Foreword About the Editors About the Contributors. Definitions and Comparisons of Commonly Used Titles 1

Transcription

1 Contents Foreword About the Editors About the Contributors Introduction xv xvii xix xxvii CHAPTER ONE Definitions and Comparisons of Commonly Used Titles 1 ERIKA BLOMQUIST I. Named Insureds 1 A. First Named Insured v. Additional Named Insured 3 1. Premium Payments 3 2. Policy Cancellation 3 3. Amendments to the Policy 3 II. Additional Insured Status 4 A. Automatic Insureds 4 B. Additional Insured by Separate Contract 6 1. Purpose of Additional Insured Status 6 2. Types of Additional Insured Endorsements 7 III. Differences between Named Insureds and Additional Insureds 8 A. Coverage for Employees, Executive Officers, and Directors 8 B. Deductible 9 C. Exclusions 9 D. Notice 9 IV. Standard Mortgage and Loss Payable Clauses 9 A. Standard Mortgage Clause 10 B. Loss Payable Clause 10 CHAPTER TWO Common Provisions 13 LYNDON F. BITTLE I. Contractual Indemnification 14 A. Purpose and General Provisions 14 B. Common Scenarios and Terms Construction Contracts Manufacturing and Distribution Relationships 17 iii

2 iv CONTENTS 3. Lease Agreements Directors and Officers Other Business Transactions 20 C. Anti-indemnity Statutes Statutes Prohibiting Indemnification for Sole Negligence of Indemnitee Statutes Prohibiting Indemnification for Sole or Partial Negligence of the Indemnitee Statutes Closing the Additional Insured Loophole 21 D. Express Negligence Rules 22 II. Required Insurance Coverage for Additional Insured 24 A. Additional Named Insured 24 B. Automatic or Categorical Additional Insureds 25 C. Blanket Additional Insured Endorsements 25 D. Interplay between Indemnity and Insurance 27 E. Insured Contract Provisions 28 F. Notice Requirements 28 G. Defense Duties 29 H. Other Insurance Provisions 30 I. Exclusions Applying to Additional Insureds 31 J. Policy Rescission and Severability Provisions Rescission Severability 35 CHAPTER THREE Hold Harmless and Indemnification Agreements and the Obligation to Procure and Maintain Insurance 37 THOMAS S. GARRETT AND JEFFREY L. COLE I. Overview of Named Insureds, Insureds, and Additional Insureds 37 II. Contractual Relationships Requiring Additional Insured or Contractual Liability Coverage 37 III. The Failure to Procure or Maintain Insurance Coverage 39 IV. Self-Insurance and Self-Insured Retentions 43 V. The Distinction between Insured Contract Coverage and Additional Insured Coverage 45 C H A P T E R F O U R Memorializing Additional Insured Status 49 STEWART M. COX I. Inclusion as Part of Named Group 49 A. Who Is Insured 49 B. Automatic Additional Insured Endorsements 50 C. Specific Endorsements and Best Practices 51

3 Contents v III. Certificate of Insurance 52 A. The Certificate Form 53 B. Efficacy of Certificate 54 IV. Broker or Agent Request 57 CHAPTER FIVE Development of Common AI Endorsements 59 PATTI POTASH I. Introduction 59 A. The Insurers Expected Vicarious Liability Coverage Exposure for Additional Insureds 59 B. The ISO and Manuscripted Additional Insured Forms 60 C. Arising out of Scope of Additional Insured Coverage The Minority Position Vicarious Liability The Majority Position Broad Coverage Not Restricted to Vicarious Liability 64 II. Alternatives for the Scope of Additional Insured Coverage 70 A. Caused in Whole or in Part by 70 B. With Respect to or Resulting from 73 C. The Additional Insured s General Supervision 74 D. Sole Negligence 77 III. The Policy Period Trigger for Additional Insured Coverage 79 A. Limitation to Ongoing Operations 79 B. The Ongoing Operations Exclusions 81 IV. Exclusions 84 CHAPTER SIX Duty to Defend/Duty to Indemnify 85 JOSEPH A. WILSON I. Overview of Covered Claims 85 A. Named Additional Insureds 85 B. Blanket Endorsements 85 II. Agreement to Procure Coverage 86 A. Written Agreements 86 B. Certificates of Insurance 86 III. Causal Relationship: Arising Out of 87 A. Named Insured s Work 87 B. Named Insured s Ongoing Operations and Completed Operations 88 C. Named Insured as Lessor 89 IV. Duty to Defend 90 A. Complaint Four-Corners Rule 90 B. Extrinsic Evidence 91 V. Duty to Indemnify 91 VI. Priority of Coverage 92 VII. Avoidance of Duty to Defend 93

