Drafting Insurance Requirement Provisions in Commercial Contracts

Transcription

1 Presenting a live 90-minute webinar with interactive Q&A Drafting Insurance Requirement Provisions in Commercial Contracts Mitigating Risk and Maximizing Coverage for Losses, Navigating Interplay With Contractual Indemnification MONDAY, JUNE 29, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Katie Pfeifer, Partner, Dorsey & Whitney, Minneapolis Damian J. Arguello, Partner, Davis Graham & Stubbs, Denver Joseph G. Balice, Partner, Ezra Brutzkus Gubner, Woodland Hills, Calif. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 10.

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5 Drafting Insurance Requirement Provisions In Commercial Contracts Part I: Determining The Type And Amount of Insurance Coverage Joseph G. Balice Ezra Brutzkus Gubner LLP

6 Disclaimer The views expressed by the participants in this program are not those of the participants employers, their clients, or any other organization. The opinions expressed do not constitute legal advice, or risk management advice. The views discussed are for educational purposes only, and provided only for use during this session. 6

7 As a partner in the commercial civil litigation team at Ezra Brutzkus Gubner in Los Angeles, Joe s core practice is representing policyholders when insurance company carriers deny claims. Prior to joining EBG, Joe worked as part of the nationally-recognized Insurance Recovery practice group in the firm of Anderson Kill. He has worked on virtually all lines of commercial and professional insurance (CGL, D&O, E&O, EPLI, property, crime, etc.), and has personally helped clients collectively recover over $400 million in insurance policy benefits throughout his career. 7

8 Insurance Requirement Clauses What Are They? A provision in a contract requiring one of the parties to buy insurance to cover risk associated with the transaction Two Varieties: Party Must Buy Insurance Covering Itself Party Must Buy Insurance Covering Others 8

9 Why Do We Care? Risk Management Decreasing Risk Of Peril Shifting Financial Consequences of Peril Financial Resources For Obligations/Liabilities Show Me The Money 9

10 Two Strategic Concerns Drafting How do we write provisions that protect us? Enforcement How do get the most of our contract rights? 10

11 Proactive vs. Retroactive Enforcement Enforce compliance or recover damages? Purpose Of Provision: Ensure Financial Resources Failure To Comply: Breach of Contract Claim Breach Claim Only As Valuable As Contracting Party s Financial Resources This Is Why You Required They Get Insurance In the First Place Insurance Requirement Clauses Are Useful If Proactively Enforced 11

12 What To Include: Lines of Insurance Who is Covered? Limits of Liability How Much Coverage? Carrier Rating Right To Receive Coverage Documents, Carrier Notices Other Essential Terms of Coverage Enforcement Tip: Specificity in drafting facilitates a clearer path to recovery for breach and enforcement. 12

13 How Do We Know What To Require: Two Step Process: Identify Risks Associated With The Transaction Identify The Insurance Products Available To Cover Those Risks Call The Brokers: This Is What They Do. 13

14 What Lines of Coverage To Get, Part 1: Commercial General Liability Property Workers Compensation Automobile Liability 14

15 What Lines Of Coverage To Get, Part 2 Fidelity Bond/Crime Coverage Errors & Omissions Liability Directors & Officers Liability Employment Practices Liability 15

16 What Lines Of Coverage To Get, Part 3 Cyber Risk Coverage Intellectual Property Key Person Insurance 16

17 Evolving Risks Risk Over Life of Transaction Not Static Risks Can Change In Both Nature and Scope Long Term Contract Without Provisions To Revisit Insurance Requirements Dangerous 17

18 Coverage Reviews The Right To Review The Coverage Requirements Under The Contract And Request Changes All Requirements Subject To Review: Lines of Coverage, Limits, Terms, Etc. Right To Demand Reasonable Changes To Coverage Regularly Scheduled/As Reasonably Necessary 18

19 DRAFTING INSURANCE REQUIREMENT PROVISIONS IN COMMERCIAL CONTRACTS JUNE 29, 2015 ADDITIONAL INSURED COVERAGE DAMIAN J. ARGUELLO, PARTNER DAVIS GRAHAM & STUBBS LLP DENVER, COLORADO Davis Graham & Stubbs LLP DGSLAW.COM

