Torts Insurance Compensation Law Section Contractual Indemnity Provisions & Additional Insureds Liability December 9, 2016 Speaker: Steven E. Peiper, Esq. Hurwitz & fine, PC Thank you to our sponsor for providing lunch!
STEVEN E. PEIPER, ESQ. sep@hurwitzfine.com 716-849-8900 Mr. Peiper focuses his practice in insurance coverage analysis and coverage litigation of both first and third party claims. Co-Chair of the firm s Insurance Coverage Practice Group and head of the firm s First Party team, he authors a bi-weekly column entitled Peiper on Property on recent developments in first party coverage disputes for the firm s electronic newsletter Coverage Pointers. He routinely provides strategic advice on insurance related issues and risk management on a national basis and has successfully litigated cases throughout New York State, as well as in all Federal District Courts in New York. In addition to his coverage practice, Mr. Peiper also handles litigated matters primarily involving construction law. He is a member of the Defense Research Institute s Insurance Law Committee and a member of the subcommittee on First Party Property where he previously served as a liaison to DRI s newsletter Covered Events. He is also a member of the New York State Bar Association s Torts, Insurance and Compensation Law Section, where he previously served as chair of the subcommittee on first party property coverage issues. Mr. Peiper has authored and co-authored multiple articles on insurance coverage and ethics issues. A frequent speaker at continuing education programs, he has lectured on hot-button coverage issues at DRI, American Bar Association and New York State Bar Association programs, as well as at a litany of other local, state, national and international events. Mr. Peiper was awarded the prestigious Sheldon Hurwitz Young Lawyer of the Year Award in recognition of his outstanding contributions to the field by the Torts, Insurance and Compensation Law Section of the New York State Bar Association. The award, named for the cofounder of Hurwitz & Fine, P.C., is a distinct honor awarded to a lawyer admitted ten years or less who has made a significant impact in the industry. Mr. Peiper earned his J.D. from the State University of New York at Buffalo School of Law, where he later returned as a judge in the Charles S. Desmond Moot Court Competition. He received his B.A. with a major in political science and a minor in criminal justice from Shippensburg University in Pennsylvania.
CONTRACTUAL INDEMNITY AND ADDITIONAL INSURED LIABILITY Steven E. Peiper Hurwitz & Fine, P.C. Buffalo, NY sep@hurwitzfine.com 1 THE GOAL Distinguish between an insurer s obligations to those who qualify as additional insureds and contractual indemnitees. Evaluate how to properly respond to tenders under both policies and trade contracts. 2 1
DISCUSSION OUTLINE Separation Document check list Trade contract analysis Policy analysis PUTTING IT ALL TOGETHER 3 ADDITIONAL INSURED VS. CONTRACTUAL INDEMNITEE Distinct statuses Determine status Separately analyze Know your duties Deal with them 4 2
Question Which provides greater protection for a party to a lawsuit: a. A certificate of insurance naming the party? b. A trade contract promising primary and non-contributory insurance protection? c. An enforceable hold-harmless agreement? 5 SEPARATE UNIVERSE THEORY 6 3
CONSIDER THE ADDITIONAL INSURED Stands in same shoes as the named insured so same rights/duties Right to immediate defense Right to be indemnified, often even for own negligence Right to be treated in good faith Notice of accident, claim and suit Cooperation Additional Insureds are in privity with the carrier 7 COMPARE WITH CONTRACTUAL INDEMNITEE It has no direct relationship with the insurer It must prove that the named insured has made an enforceable promise in a contract or agreement and that the named insured owes it a duty Defense costs are damage under the policy Differs from a PROMISE to provide coverage under a policy (insurance procurement) Contractual Indemnitees are in privity with the named insured and not the insurer 8 4
Why Do We Care? Additional Insured vs. Contractual Indemnitee Which status controls and provides broadest protection? Who has right to select defense counsel? Is there a duty to report to the carrier? Who has right to control settlement? Is there an extra-contractual exposure? 10 The classic tender encounter often starts with the unexpected letter 5
Stupendous Insurance Company Hartford, CT Attention: Clem Handler RE: Matter: Pathetic Victim v. NeverSlip Snow Plow Contractors and Misery Mall, LLC Date of Loss: 12/25/13 Dear Mr. Handler: It was a dark and snowy Christmas morning when this unfortunate accident occurred. Pathetic Victim (Patty, to her friends) was rushing to purchase a last-minute Christmas gift for her daughter, Ima, when she slipped on ice and snow and fell into an unguarded construction excavation. The fall didn t hurt her, but the sudden stop wasn t pleasant. She is now making a claim against Misery Mall, claiming our negligence. Negligence? Hogwash. We weren t even open on Christmas morning, and we have a history of never being negligent and always being protected by our snow plow contractors and their insurers. I am the attorney for the Misery Mall. Misery, who loves company, had a contract with your insured, NeverSlip Snow Plow Contractors, and I am quite certain that the contract required NeverSlip to indemnify, protect, hold harmless and provide coverage for Misery. In fact, we even have a Certificate of Insurance with our name on it. We tender this to you as you are the insurer for NeverSlip, and we know you will be ultimately responsible. Love and Kisses, Eeeny, Meeny, Miney and Mo Attorneys Hurwitz & Fine, P.C. 2009 Question Who will protect the Mall in this lawsuit? a) The snow plow contractor s insurer? b) The snow plow contractor itself because of the indemnity agreement? c) Both? d) Some other company or companies? 12 6