4 vi CONTENTS CHAPTER SEVEN Scope of Coverage 95 ADAM M. SMITH AND LORRAINE M. ARMENTI I. Introduction 95 II. Additional Insureds Entitled to Same Protection as the Named Insured 95 A. Policy Premiums 96 B. Notice Provisions 97 III. Scope of Coverage Not Greater Than Coverage for the Named Insured 97 A. General Principles 97 B. Limit of Liability 99 IV. Coverage for the Additional Insured When Coverage Is Excluded for the Named Insured 100 A. Historical Development of the Separation of Insured Provision 101 B. The Insured v. an Insured 102 C. Employee Exclusion 103 D. Intentional Acts Exclusion 105 E. Impact of Certificates of Insurance on Scope of Coverage Afforded to Additional Insureds 106 V. Rescission as to the Named Insured 108 A. Justifications for and against Rescinding as to Additional Insureds 109 B. New York s Separability Doctrine 111 C. California s Statutory Approach 113 VI. Exclusions for Sole Negligence v. Own Negligence 114 A. Exclusions for the Additional Insured s Own Negligence 114 B. Exclusions for Sole Negligence 119 VII. Exclusions for Completed Operations 121 A. Endorsements Covering Liability Arising Out of Your Work 121 B. Endorsements Covering Liability Arising Out of Your Ongoing Operations 123 VIII. Cross Liability Exclusions 125 CHAPTER EIGHT Subrogation and Antisubrogation 131 MIRNA M. SANTIAGO I. Subrogation versus Antisubrogation 131 A. Subrogation 131 B. Antisubrogation 132 II. Waiver of Subrogation 134 III. Effect on Subrogation of Being Named as an Additional Insured 141 IV. Insurance Law s Intersection with the Rule of Equity Providing for Subrogation 141 A. When the Damages Are in Excess of the Policy Limits 141 B. When the Carrier Has Not Been Fully Compensated for the Additional Insured Coverage 142 C. When an Exclusion in the Policy Renders It Inapplicable 142

5 Contents vii D. When There Is Other Coverage That Insures the Same Risk 142 E. When the Policy Does Not Cover the Same Loss for Which Coverage Is Anticipated 142 F. When There Is Limiting Language in the Additional Insured Provision of the Policy 142 CHAPTER NINE Choice of Law; Anti-Indemnity Provisions; Insurability of Punitive Damages 145 CATHLEEN H. HEINTZ AND LISA F. MICKLEY I. Introduction 145 II. Choice of Law Impact on Coverage of Additional Insureds 146 A. Lex Loci Contractus and the Restatement 146 B. Governing Law and the Additional Insured Endorsement 147 III. How States Vary in Assessing Coverage for Additional Insureds 150 A. Variations in the Significance of Certificates and the Construction of Standard Additional Insured Endorsements Certificates of Insurance Additional Insured Endorsements 150 B. Regulatory and Statutory Control of Additional Insured Coverage 152 IV. Negotiating the Additional Insured Relationship 153 V. State Anti-indemnity Provisions 153 A. Anti-indemnity Statutes An Overview Statutes Vary in Scope Current Trends 154 B. References Cases State Statutes 156 VI. Punitive Damages 162 A. The Insurability of Punitive Damages Introduction Policy Concerns and Moral Hazard The Significance of the Insurance Policy 163 B. Survey of Jurisdictions on Coverage of Punitive Damages Jurisdictions Prohibiting Insurability of Punitive Damages The Vicarious Liability Exception and Additional Insureds Jurisdictions Permitting Insurability of Punitive Damages 172 VII. What Is a Punitive Damage 178 CHAPTER TEN Notice/Late Notice 181 THOMAS S. SCHAUFELBERGER AND WILLIAM C. BATON I. Claims-Made Notice 182 II. Occurrence-Based Notice 182 III. Notice Duties of the Additional Insured 183