20 SPEAKER S BIO Damian Arguello is the co-leader of the insurance and risk management practice group at Davis Graham & Stubbs LLP in Denver, Colorado. Damian primarily represents policyholders with respect to insurance coverage issues. Before law school, Damian was the claims manager and errors & omissions coordinator for Talbot, a major insurance brokerage, where he mediated coverage disputes between policyholders and insurers, and also led the brokerage s internal risk management program. Prior to that, Damian was multi-line claims adjuster for Crawford & Company and CNA Insurance Companies. Davis Graham & Stubbs LLP DGSLAW.COM 20

21 WHAT IS ADDITIONAL INSURED COVERAGE? Form of contractual risk transfer Require other downstream party to contract to name requesting party as an additional insured under downstream party s insurance Force downstream party s insurer to bear primary risk of loss Preserve upstream party s insurance and reduce insurance costs Davis Graham & Stubbs LLP DGSLAW.COM 21

22 WHAT IS ADDITIONAL INSURED COVERAGE? Problems for downstream party: Could be insuring upstream party s sole negligence Insured claims could be only tangentially connected to downstream party s operations, resulting in disproportionate risk transfer Dilution of downstream party s policy limits Increased insurance costs Davis Graham & Stubbs LLP DGSLAW.COM 22

23 REQUIRED INSURANCE VS. ADDITIONAL INSURED COVERAGE Merely requiring downstream/opposing party to carry insurance does not automatically equate to additional insured coverage Language unequivocally requiring additional insured coverage usually necessary Certain policies not amenable to additional insured coverage Professional Workers compensation Davis Graham & Stubbs LLP DGSLAW.COM 23

24 ADDITIONAL INSURED COVERAGE VS. COVERAGE FOR INDEMNITY OBLIGATIONS Contrary to popular belief, CGL does not exclude contractual liability (not entirely) Standard ISO form provides limited give-back coverage for named insured s assumption of another s tort liability in an insured contract Indemnitee becomes another claimant under policy, indemnification coverage subject to limits No direct rights as an insured Defense could be in addition to limits if numerous conditions met Davis Graham & Stubbs LLP DGSLAW.COM 24

25 ADDITIONAL INSURED COVERAGE VS. COVERAGE FOR INDEMNITY OBLIGATIONS additional insured gets direct policy rights as an insured Right to defense in addition to limits (most policies) Separation of insureds clause policy applies to each insured separately Get own separate counsel Insurer owes duties to additional insured, including good faith Fewer conditions to meet to reap defense and indemnity benefits Davis Graham & Stubbs LLP DGSLAW.COM 25

26 ADDITIONAL INSURED COVERAGE VS. COVERAGE FOR INDEMNITY OBLIGATIONS Insurers claim original intent was merely to insure upstream party s exposure to vicarious liability to downstream party s negligence Insurers reason that is why additional insured coverage provided at no cost to additional insured Insurers also claim that additional insured endorsements have become increasingly restrictive to respond to courts overly expansive interpretations of additional insured coverage Examination of evolving language shows coverage restrictions go beyond vicarious liability intent Davis Graham & Stubbs LLP DGSLAW.COM 26

27 EVOLUTION OF ADDITIONAL INSURED COVERAGE CG Gold standard liability arising out of your work But for causation standard, courts interpret broadly Still required in many contracts, but hard to get CG Replaces your work with ongoing operations Attempts to exclude claims originating from named insured's completed operations Litigation continues to be brought over what constitutes ongoing operations Davis Graham & Stubbs LLP DGSLAW.COM 27

28 EVOLUTION OF ADDITIONAL INSURED COVERAGE CG & Two separate endorsements required for ongoing operations and completed operations coverage CG & Still two separate endorsements Arising out of language replaced with caused, in whole or in part, by [named insured s] acts or omissions Intent to exclude AI s sole negligence Davis Graham & Stubbs LLP DGSLAW.COM 28