WHAT ARE THE CLAIMS? Someone fell and was injured NeverSlip promised to hold the Mall harmless (contractual indemnity) NeverSlip promised to provide the Mall with insurance coverage (insurance procurement) The Mall has additional insured status 13 WHAT IS THE TRUTH? Begin to secure and assemble the documentation you need to find the truth Need to explore each claim separately to determine the truth 14 7
CHECK LISTS Indemnity Claim Fully executed trade contract that covers date, location, operation Verify that it was signed before the loss Changes, amendments Look for hold harmless and insurance procurement provisions Insurance Claim Full policies -- yours, theirs, other insurers that might provide coverage Excess or umbrella policies perhaps as well Careful review and analysis of additional insured provisions 15 SEPARATE THE ISSUES FOR RESOLUTION Most critically: avoid intermingling the questions that arise under the trade contract with those that are insurance-policy related; Focus on the nature of the claims; Separate the issues for analysis and work each to completion; Finally, understand how the courts will apply the results. 16 8
UNDERSTAND THE NUANCES OF THE CLAIM Begin approaching the questions relating to liability and coverage, focusing on the underlying dispute: The nature of the parties making the claim; The time, place and circumstances of the loss; The identity and status of the defendants; and including those who assert a covered 17 status. CONTRACTUAL AND HOLD HARMLESS CLAIMS 18 Claims in the universe of tort 9
THE CASE OF PATHETIC VICTIM Patty was shopping. She was injured when visiting the Misery Mall. Misery had an agreement with NeverSlip Snow Plow Contractors. Mall s counsel claims contractual indemnity obligations and additional insured status. Counsel produces a Certificate of Insurance indicating AI status. 19 DOES YOUR INSURED OWE PROTECTION? What was promised by your insured to others? If contractual indemnity was one of the promises and the contract is enforceable, the claims trigger a promise of protection, irrespective of coverage. That is, if there were no policy of insurance in play, there would still be an obligation on the part of your insured to accept the risk? 20 10
ANALYSIS OF CONTRACT Was there REALLY a contract? Was it signed before the loss? What does it say about indemnity? Are the indemnity provisions enforceable under your state s law? Is there a choice of law clause? Are there insurance obligations? Does your insured have an obligation to provide coverage to procure insurance? That promise is not yours but your insureds 21 CLASSIC INDEMNITY AGREEMENT INDEMNIFICATION You agree to hold the Misery Mall harmless from any claim for death, injury, property damage or other loss which may result from your performance of plowing and sanding operations under this contract. In the event that such a claim is made against the Mall, you will defend Misery Mall, and you will pay any amount (indemnify it) for which the Misery Mall may be held liable in a legal action for such claims. 22 11
CONTRACTUAL INSURANCE PROVISIONS - OPTIONS None Only hold harmless (no insurance requirements) Shall be insured with Shall provide a Certificate of Insurance... Shall be insured for the mutual protection Shall provide insurance naming as an additional insured with limits 23 INSURANCE PROCUREMENT PROVISIONS INSURANCE You agree to maintain liability insurance in the amount of $300,000 for personal injury, death and property damage claims which may arise from snow removal or sanding operations under this contract. INSURANCE You agree to maintain liability insurance in the amount of $300,000 for personal injury, death and property damage claims which may arise from snow removal or sanding operations under this contract and provide Misery Mall with a Certificate of Insurance. INSURANCE You agree to maintain liability insurance in the amount of $300,000 for personal injury, death and property damage claims which may arise from snow removal or sanding operations under this contract and add Misery Mall as an additional insured. INSURANCE You agree to maintain liability insurance in the amount of $300,000 for personal injury, death and property damage claims which may arise from snow removal or sanding operations under this contract and add Misery Mall as an additional insured on a primary and non-contributory basis. 24 12
