The commercial general liability (CGL) coverage form has a “whois an insured” section in which it describes “an insured” to whomthe provisions of the CGL form apply.

However, that section does not deal with entities known as“additional insureds,” those that are added as insureds to the CGLform by way of endorsements.

In today's business world, a company is often asked (orrequired) to put another entity on its commercial general liabilitycoverage form as an additional insured. This is usually done byissuing an endorsement to the CGL form, adding the other entity asan insured. The endorsement can be fine-tuned to a specific entityor can be a blanket additional insured endorsement. Furthermore,the wording of the additional insured endorsement can be simple ormore complex.

Legal and financial consequences

But regardless of the length or format of an additional insuredendorsement, the insured and the insurer should realize that adecision to make some entity an additional insured on a generalliability policy should not be dismissed as just a simple businessdecision that has no real consequences. There can be legal andfinancial consequences arising from that decision.

As an example, if the insurer is going to provide liabilitycoverage for an additional insured through an endorsement to a CGLform, the insurer must also live up to the duty to defend. Afterall, the insurer states that it has “the right and duty to defendthe insured against any suit seeking … damages.” This statementobviously includes an additional insured within its scope. However,the duty to defend is limited by the declaration that “we will haveno duty to defend the insured against any suit seeking damages … towhich this insurance does not apply.”

So, for example, if an exclusion on the CGL form clearly appliesto the named insured and the additional insured, there is no dutyto defend on the part of the insurer. If, however, an exclusionapplies solely to the named insured, the policy should still applyto the additional insured.

Some insurers will argue that unless the named insured hascoverage, the additional insured has no coverage. What theinsurers fail to understand is that the policy applies separatelyto each insured against whom a claim is made or suit is brought(the separation of insureds clause).

Who's covered?

Disputes over whether the insurer has to indemnify and defendthe additional insured can arise when there is a lack of clarity inthe wording of the additional insured endorsement.

For example, some additional insured endorsements still make thedesignated entity an insured for liability “arising out of” theproduct, work or operations. This phrase can cause coveragedisputes, with some reading the phrase very narrowly, limiting anadditional insured's role as an insured only to vicarious liability— that is, no coverage for any negligence of the additional insuredthat is independent of the activities of the named insured. Putanother way, the liability of the additional insured flows onlyfrom the liability of the named insured.

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Coverage for additional insureds depends on the wording inthe endorsement and can be subject to different interpretations ifit is not specific. (Photo: Shutterstock)

Others would say “arising out of” deserves a broaderinterpretation — so broad that the additional insured's ownactivities could lead to liability coverage under the namedinsured's CGL form. Therefore, if the activities of the additionalinsured (instead of the named insured) cause injury to someone, thenamed insured's CGL form will apply to a claim as long as there issome connection between the additional insured's activities and thenamed insured's operations or premises.

Because of the differences in interpreting “arising out of,” theinsurance services office (ISO) amended the language in some of thecurrent additional insured endorsements. The phrase “arising outof” was dropped and replaced with language limiting coverage forthe additional insured to bodily injury and property damage “causedin whole or in part by your (the named insured) acts oromissions.”

Thus, the form attempts to eliminate coverage for an additionalinsured's sole negligence, in that unless the named insured isresponsible in whole or in part for resulting injury or damage, theadditional insured has no coverage. (Of course, with this wording,namely, in whole or in part, if the additional insured can showthat the named insured is at least one percent at fault, theadditional insured may have coverage, regardless of how much of thefault rests with the additional insured.)

'Your work'

Another consideration when it comes to defending additionalinsureds can arise if the additional insured endorsement uses thephrase “your work.” Since this term is used in a completedoperations context in the CGL form, an intent by the insurer tolimit coverage and defense for additional insureds to ongoingoperations can be disregarded by a court.

Current ISO additional insured endorsements do use the phrase“in the performance of your ongoing operations” in order to clarifythe extent of coverage for the additional insured. However, notethat it is possible in some fact patterns to argue that coveragestill applies after the work has been completed. The reason is thatthe trigger of coverage can be interpreted by courts as when thetime liability occurs (that is, the negligent act), and not thetime when injury or damage occurs.

Conflicts interests

Finally, the additional insured may have direct access to thenamed insured's policy. The additional insured can turn claimsarising from its activities directly over to the insurer withoutconsulting the named insured and seek defense coverage. Moreover,in such a situation as well as others, the additional insured andthe named insured could end up being involved in the same claim.This would require the insurer to provide separate defensestrategies and counsels if the interest of the additional insuredand the named insured conflict.

These are just a few of the many points to consider whenentertaining a request to put an additional insured on the generalliability policy. It has to be more than just a routine businessdecision.

Related: The 8 most misunderstood coverage issues in CGLinsurance

David D. Thamann, JD, CPCU, ARM, is managing editor forFC&S, a sister publication of PropertyCasualty360-NationalUnderwriter and part of ALM. He may be reached at [email protected].