29 EVOLUTION OF ADDITIONAL INSURED COVERAGE 2013 additional insured endorsements = 3 new restrictions Coverage provided only to the extent permitted by law Relates to anti-indemnity statutes Coverage will not be broader than which you are required by the contract or agreement to provide Expressly ties additional insured coverage to contractual requirements Limits are lesser of contract requirement or policy declarations Creates possibility of coverage gap Davis Graham & Stubbs LLP DGSLAW.COM 29

30 EVOLUTION OF ADDITIONAL INSURED COVERAGE 2013 additional insured endorsements some good news Blanket additional insured form provides coverage to parties the named insured is required to name as additional insured, even if no contractual privity Limited to vicarious liability of named insured Optional primary and noncontributory endorsement when agreed to by named insured in writing Still some issues with excess policies other insurance provisions, which can require horizontal exhaustion Davis Graham & Stubbs LLP DGSLAW.COM 30

31 Temporal SCOPE OF ADDITIONAL INSURED COVERAGE Named insured s ongoing operations Drafting options Request the 11/85 form Request something equivalent for ongoing operations Define downstream contractor s operations or involvement to include supplemental and followup tasks, or conclude when whole project done Davis Graham & Stubbs LLP DGSLAW.COM 31

32 Monetary SCOPE OF ADDITIONAL INSURED COVERAGE Lesser of contract requirement or policy limit Drafting options Specify limits of not less than $X Specify aggregate dollar amount of primary & umbrella to be satisfied as downstream contractor sees fit Could create issues with defense as transition to excess occurs, particularly if primary limits are low Davis Graham & Stubbs LLP DGSLAW.COM 32

33 SCOPE OF ADDITIONAL INSURED COVERAGE Degree of liability Limited to vicarious liability for named insured s conduct, or includes additional insured s sole or concurrent negligence? Drafting options Request 11/85 form or other pre-2004 form Specify that additional insured coverage be at least as broad as named insured s coverage under its policies Permissible under anti-indemnity statutes? Davis Graham & Stubbs LLP DGSLAW.COM 33

34 SCOPE OF ADDITIONAL INSURED COVERAGE Contractual privity Many contracts require named insured to name strangers as additional insured on policies, e.g., affiliated parties, officers, etc. Drafting options Specify use of new forms, or issuance of separate additional insured endorsements for each required party Can be problem with older additional insured forms, e.g., CG provides cover only to party with whom named insured contracts Davis Graham & Stubbs LLP DGSLAW.COM 34

35 CONTRACTUAL LIMITATIONS BP and the $750 million comma Transocean required to name BP et al. as additional insureds in each of [Transocean s] policies, except Workers Compensation for liabilities assumed by [Transocean] under the terms of [the Drilling] Contract. Absent an additional insured endorsement or certificate of insurance specifically naming BP, policy provided additional insured coverage coextensive with Transocean s indemnity obligation under the contract Davis Graham & Stubbs LLP DGSLAW.COM 35

36 CONTRACTUAL LIMITATIONS New ISO additional insured endorsements attempt to link additional insured requirements to contractual limitations, e.g., required limits and to extent required in contract If broader coverage desired, need to use unequivocal language in additional insured requirements of contract Many contracts seek to tie additional insured coverage to scope of indemnity, which may be too narrow in some cases Davis Graham & Stubbs LLP DGSLAW.COM 36

37 CONTRACTUAL LIMITATIONS Include language making failure to name as additional insured a material breach Contra proferentum upstream party may have contractual requirements strictly construed against it as the drafter & party with more leverage Downstream parties try to limit requirements to extent commercially reasonable or commercially available Davis Graham & Stubbs LLP DGSLAW.COM 37

38 CERTIFICATES OF INSURANCE Certificate generally cannot create or alter coverage in policies Merely a temporally limited snapshot representation by agent or broker Many courts have declined to find justifiable reliance when cert holder has access to actual policy Note, agent/broker legal status often murky May be agent of insurer, policyholder, dual agent Davis Graham & Stubbs LLP DGSLAW.COM 38

