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Insurance Spotlight: Understanding Additional Insured Status

Insurance

08/25/2015

By: Shaundra Schudmak

In certain industries, a company’s operations can involve complex contracts and agreements that govern its work with other external entities, such as sub-contractors or independent contractors. The oil-and-gas, construction and maritime sectors, for example, are industries in which it’s commonplace for multiple parties to conduct business under a contract outlining the services each will contribute to a mutual endeavor, as well as assumed risks and associated liabilities.

Insurance policies that provide coverage for businesses within these types of industries often include an “additional insured” provision. Whether a party qualifies as an “additional insured” under a policy has implications on the policyholder and the insurance industry at large. The term “additional insured” refers to an individual or entity that is not automatically included as an insured party under the policy of another, but for whom the named insured’s policy provides a certain degree of protection. Additional insured coverage allows the individual or entity to obtain coverage under the named insured’s policy while also giving direct access to the policy.

Further, the contract or agreement between a named insured and the entity claiming additional insured status is of significant importance for insurers, as it heavily influences how they determine additional insured coverage under the policies. Assessing the language of the contract or agreement between the parties is a key step in the process. An obligation to indemnify in a contract, which is a clause requiring one party to assume liability on behalf of another party, standing alone, does not confer additional insured status. However, other provisions of a contract or agreement, such as an insurance provision, can contain a requirement for the named insured to name the other party as an additional insured or provide limitations on the type and amount of insurance coverage to be provided.

Unless the named insured’s policy contains an additional insured clause, the insurer has no contractual obligation to provide defense or indemnity to a party that is not specifically listed as an insured or additional insured under the policy. The additional insured clause can usually be found in an endorsement, an element typically required to affect additional insured status. There are two common types of additional insured endorsement in an insurance policy: a scheduled additional insured endorsement and blanket additional insured endorsement. The graphic below illustrates the typical requirements to trigger blanket additional insured coverage.

Additional Insured Graphic

Further, the scope of coverage can be influenced by the language used in the contract, in reference to sole negligence of the additional insured or the applicable limit of liability. A few states, including Texas and Louisiana, have laws in place that may limit indemnity agreements in oilfield service contracts, particularly for contracts with sole negligence language. In regards to construction contracts, at least 45 states have enacted anti-indemnification statutes that restrict, modify or invalidate indemnification agreements. However, even when the anti-indemnification statute would render a contractual indemnification provision unenforceable, a number of courts have still upheld additional insured coverage under an insurance policy, even with respect to the additional insured’s sole negligence.

Overall, there are advantages and disadvantages for additional insured status, as well as implications for the named insured. The topic of additional insured status is complex, and thus, many insurance companies seek legal guidance to navigate the process of reviewing and interpreting contract language, liability policy language and the application of various state and federal laws.

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With a team of attorneys who have been recognized by Chambers USA, Best Lawyers in America, and Super Lawyers, Lugenbuhl’s Insurance Practice provides counsel and litigation services for insurance clients across a spectrum of industries, some of which include oil-and-gas, commercial and homeowner property, marine and construction. To learn more about our areas of specialty and key attorney contacts for each area, visit the Insurance Practice section of our website or call 504-568-1990.

The content of this article is not intended to serve as an exhaustive review of the laws, statutes or insurance policy provisions applicable to additional insured insurance issues and is not intended to provide legal advice. The opinions expressed through this article may not reflect the opinions of the firm, individual attorneys or clients.