6 viii CONTENTS IV. Receipt of Notice 185 A. Who Must Receive Notice? 185 B. Notice and Awareness 186 V. What Triggers the Notice Requirement? 187 VI. Failure to Give Notice or Delayed Notice Excused 191 VII. Late Notice and Prejudice 193 VIII. Conclusion 196 CHAPTER ELEVEN Limits Issues 197 DAVID COX, BRIAN EPPS, AND JENNIFER RASILE EVERITT I. Self-Insured Retentions and Deductibles 197 II. Dilution of Policy Limits 200 III. Effects of Other Insurance Clauses 200 A. Type of Other Insurance Clauses Pro Rata Clauses Excess Escape 203 B. Application of Nonconflicting Other Insurance Clauses Pro Rata v. Pro Rata Pro Rata v. Excess Pro Rata v. Escape 204 C. Reconciliation of Conflicting Other Insurance Clauses Total Insuring Intent Conflicting Other Insurance Clauses Are Mutually Repugnant/Lamb-Weston Rule Excess v. Escape Escape v. Escape Excess v. Excess 207 D. Application of Other Insurance Clauses to Additional Insureds 208 IV. Allocation of Cost Methodologies 209 A. Allocation Policy Provisions 209 B. Disputes over Allocation Insurers Duties 211 C. Practical Considerations Regarding Allocation among Co-insureds 214 CHAPTER TWELVE Ethical Issues for Insurance Defense Counsel 217 SAMANTHA JOHNSON I. Introduction 217 II. The Role of the Insured s Counsel Who Is the Client 217 A. Two-Client Theory 218 B. One-Client Theory 218 C. Third-Party Payor Theory 219

7 Contents ix III. The Insured s Defense Counsel Ethical Issues in the Tripartite Relationship 219 A. Multiple Insureds under Same Policy 220 B. Insurer Defends under a Reservation of Rights 221 C. Defense Counsel s Knowledge of Matters Affecting Coverage 222 D. Insurer s Use of Litigation Guidelines 222 E. Insurer s Use of Outside Auditors 225 F. Disagreement over Litigation Strategy/Settlement 226 G. Settlement within Policy Limits Insurer s Intent to Settle Claim without Insured s Consent Advising Insured of Rights against an Insurer Who Fails to Settle within Policy Limits 228 H. Declining/Burning Limits Policy Insurance Fraud 230 IV. The Insured s Entitlement to Separate Counsel Cumis and Its Progeny 231 A. Pre-Cumis 231 B. Cumis and the California Response The Cumis Case California Courts Reaction to Cumis Cumis Codified Case Law after California Code Section C. Other States Adoption of Cumis Principles 238 V. Conclusion 239 CHAPTER THIRTEEN Additional Insured Coverage in Canada 241 RICHARD BERROW AND JOËLLE MICHAUD I. Introduction 241 II. The Duty to Defend Indemnify the Additional Insured 242 A. The Basis Principles of Interpretation of Insurance Contracts Relevant to the Duty to Defend the Additional Insured 242 B. Explicit Language and Insuring Intent Arising Out of Insuring Intent The Trends 245 C. Competing Policies 250 III. Indemnity or Hold Harmless Clause 250 IV. Absence of Restrictive Language 251 V. True Nature of the Entire Claim 251 VI. Allegations against the Insured Required 252 VII. Rights Conferred on the AI 253 VIII. Policy Exclusions 254 IX. Conclusion 254

8 x CONTENTS CHAPTER FOURTEEN Additional Insureds and U.K. Law 255 CHRISTIAN WELLS I. What Is an Additional Insured? 255 II. Consequences and Points to Note 257 III. Issues in English Law 258 IV. Relationships between Principal and Additional Insureds 260 A. Relationships between Insureds 260 B. Commercial Relationships 261 V. Other Areas in Which Issues Arise 262 A. Disclosure 262 B. Erosion of Shared Cover and Excess Points 263 C. Claims Handling 264 D. Defense 264 CHAPTER FIFTEEN A Architects and Engineers 265 LYNDON F. BITTLE I. Architects and Engineers 265 A. Including Other Parties as Additional Insureds on E&O Policies Additional Insureds Not Usually Permitted Limited Coverage May Be Available Obtaining Coverage as Additional Insureds on Third-Party Policies 267 CHAPTER FIFTEEN B Directors and Officers Liability 269 CARL E. METZGER AND BRIAN H. MUKHERJEE I. Introduction 269 II. Typical Insureds under a D&O Policy 270 A. Named Insured 271 B. Subsidiaries 271 C. Insured Persons 272 III. Adding Additional Insureds to the D&O Policy 272 A. Non-employees as Additional Insureds 273 B. Employees as Additional Insureds 273 C. In-House Counsel as Additional Insureds 274 D. Other Internal Compliance Functions 275 IV. Dilution of Limits 275 V. Priority of Payments 277 VI. Insured v. Insured Exclusion 278 VII. Conclusion 279