39 CERTIFICATES OF INSURANCE Some contracts attempt to require detailed certificates, even quoting policy language or endorsements, or requiring agent/broker to draft standalone certification letters New ACORD forms designed to resist such efforts State insurance departments sometimes expressly prohibit altering certificates or otherwise misrepresenting policy provisions Better practice is to get copy of endorsement and/or declarations page to evidence coverage Davis Graham & Stubbs LLP DGSLAW.COM 39

40 NOTICE OF CANCELLATION/LAPSE Many contracts purport to require insurer or downstream party to provide notice to additional insured of cancellation, lapse, erosion of limits, etc. Insurers generally not bound by contract provisions Imprudent to rely on these provisions to extent they purport to bind insurer As with certificates, burden remains on additional insured to monitor to ensure coverage viable Davis Graham & Stubbs LLP DGSLAW.COM 40

41 CONCLUSION Effective use of additional insured coverage requires diligence in drafting contracts and policy documents Need to pay careful attention to interplay between contract and insurance policies Diligence requires that insurance provisions receive priority consideration, not afterthought treatment Davis Graham & Stubbs LLP DGSLAW.COM 41

42 The Interplay of Indemnification and Insurance Katie C. Pfeifer Dorsey & Whitney, LLP Minneapolis, MN (612)

43 Indemnification Agreements Simple concept: A contract that transfers risk. 43

44 Purposes of Indemnification Agreements Allocation and risk transfer, including in many instances the risk of cost of defending against thirdparty claims Avoid application of strict contributory negligence doctrines in some states Avoid (or attempt to avoid) fight amongst various parties (e.g., participants on a construction project) Obtain benefit of (typically) longer contract statute of limitations (versus tort statute of limitations) 44

45 But Is Indemnification Enough? Ask yourself: Is there money to back-up the indemnification obligation? What happens if you are sued and the indemnitor refuses to defend you? Who will pay your defense? 45

46 Distinct Ways in Which Indemnification and Insurance Intersect Insurance requirements in the contract may provide a potential pool of money to pay an indemnification claim (i.e., backs-up the obligation) Potential defense to indemnitee under Supplementary Payments provision of CGL policy Limited to claim against indemnitee for damages that insured has assumed the liability for in an insured contract Only applies where insured contract includes a defense obligation Can be no conflict between indemnitor and indemnitee Indemnitor and indemnitee must use same attorney Indemnitee has no insured status 46

47 Supplementary Payments (CGL Policy) 47

48 Distinct Ways in Which Indemnification and Insurance Intersect (con t) Insurance requirements often require that indemnitee be named an Additional Insured on a policy, allowing the indemnitee to tap the policy directly Most commonly the CGL policy 48

49 Four Issues Anti-Indemnity Statutes: What Are They And How Do They Affect Your Ability To Tap Additional Insured Coverage? Which Documents Control the Additional Insured Determination: The Policy Alone, Or The Indemnification Agreement As Well? Waiver of Subrogation: It is Necessary If You Are An Additional Insured? Who Pays First When You Are An Additional Insured: The Indemnitor Or The Insurer? 49

50 Anti-Indemnity Statutes 50

51 Anti-Indemnity Statutes Prohibit indemnification agreements in certain contexts (e.g., requiring Party A to indemnify for Party B s own sole negligence) Most states have enacted some type of antiindemnity statute Most commonly impact oil & gas and constructionrelated contracts Can also impact contractual insurance obligations 51

52 Construction Industry Vast majority of states have some form of antiindemnity statute applicable to construction Different standards regarding what types of construction contracts/projects are affected Different scopes Some prohibit broad form indemnity agreements (e.g., transferring entire risk of loss to the indemnitor, regardless of fault) Others prohibit intermediate form indemnity agreements (e.g., requiring indemnitor to assume responsibility for either partial or full liability when partially at fault) 52

53 Oil Industry Louisiana, New Mexico, Texas and Wyoming have anti-indemnification statutes specifically for the oil industry La. Rev. Stat. 9:2780 N.M. Stat. Ann Tex. Civ. Prac. & Rem. Code et seq. Wyo. Stat et seq. 53

