Sophisticated insureds looking for ways to reduce theirinsurance premiums often elect to purchase liability insurance thatis subject to a deductible or self-insured retention. Typically,liability policies that contain deductibles still include languagegranting insurance companies the exclusive rights to control thedefense, investigation, and settlement of claims and suits, and toseek reimbursement from named insureds of those amounts that fallwithin the policies' deductibles.

A typical deductible provision provides:

• The company may pay any part or all of the deductible amount toeffect settlement of any claim or suit and, upon notification ofthe action taken, you shall promptly reimburse the company for suchpart of the deductible amount as has been paid by the company.
• Additionally, liability policies almost universally define“you” as “the 'named insured' listed in the policy declarations.”Thus, it is usually the named insured who is responsible forpayment of a policy's deductible.

It is common in construction and commercial real estatesettings, among others, for one party to the contract to requirethat the other party name it as an additional insured on the otherparty's general liability policy. For example, owners and generalcontractors commonly require each subcontractor to add the ownerand general contractor as additional insureds under thesubcontractor's liability policies. This usually is accomplishedthrough an additional insured endorsement.

A potential dispute can arise if an insurance company settles aclaim against an additional insured for an amount thatsubstantially eats up the policy's deductible, and then seeks tocollect the deductible amount from the named insured. The namedinsured may dispute whether the other party is an additionalinsured under the policy. Even when the other party's insuredstatus is not in dispute, the named insured's interests may not bealigned with the additional insured's with regard to the settlementof claims against the additional insured.