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Insurance - Required by written contract

image Charles E. Comiskey Sr., Vice President, Brady Chapman Holland & Associates, Inc., Houston, TX

HOUSTON - What do you suppose is the primary triggering mechanism for the provision of coverage? A well written policy? Indemnification? Additional insured status? Many of the insurance coverages ostensibly provided to upstream parties (i.e., Owners, GCs) are provided only where required by written contract. When a loss occurs, one of the first documents that any insurance company adjuster will demand is the signed contract as that document stipulates the agreement of the parties. The contract is therefore the primary triggering mechanism. If the contract fails to state a necessary requirement, then the insurance may not be triggered. Simply requiring a coverage without specificity is insufficient and ineffective.


    For instance, additional insured endorsements can be provided on a specific basis (i.e., naming the parties to be added as additional insureds) or a “blanket” basis (i.e., stating that additional insured status is extended to all parties required to be named as additional insured in a written contract).  Neither basis informs about the kind of operations or the scope of negligence to which the additional insured status applies.
    The ISO CG 20 10 is the construction-related endorsement most commonly used to provide additional insured status for ongoing operations.  There have been six different editions of this endorsement, each progressively more restrictive.
    The last four numbers of an ISO endorsement indicate the edition date.  The CG 20 10 10 01 was promulgated in October, 2001.  This endorsement is applicable to liabilities arising out of the insured’s on-going operations.  “Arising out of” is commonly held to include protection for the additional insured’s sole negligence related to those operations.
    The ISO CG 20 10 07 04 drops the “arising out of” wording and instead states that additional insured status is provided only for liabilities caused, in whole or in part, by the acts or omission of the Named Insured or of those acting on the Named Insured’s part, again in performance of ongoing operations.
    ISO CG 20 10 04 13 is the latest ongoing operations additional insured endorsement.  Like its immediate predecessor, it excludes coverage for the additional insured’s sole negligence but goes on to state that it:
    (1)    Applies only to the extent permitted by law;
    (2)    Will not be broader than that which [the Named Insured is] required by contract to provide; and
    (3)    Will not pay more than the amount required by contract.
    ISO CG 20 37 provides additional insured status with regard to completed operations.  This endorsement is subject to the same editions and issues pertinent to those editions.
    That said, there are hundreds of manuscript additional insured endorsements currently in use.  These may (1) limited the parties covered, (2) limit the scope of coverage, (3) limit the operations coverage, and/or (4) add new exclusions.
    Additional insured coverage should be primary and noncontributory to that carried by the additional insured.  However, all general liability policies state that they are primary, unless any other insurance covering the same loss is also primary, in which case they share in payment of that loss.  That is contrary to the desires of upstream parties, who want the downstream contractor’s insurance to pay fully until it is exhausted without contribution from the upstream party.
    To achieve this ISO has issued a General Liability Primary & Noncontributory endorsement CG 20 01 04 13.  This states that the Named Insured’s coverage “is primary and will not seek contribution from any other insurance available to an additional insured under [the Named Insured’s] policy provided that:
    •    the additional insured is a Named Insured under such other insurance; and
    •    [the Named Insured has] agreed in writing in a contract or agreement that this insurance would be primary and would not seek contribution from any other insurance available to the additional insured.”

    Warning:  Note that requiring that the downstream party’s insurance be primary is not sufficient.  The endorsement requires “primary and would not seek contribution.”

Charles E. Comiskey
Brady Chapman Holland & Associates Inc.
10055 West Gulf Bank  • Houston, Tx  77040

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