54 Motor Carrying Industry Majority of states have some type of anti-indemnity statute applicable to the transportation industry Some prohibit motor carriers from being required to indemnify a shipper against the shipper s negligent and intentional acts Some prohibit unspecified third parties (i.e., a shipper, broker, etc.) or non-motor carriers from requiring motor carriers to indemnify the third party for negligent and intentional acts Some prohibit indemnification for negligence-based or intentional act-based liability in any provision that affects a motor carrier agreement 54

55 Health Care Industry Some jurisdictions prohibit indemnification of hospitals or other essential public services for their own negligence Illinois: 215 ILCS 134/95 ( Nothing in this Section shall relieve any person or health care provider from liability for his, her, or its own negligence in the performance of his, her, or its duties arising from treatment of a patient. ). California: Tunkl v. UC Regents, 60 Cal.2d 92 (Cal. 1963) 55

56 Common Law Anti-Indemnity : One s Own Negligence More generally, assuming no statutory antiindemnification provision applies, in order to transfer risk of your own negligence to another party, you need to be unequivocal in your indemnification agreement about that intent 56

57 Effect of Anti-Indemnification on Additional Insured Status? Construction Industry An exception to the prohibition against indemnification for one s own negligence: the Additional Insured Loophole Require Party A to purchase insurance to cover Party B See, e.g., Ark. Stat. Ann But some states extend their anti-indemnity prohibition to additional insured requirements E.g., Arizona, California, Colorado, Kansas, Louisiana, Montana, New Mexico, Oklahoma, Oregon, Texas and Utah Minnesota recently moved away from the loophole: see Minn. Stat (2013) 57

58 Effect of Anti-Indemnification on Additional Insured Status? Gilbane Bldg. Co. v. Empire Steel Erectors, L.P., 691 F. Supp.2d 712 (S.D.Tex. 2010), rev d in part 664 F. 3d 589 (5th Cir. 2011) Employee of a subcontractor fell off a ladder and sued the general contractor Insurer argued that indemnity in the Contractor Agreement was unenforceable under Texas law and, therefore, general contractor was not covered as an Additional Insured District Court disagreed: indemnity and insurance provisions were separate clauses 5 th Circuit affirmed this decision Still good law after Deepwater Horizon? 58

59 Effect of Anti-Indemnification on Additional Insured Status? Oilfield Industry Texas: The act does not apply to an indemnity agreement if the parties agree in writing that the indemnity obligation will be supported by liability insurance coverage to be furnished by the indemnitor, subject to limitations enumerated in the statute New Mexico: A provision in an insurance contract indemnity agreement naming a person as an additional insured that would, if it were a direct or collateral agreement described in this section, be void, is against public policy and void. 59

60 Effect of Anti-Indemnification on Additional Insured Status? More generally: Kansas Stat : (b) An indemnification provision in a contract which requires the promisor to indemnify the promisee for the promisee s negligence or intentional acts or omissions is against public policy and is void and unenforceable. (c) A provision in a contract which requires a party to provide liability coverage to another party, as an additional insured, for such party s own negligence or intentional acts is against public policy and is void and unenforceable. Applicable to construction contracts, motor carrier transportation contracts, dealer agreements, and franchise agreements Some important carve-backs 60

61 Effect of Anti-Indemnification on Additional Insured Status? Norfolk & Dedham Mut. Fire Ins. Co. v. Morrison, 456 Mass. 463 (2010), aff d 79 Mass. App. Ct (Mass. App. Ct. 2011) Lease required Tenant to indemnify Landlord against third party liability and to add Landlord as additional insured to CGL policy Tenant s patient tripped and sued both Tenant and Landlord Tenant s insurer refused to defend and indemnify Landlord, claiming Massachusetts statute voided Tenant s obligation to indemnify Landlord Court: Statutory prohibition against indemnity agreements did not apply to the lease s insurance requirement 61