INDEMNITY AGREEMENT ANALYSIS Reminder: Undertaken without consideration of coverage. What does state law say about enforceability of such an agreement? Are there any prohibitions or public policy considerations? Can the mall owner pass through its own negligence, if any? (Anti- Indemnity Statutes) Is there enough investigation to conclusively determine that your named insured has a contractual obligation to defend and/or indemnify OR is the request premature? What is defense counsel s opinion regarding the contractual liability exposure? For example, is it clear that the accident arose out of the salting and sanding operations, or was there another cause? 25 Question If a contract requires that a subcontractor insure both the general contractor and the owner on a primary, non-contributory basis, the subcontractor s insurer: a) Will provide coverage to both on a primary and non-contributory basis? b) Will provide coverage to the GC on a primary and non-contributory basis? c) May provide neither with coverage? 26 13
YOU HAVE COMPLETED THE FIRST HALF OF THE ANALYSIS THE HOLD HARMLESS PIECE While you have gathered insurance policies, you have not read those policies yet. You have focused your attention on the trade contract. You now know whether your named insured has made any enforceable promises and identified what those promises appear to be. You will, eventually, determine whether you owe your named insured protection for those promises. 27 REMEMBER, WE HAVE NOT YET CONSIDERED ADDITIONAL INSURED PROTECTION 28 14
WHILE WE RE AT IT WHO ELSE MIGHT OWE THE MALL INDEMNITY? Construction site: other contractors and subs? Tenants? Property manager? 29 Question If the named-insured subcontractor is required to defend and indemnify a contractor under a hold-harmless/indemnity agreement, the payment of the contractor s defense costs will: a) be, like the defense costs paid on behalf of the N/I, unlimited and outside indemnity limits; b) be treated differently, and reduce the amount of indemnity dollars available; c) be dependent on the applicability of Supplementary Payments provisions. 30 15
31 ADDITIONAL INSURED STATUS REVIEW THE POLICY OR POLICIES With respect to yours: Double-check effective dates and make certain not canceled. Is the named insured the party against whom the claim is made? Who are named as additional insureds for classification and location? Is there an additional insured endorsement and if so, check type, terms and version? 32 16
AI ANALYSIS: EXAMINE THE ENDORSEMENT AS THEY DIFFER IN LANGUAGE AND BREADTH PAY ATTENTION: Your work Ongoing operations Completed operations Acts or omissions Arising out of Caused by Privity 33 CG 20 10 The ISO CG 20 10 is the most common insurance form used to list additional insured interests on general liability policies. 34 17
COVERAGE PROVIDED UNDER THE ISO 20 10 ENDORSEMENT IS SHRINKING AS THE YEARS GO BY 35 INTRODUCTORY LANGUAGE CRITICAL A. Section II Who Is An Insured is amended to include as an insured any person or organization for whom you are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy. 36 18
LOOK FOR ALL THREE COMPONENTS Performance of operations by you (named insured) for such person or organization Written contract or agreement with party seeking coverage Promise to provide additional insured status 37 CG 20 10 07 04 MOST COMMON VERSION SEEN TODAY Section II. Who Is An Insured is amended to include as an additional insured the organization(s) shown in the Schedule, but only with respect to liability arising out of your ongoing operations performed for that insured, 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. 19
THE 20 10 07 04 ENDORSEMENT There must be a causal connection between the named insured s ACTS OR OMISSIONS and the tort liability of the additional insured. They must be caused by the acts of the named insured (as compared to arising out of the acts of the named insured) which was the language in earlier versions. 39 CG 20 10 04 13 ADDED REFERENCE TO TRADE CONTRACT INSURANCE REQUIREMENTS 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 40 agreement to provide for such additional insured. 20
THE NEGLIGENCE OF THE ADDITIONAL INSURED Is NOT a defense to coverage under the pre-2013 versions When additional insured status is provided under those endorsements AND the accident or loss arises out of the insured s ongoing or completed operations, the fact that the additional insured was negligent is not particularly relevant to the coverage determination Perhaps the 2013 no broader language will limit coverage to named insured s negligence if the trade contract limits coverage in that fashion 41 DO YOU OWE AN INSURANCE OBLIGATION TO MISERY MALL? If a written contract or agreement, and If a requirement to provide coverage, and If accident arises out of work performed, and If (depending upon version), your work or ongoing operations or acts or omissions, then AI status, but Remember that Misery loves company and you may not be alone. 42 21
REMEMBER THAT MISERY LOVES COMPANY AND YOU MAY NOT BE ALONE Consider the application of Other Insurance provisions. If more than one policy / carrier is triggered, which bears the defense obligation? 43 WHO ELSE? Mall s carrier: What does its policy say? Your insured s auto carrier? CGL carrier? Construction company? Consideration of other insurance clauses? 44 22