9 Contents xi CHAPTER FIFTEEN C Owners, Contractors, and Subcontractors 281 LYNDON F. BITTLE I. Builder s Risk Policies 281 A. Waiver of Subrogation, Express or Implied Express Waivers of Subrogation Implied Waivers of Subrogation As Their Interests May Appear 284 B. Commercial General Liability Policies 285 CHAPTER FIFTEEN D Landlord Tenant 289 PATTI POTASH I. The ISO Landlord/Tenant Additional Insured Insuring Agreement: Liability Arising Out of the Ownership, Maintenance or Use of the Premises Leased to the Named Insured Tenant 289 A. The Means of Access Test 292 B. The But For Test 292 C. The Nexus Test 293 II. Exclusions 294 A. After Lease Ceases Exclusion Structural Alterations, New Construction, or Demolition Operations Exclusion 294 III. The Lease 296 CHAPTER FIFTEEN E Commercial/Business Auto Policy 297 MIRNA M. SANTIAGO I. Permissive User as Additional Insured 297 A. Use of the Motor Vehicle Required for Coverage 299 B. Applicable Statutes 300 CHAPTER FIFTEEN F Marine and Aviation Insurance 301 JOE GRASSO AND ALISON WEIR I. Additional Insured s Coverage May Exceed Coverage of the Named Insured 301 II. Insurer May Collect Losses outside the Policy from Additional Insured 302 III. Where Insured s Incurred Expenses Mitigate Covered Collateral Damage to Another Insured on the Policy, the Insured Was Entitled to Recover Those Costs 303 IV. Indemnification Did Not Extend to Damages to Additional Insured Caused by Additional Insured s Own Breach of Contract 304

10 xii CONTENTS V. Insurer Not Liable to Additional Insured Where Insurer Not Informed of Terms of Contract between Named Insured and Additional Insured 305 VI. Subcontractor Covered as Additional Insured without Contractual Relationship to Named Insured 306 VII. Where Work Performed Requires Vessel, Contract Governing the Work Is Maritime 306 VIII. Vessel Owner Liable for Charterer s Deductible Where Vessel Owner Failed to Name Charter Additional Insured under Its P&I Policy 307 IX. Exclusion for Damage Resulting from Work Limited to Specific Area Where Work Was Done 308 X. Separate and Distinct Indemnity and Insurance Provisions Must Be Evaluated Separately 308 XI. Maritime MSA Not Subject to Louisiana Oilfield Anti-Indemnity Act 309 XII. Under Louisiana Law, Insurer May Not Rely on Insured s Non-Compliance Once It Has Denied Coverage 310 XIII. Charterer Not Covered Under Reciprocal Indemnity Agreement for Risks It Assumed 311 XIV. Absent Language to the Contrary, Additional Insureds Enjoy the Same Benefits and Are Subject to Same Restriction as Named Insured 311 CHAPTER FIFTEEN G Construction Wrap 313 LYNDON F. BITTLE I. Construction Wrap 313 A. Purposes and General Structure Cost Savings? Improved Safety or Risk Management? Workers Compensation Issues Conflict Issues Professional Liability Issues 320 CHAPTER FIFTEEN H Vendors/Vendees 323 SAMANTHA JOHNSON I. History of Vendor s Endorsements 323 II. Coverage under Vendor s Endorsements 325 A. Vendor s Endorsements Generally Provide Coverage for Injuries Arising Out of the Manufacturer s Product Arising Out of Language Is Broadly Interpreted Coverage for Injuries Resulting from Display Units That Are Used to Market Products Coverage When There Is No Connection between Product and Resulting Injury 329

11 Contents xiii B. Coverage Limited to Passive Vendor 330 C. Effect of Other Insurance Clauses on Coverage Afforded under Vendor s Endorsement 333 CHAPTER SIXTEEN Forensic Accounting: Lessons Learned in Dealing with Additional Insureds 337 RICHARD H. HERSHMAN AND WENDY R. SHAPSS I. Case Facts 337 II. Nature of Ensuing Disputes and Underlying Issues 338 A. Research and Information Collection to Support Client Case 339 B. Estimating Property Damages and Other Liabilities 339 C. Subrogation Rights Established 340 D. Duty to Preserve Evidence 340 E. Research and ESI Discovery 341 F. Liability 341 G. Coverage Analysis 342 III. Damages 342 IV. Findings and Conclusions 343 V. Lessons Learned 343 VI. Summary 344 Table of Cases 345 Index 379