products" (as defined in the CGL Coverage Form) shown in the Schedule. However, coverage only applies to the extent permitted by law. Also, if coverage is required by a contract or agreement, the insurance afforded to such additional insured will not be broader than that which is required by the contract or agreement and payment will be limited to the amount required by the contract or agreement; or the available applicable Limit of Insurance, whichever is less. Coverage provided to the Additional Insured is subject to additional exclusions contained in the endorsement. Before continuing, let's read this endorsement. Lesson 5 Topic D Additional Insured Endorsements p16 (1IC) Additional Insured Vendors (CG 20 15) continued Learning Objective: Explain the purpose and coverage provided for selected additional insured endorsements. Example: Stella manufactures expensive statuary. She has asked JB s Boutique to sell her product. JB s agrees, but requires Stella to carry limits of at least $1,000,000 each occurrence and name JB's Boutique as an additional insured on Stella's CGL Policy for liability coverage in case the statutory products cause injury to a third party. If a bodily injury or property damage claim is made against JB's Boutique for a defective product manufactured by Stella, Stella's CGL Policy would respond on JB's behalf but only to the extent permitted by law and as long as no exclusions apply. The most that will be paid on JB's behalf is the limit required by the contract or whatever applicable limit Stella has available on her CGL Policy, whichever is less. Lesson 5 Topic D Additional Insured Endorsements p17 (1IC) Additional Insured Vendors (CG 20 15) continued Learning Objective: Explain the purpose and coverage provided for selected additional insured endorsements. 171