62 Effect of Anti-Indemnification on Additional Insured Status? [A]n agreement in a lease that the tenant indemnify or hold harmless the landlord is distinct from an agreement to purchase insurance on the landlord s behalf, which covers the liability of both in the event of a negligently caused injury. Norfolk, 456 Mass. at

63 Practice Tips: Anti-Indemnification Statutes Consider any applicable legislation which may impact the additional insured s right to coverage Consider language in the contract to avoid potential death penalty for overreaching: voiding of the indemnification or additional insured requirement 63

64 Sample Language To the fullest extent permitted by law the Contractor shall indemnify and hold harmless the Owner, Architect, Architect s consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys fees, arising out of or resulting from performance of the Work, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself), but only to the extent caused by the negligent acts or omissions of the Contractor, a Subcontractor, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, regardless of whether or not such claim, damages, loss or expense is caused in part by a party indemnified hereunder. AIA A201 (2007) General Conditions It is agreed that with respect to any legal limitations now or hereafter in effect and affecting the validity and enforceability of the indemnification obligation under this Section [ ], such legal limitations are made a part of the indemnification obligation to the minimum extent necessary to bring Section [ ] into conformity with the requirements of such limitations and, as so modified, the indemnification obligation shall continue in full force and effect. 64

65 Sample Language Owner shall be included under Contractor s insurance as an additional insured with respect to claims and/or liability arising out of Work performed for Owner by Contractor, but only to the extent of Contractor s indemnity obligation in Section [ ] herein. In no event shall Owner be an additional insured with respect to claims and/or liability that do not arise out of the sole negligence or other actionable fault of Contractor. 65

66 How Broad Is Additional Insured Coverage, or Which Document Do I Need to Review? Does the insurance obligation essentially back-stop the contractual indemnity obligation, or Does it cover more than the Additional Insured would be able to recover under the indemnity agreement? In other words, does the language of the relevant contract control the scope of coverage afforded to the Additional Insured, or does the insurance policy stand on its own? Answer: It Depends. 66

67 Case study: In re Deepwater Horizon, 2015 WL (Tex. Feb. 13, 2015) April 2010 explosion and sinking of the Deepwater Horizon oil-drilling rig (owned by Transocean), and the resulting discharge of oil into the Gulf of Mexico BP was the oilfield developer Damage resulted in much litigation, including an insurance coverage dispute 67

68 Deepwater Horizon: The Indemnification Obligation Knock-for-knock allocation of risk Transocean to indemnify BP for above-surface pollution, regardless of fault BP to indemnify Transocean for all pollution risk Transocean did not assume, i.e., subsurface pollution 68

69 Deepwater Horizon: The Additional Insured Obligation in the Drilling Contract [BP], its subsidiaries and affiliated companies, coowners, and joint venturers, if any, and their employees, officers and agents shall be named as additional insureds in each of [Transocean s] policies, except Workers Compensation for liabilities assumed by [Transocean] under the terms of this Contract. 69

70 Deepwater Horizon: The Additional Insured Coverage in the Relevant Policy Extended Insured status to include [a]ny person or entity to whom the Insured is obligated by oral or written Insured Contract to provide insurance such as afforded by [the] Policy. Insured Contract : [A]ny written or oral contract or agreement entered into by the Insured and pertaining to your business under which the Insured assumes the tort liability of another party to pay for Bodily Injury [or] Property Damage to a Third Party or organization. 70

71 Deepwater Horizon: The Issue BP sought coverage under Transocean s primary and excess policies, claiming additional insured status BP was self-insured for much of its liability Transocean had a potential of $750M of coverage Insurers (supported by Transocean) denied coverage, claiming the Drilling Contract made clear that Transocean was not responsible for liability for subsurface pollution and BP could not claim Additional Insured status for such claims Question: Does the Court look only to the Policy to determine BP s Additional Insured status, or to the Drilling Contract as well? 71

72 Deepwater Horizon: The Decision Texas Supreme Court (on certified question from the 5 th Circuit) Because the grant of Additional Insured status incorporates definition of Insured Contract, it is necessary to look to the Insured Contract to determine the scope of coverage [W]e determine the scope of coverage from the language employed in the insurance policy, and if the policy directs us elsewhere, we will refer to an incorporated document to the extent required by the policy. Lesson: The policy controls in the first instance, but can direct you to look elsewhere 72