OTHER INSURANCE AND OTHER INSURERS Review the other policies you have gathered. Compare other insurance clause to determine priority of coverage. Examples: This policy is primary except when certain other insurance applies. When there is other primary insurance written on the same terms or basis as this policy, we will share pro rata with that other insurance to pay the covered amounts you may be legally obligated to pay as damages. 45 CG 00 01 12 07 -- OTHER INSURANCE If other valid and collectible insurance is available to the insured for a loss we cover under Coverages A or B of this Coverage Part, our obligations are limited as follows: a. Primary Insurance This insurance is primary except when Paragraph b. below applies... b. Excess Insurance (1) This insurance is excess over : (b) Any other primary insurance available to you covering liability for damages arising out of the premises or operations, or the products and completed operations, for which you have been added as an additional insured by attachment of an endorsement. 46 23
INDEMNITY AGREEMENTS MAY BE INDEPENDENTLY ENFORCEABLE; CARRIER S OBLIGATIONS MAY DIFFER FROM INSUREDS Remember, indemnity agreements and insurance policies live in different worlds Even without coverage, indemnity agreements may be enforceable If no coverage, the question then becomes whether you have an obligation to indemnify the named insured for the contractual liability claim That often turns on whether the agreement is an Insured Contract 47 THE FINAL STEP 48 Apply all you ve determined 24
WHEN YOU HAVE BOTH AI AND CONTRACTUAL INDEMNITY, COMPLETE THE RISK TRANSFER ANALYSIS After you complete the analysis, apply both conclusions: Determine the identity of the policies that apply; Use other insurance considerations to map out the order/tower of coverage for each party; Then consider the applicability of the hold harmless agreements to see whether there will be additional risk transfer; So, if you provide AI coverage to the Mall and are primary and the Mall s carrier provides coverage to the Mall and is second in line, the hold harmless agreement may permit the Mall (and its carrier) to recover back the money it pays out from your insured or excess carrier. 49 50 PROTECTING THE NAMED INSURED 25
DON T FORGET YOU MAY HAVE AN OBLIGATION TO PROTECT YOUR NAMED INSURED FROM THE CONTRACTUAL LIABILITY/HOLD HARMLESS CLAIMS UNDER THE TRADE CONTRACT 51 CONTRACTUAL LIABILITY EXCLUSION Your named insured may be sued for breaching a contract, for example: Failing to honor lease terms to maintain property Breach of warranty under a construction contract Failure to secure promised insurance CGL policies do not cover breach of contract because of the contractual liability 52 26
CONTRACTUAL LIABILITY EXCLUSION AND INSURED CONTRACT EXCEPTION b. Contractual Liability [Exclusion] "Bodily injury" or "property damage" for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement. This exclusion does not apply to liability for damages: (1) That the insured would have in the absence of the contract or agreement; or (2) Assumed in a contract or agreement that is an "insured contract", provided the "bodily injury" or "property damage" occurs subsequent to the execution of the contract or agreement.. INSURED CONTRACT (DEFINED) 9. "Insured contract" means: a. A contract for a lease of premises * * * f. That part of any other contract or agreement pertaining to your business (including an indemnification of a municipality in connection with work performed for a municipality) under which you assume the tort liability of another party to pay for "bodily injury" or "property damage" to a third person or organization. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement. 54 27
INSURED CONTRACT CONSIDERATIONS Is that what YOUR policy says? Does your policy address the sole negligence of the contractual indemnitee? Was the contract signed prior to the loss? Does it promise to indemnify another for tort liability? If so, you would have to indemnify the insured for those claims BUT NOT provide AI coverage. 55 ADDITIONAL CONSIDERATIONS Do you pick up the defense of the Mall if it is NOT an Additional Insured? 56 28
INSURED CONTRACT CONSIDERATIONS AND SUPPLEMENTARY PAYMENTS Review the Supplementary Payments section of your policy: Is there a conflict between the insured and the indemnitee? Has the carrier been given control of the defense? Has the indemnitee agreed in writing to cooperate, forward papers and 57 assist in pursuing other coverage? BY FOLLOWING THIS APPROACH You will take nothing for granted You will test out every claim made by those who seek protection You will provide coverage when you should and not provide coverage when you shouldn t You will properly distinguish between your insureds obligations and yours under the policy You will assure that you have all the help you need from other carriers 58 29
OF COURSE This approach works equally well when you insure the owner and you are tending to others who may owe your insured protection as: An additional insured; and / or A contractual indemnitee 59 Coverage Pointers 60 30
CONTRACTUAL INDEMNITY AND ADDITIONAL INSURED LIABILITY Steven E. Peiper Hurwitz & Fine, P.C. Buffalo, NY sep@hurwitzfine.com 61 31