Presentation to Association of Corporate Counsel Arizona Chapter Interaction Between Coverage of Additional Insureds, Insured Contracts, and Indemnity Michael L. Parrish Stinson Leonard Street LLP
Indemnity Contracts Insured Contracts Insurance-Procurement Contracts Additional Insured Coverage 2
Why It Matters Drafting Indemnity and Insurance-Procurement Contracts Interpreting/Complying with Indemnity and Insurance-Procurement Contracts Evaluating Policies for Insured Contract Coverage, Additional Insured Status, and Scope of Additional Insured Coverage Dealing with Insurers on Coverage Issues Maximizing Insurance Coverage 3
Issues to Consider When Client Receives a Claim Is there an applicable indemnity contract? If so, is there an affirmative duty to defend? If so, is it affected by an anti-indemnity statute? Is there an applicable insurance-procurement contract for additional-insured coverage? If so, is there compliance? Regardless, is client an Additional Insured? If so, does the coverage potentially apply? 4
Contractual Indemnity Broad form indemnify Indemnitee for entire loss, including loss caused by the sole negligence of indemnitee Intermediate form indemnify Indemnitee for entire loss, unless caused by Indemnitee s sole negligence or willful misconduct Limited or narrow form indemnify Indemnitee only to the extent the liability was caused by Indemnitor s acts/omissions 5
Contractual Indemnity To obtain indemnity for Indemnitee s own fault, agreement should clearly and unequivocally indicate that intent. But no magic language is required in Arizona. Indemnification against Liability indemnity is triggered once Indemnitee s liability is established. Indemnification against Loss or Damages indemnity is triggered once Indemnitee pays its liability. 6
Arizona s Anti-Indemnity Statutes A.R.S. 32-1159 Indemnity agreements in construction and architect-engineer contracts Void to the extent it requires Indemnitor to indemnify or defend against liability resulting from Indemnitee s sole negligence 7
Arizona s Anti-Indemnity Statutes A.R.S. 34-226 Indemnity agreements in construction and design professional service contracts for public buildings and improvements May require indemnity but only to the extent caused by Indemnitor s negligence, recklessness, or intentional wrongful conduct This does not affect an insurance-procurement contract or insurance coverage of additional insured 8
Contractual Indemnity-Duty to Defend. Unlike a liability insurer, a contractual Indemnitor s agreement to defend the Indemnitee generally does not apply: to actions for liability that might not be within the scope of the indemnity obligation, or where there is a conflict of interest between Indemnitor and Indemnitee 9
Coverage of Insured Contracts Contractual liability is generally excluded from CGL coverage except: Liability that would be imposed without the contract Liability assumed by contract in an insured contract Certain indemnity contracts qualify as insured contracts Insured contract must be in writing Only for injury/damage assumed prior to the occurrence An indemnity lawsuit against the Indemnitee-Insured is usually required to trigger coverage Normally does not obligate the Insurer to defend the Indemnitee 10
Insurance-Procurement Contracts Contract requiring Promisor to procure and maintain certain insurance (e.g., CGL, auto liability, workers comp) with specified limits Contract may also require that the promisor have the promisee made an Additional Insured under the CGL policy Breach of contract to procure Additional Insured coverage may make the Promisor an insurer of Promisee s liability 11
Obtaining Additional Insured Coverage Generally, only the policy confers Additional Insured status Certificates of insurance do not provide coverage Usually requires an endorsement to the policy Endorsement that names the Additional Insured Endorsement for Additional Insureds as required by contract Endorsement describing who qualifies as Additional Insureds 12
Additional Insured Coverage under CGL Policy Coverage of Additional Insured Defend suit if there is a potential for coverage Pay damages to which the insurance applies Applies to suits against the Additional Insured if within the scope of coverage, regardless of whether the Named Insured is sued 13
Scope of Additional Insured Coverage Injury/Damage or Lawsuit must relate to the Named Insured s activities to some extent To what extent is critical and often disputed Scope is determined by the policy, not by an insurance-procurement contract Coverage that is provided may be broader or narrower than required by contract Limits may be higher or lower than required by contract 14
Scope of Additional Insured Coverage Varies Liability arising out of [Named Insured s] work Requires only but for causation, even if (i) Named Insured is not at fault, or (ii) Additional Insured was only party at fault Includes direct liability and vicarious liability 15
Scope of Additional Insured Coverage Varies Liability arising out of [Named Insured s] ongoing operations Limits scope of coverage to work in progress, not completed operations Liability arising out of [Named Insured s] completed operations Completed Operations coverage 16
Scope of Additional Insured Coverage Varies Injury/Damage caused, in whole or in part, by [Named Insured s] acts or omissions Coverage applies if Named Insured was partly at fault No coverage if Additional Insured was sole negligent party 17
Scope of Additional Insured Coverage Varies not broader than that which [the named insured] was required to provide Look to the insurance-procurement contract coverage only applies to the extent permitted by law Effect of anti-indemnity statutes In some states, this would preclude coverage of punitive damages 18
Severability Clause CGL policy provision Necessary to ensure that, except for limits, insurance applies to Named Insured and Additional Insured separately Without this phrase, Additional Insured Would Not Have Coverage for Claim By Named Insured 19
Waiver of Subrogation CGL policy provision Eliminates insurer s right to seek subrogation from Additional Insured for its fault 20
Tips for Drafting Insurance-Procurement Contracts Obligation to procure Additional Insured coverage not limited by indemnity obligation Require waiver of subrogation Require Severability clause Avoid large deductible Specify Additional-Insured Endorsement to be used for scope of coverage Consider what endorsements are available in the market 21
Tips for Drafting Insurance-Procurement Contracts (cont d) Obligating Promisor to Provide Copy of CGL Policy May not make sense to require copy of policy at time of contracting. Requiring a copy in the event of claim 22