73 Deepwater Horizon: The Lack of a Comma [BP], its subsidiaries and affiliated companies, coowners, and joint venturers, if any, and their employees, officers and agents shall be named as additional insureds in each of [Transocean s] policies, except Workers Compensation for liabilities assumed by [Transocean] under the terms of this Contract. BP argued that the limitation on BP s Additional Insured status to the liability Transocean assumed under the Drilling Contract applied only to workers compensation policies due to the lack of the comma Texas Supreme Court disagree: unreasonable interpretation 73

74 The Additional Insured Endorsement Matters Multiple ISO endorsements available Who will be an additional insured Specifically named Category, e.g., vendors, owners, contractors, lessors of equipment Agreed in writing 74

75 Practice Tips: Additional Insured Endorsements Additional insured coverage may provide more, less, or exactly what coverage the parties anticipated Review indemnity and insurance provisions before contracts are signed AND Review the actual insurance policy or the additional insured endorsements Try to ensure the two match the intent of the parties, or at least identify the gaps 75

76 Waivers of Subrogation Subrogation: allows a party that has paid a loss on behalf of someone to recover from the party that actually caused the loss Common issue for insurers who pay a claim Waiver of subrogation: prevents the insurer from suing the party at fault (if within the waiver) Waivers of subrogation are common and are enforceable Ideally require two steps The waiver in the contract itself An acknowledgment of the waiver by the insurer 76

77 Waivers of Subrogation Do you need a waiver if you have Additional Insured status? Insurer generally cannot subrogate against an insured, so if you are an Additional Insured, insurer should not be able to seek subrogation BUT: What if outside the Additional Insured endorsement? 77

78 Practice Tip: Waivers of Subrogation Bottom line: generally a good idea to get a waiver of subrogation 78

79 Indemnitors versus Insurers: Who Pays First? Blessed by a wealth of risk transfer mechanisms: both indemnitee and Additional Insured status But who is on the hook first: Generally insurer, and CGL insurers do not typically dispute this issue But, there have been instances where insurer claims its policy is excess over other insurance AND available indemnification Places everyone in an precarious situation Limited case law 79

80 Indemnitors versus Insurers: Who Pays First? Be proactive: Include language in the contract itself that the Additional Insured coverage will be primary and non-contributory to both any other insurance carried by the Additional Insured, as well as any indemnification obligation Be wary of any language in the policy that converts the typical Other Insurance clause into an Other Insurance and Indemnification clause 80

81 Final Practice Pointers: Interplay of Insurance and Indemnification Be aware of possible statutory limitations on indemnification, and any resulting effects on additional insured requirements Consider specifying the Additional Insured endorsement in the insurance provision Be careful, though, and ask: Is it feasible? Be aware of the interplay between the additional insured requirement in the contract and the policy itself Consider and likely request waivers of subrogation Specify who pays first: generally the Insurer 81

82 QUESTIONS? Katie Pfeifer Partner Dorsey & Whitney LLP 50 South Sixth Street, Suite 1500 Minneapolis, MN (612) : phone (612) : fax pfeifer.katie@dorsey.com Ms. Pfeifer is a trial attorney and a partner in the Minneapolis office of Dorsey & Whitney and the co- Chair of the Insurance Law practice group. She represents clients in all types of complex commercial litigation, with a particular emphasis on insurance coverage disputes, construction litigation, and health care litigation. Her clients include public and private corporations, for-profit and non-profit entities, financial institutions, and individuals. Through her work with the Tort Trial and Insurance Practice Section (TIPS) of the ABA, Ms. Pfeifer also serves as a Senior Editor of the CGL Reporter Editorial Board. Written by practicing attorneys, the CGL Reporter, published by IRMI, provides annotations of important coverage decisions from across the nation involving general liability and other business-related policies, and provides commentary on cases and their implications to risk management, insurance, and legal professionals. 82