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Learning Objective: Provide examples of why another person or organization would want to be named asan additional insured.Requesting Additional Insured Status may assure greater safety in a risk finance transfer.In addition to the request for your client to hold the other party to the contract harmless, the contract mayalso require your client to name the other party as an additional insured to your client's CGL Policy.Why are both necessary?There are situations when the courts may find a hold harmless agreement unenforceable. This usually takesplace after the loss. As a result, the party that relied upon the hold harmless agreement to pay for a lossmay now need to use its own funds. This isn’t a desired outcome.By requiring additional insured status in conjunction with the hold harmless agreement, the other party canrely on your client’s insurance coverage as an additional insured if the hold harmless isn’t enforceable.Additional insured status for the other party assures it greater safety in a risk finance transfer – a “safetynet”, if you will, for the hold harmless agreement. They can seek direct coverage as an insured under yourclient’s insurance policy.Lesson 5 Topic B Reasons to Request p4 (1IC)Reasons to Request continuedLearning Objective: Provide examples of why another person or organization would want to be named asan additional insured.Example:In a contract with Clark Construction, your client agreed to hold the construction company harmless for anyloss arising out of his or her work for it.The hold harmless agreement requires your client to respond to certain legal liabilities for "bodily injury" or"property damage" that arise out of the client’s work for Clark. It is important to Clark that your client befinancially able to pay for losses that are part of the hold harmless agreement. Otherwise, Clark could finditself responsible for paying for a loss that it didn’t plan for.As an additional insured on your client’s CGL Policy, Clark knows that there is insurance in place (this is a riskfinance technique) and that, if needed, the Policy will provide coverage for them as well as your client. ClarkCommercial Casualty I – CGL & AI Course Print 11.22.2013149

Construction can present a claim as an indemnitee or as an insured.Lesson 5 Topic B Reasons to Request p5 (1IC)Reasons to Request continuedLearning Objective: Provide examples of why another person or organization would want to be named asan additional insured.2. Additional insured status can give another party direct rights to your client's insurance. As aninsured, additional insureds have direct rights to your clients’ CGL Policy.They can make their own direct claim under the Policy. If circumstances warrant it, they can alsosue the insurance company to obtain the court’s assistance in establishing their rights under thePolicy, including the right to a defense.Lesson 5 Topic B Reasons to Request p6 (1IC)Reasons to Request continuedLearning Objective: Provide examples of why another person or organization would want to be named asan additional insured.3. Additional insured status may protect the other party from the potential risk of subrogation.An insurance company cannot subrogate against the named insured after it pays a loss under theCGL Policy.As an insured under the Policy, the additional insured would enjoy this same benefit in mostjurisdictions; therefore, an additional insured would not be subject to subrogation.Example:Chef's Cuisine is one of the tenants renting space in a shopping center from Skylark Management Company.Chef added the Additional Insured Managers or Lessors of Premises (CG 20 11) endorsement to Chef's CGLPolicy naming the landlord as an additional insured.One of Chef's employees accidently started a fire in the restaurant kitchen. The building's fire suppressionsystem in the shopping center did not work properly so the fire was not contained immediately. The resultCommercial Casualty I – CGL & AI Course Print 11.22.2013150

was fire damage to Chef's restaurant and to an adjacent dress shop.Chef's insurance company paid the property damage claim to Chef and to the dress shop. Even thoughChef's employees started the fire, it was determined that Skylark was negligent in not properly maintainingthe fire suppression system. The insurance company cannot subrogate against Skylark because they are aninsured - an additional insured - on the Policy.Lesson 5 Topic B Reasons to Request p7 (1IC)Reasons to Request continuedLearning Objective: Provide examples of why another person or organization would want to be named asan additional insured.4. Additional insured status creates the potential for the availability of higher limits of coverage.Additional insureds may not only have access to the Limits Of Insurance on your client’s CGL Policyon a primary basis, but they may also have access to their own CGL Policy insurance limits on anexcess basis.This creates the potential that the additional insured may be able to stack the limits from bothpolicies in the event these higher limits are needed.Example:Burnson Construction is named as an additional insured on one of its sub-contractor’s CGL Policy.A large loss occurs and the limits on the sub-contractor’s Policy are not enough to pay the damages forwhich Burnson was found responsible.Burnson, after exhausting the limits available under its sub-contractor’s Policy, may have the limits on itsown CGL Policy available.Lesson 5 Topic B Reasons to Request p8 (1IC)Reasons to Request continuedLearning Objective: Provide examples of why another person or organization would want to be named asan additional insured.Commercial Casualty I – CGL & AI Course Print 11.22.2013151

5. Additional insured status creates the potential to reduce the cost of the additional insured'sinsurance.Since your client’s insurance policy is providing primary coverage to additional insureds, theadditional insureds’ own insurance may not be needed in the event of a loss.This results in better loss experience and possibly lower premiums for the additional insured’s owninsurance policy.From an underwriting standpoint, some insurance companies may require its named insured to benamed as an additional insured on the policies of others.It is also possible that named insureds requiring additional insured status on the policies of othersmay see a reduction in their cost of insurance as their insurance company recognizes primarycoverage will be provided elsewhere.Please complete the knowledge check found at Lesson 5 Topic B Reasons to Request p9 (1IC).Commercial Casualty I – CGL & AI Course Print 11.22.2013152

Lesson 5 Topic C - Potential ProblemsLesson 5 Topic C Potential Problems p1 (1IC)Learning Objective: Explain problems associated with additional insured status for both the namedinsured and the additional insured.We have just seen examples of situations that support the need for your clients to add additional insuredsto their CGL Policy.Before introducing and discussing various additional insured endorsements, it is important to understandhow additional insureds can create potential problems for both the named insured and the additionalinsured.The named insured may not have a choice in the matter; they must either add the additional insured or losethe contract or lease.Nevertheless, they should be made aware of the potential problems with adding additional insureds to theirinsurance policy. Likewise, if your clients are added to policies of others as an additional insured, theyshould know of the potential problems when relying on someone else’s insurance for protection.Lesson 5 Topic C Potential Problems p2 (1IC)Problems for the Named InsuredLearning Objective: Explain problems associated with additional insured status for both the namedinsured and the additional insured.1. Diminution of Policy LimitsThe number one problem for the named insured is the potential for diminution of policy limits.Regardless of the number of insureds (named, automatic or additional), there is only one "pot of money"per "occurrence". The more insureds, the more "fingers in the pot". Too many "fingers in thepot" increasesthe chances of the named insured having fewer dollars to pay damages for which it is held responsible.It makes sense that when more entities share the available limits, the limits may be used up more quicklywhen claims occur.2. Unintended Coverage Granted to the Additional InsuredCommercial Casualty I – CGL & AI Course Print 11.22.2013153

It is possible to provide unintended coverage for the additional insured.This does not usually happen on carefully constructed "standard" additional insured endorsements.However, some manuscript endorsements are so broad they provide unintended coverage.A manuscript endorsement is wording agreed to by the named insured and the insurance company when a"standard" endorsement is not available.3. Compliance ProblemsAdding additional insureds places administrative burdens on the named insured as well as the insuranceagency and its insurers.If your client does not meet the expectations of the additional insured, this could lead to complianceproblems.Example: If the policy is cancelled or if the named insured reduces the level of coverage on the policy, theadditional insured expects to be notified.Your client's administrative breakdowns may easily result in a breach of contract, which is not covered bythe named insured's insurance policy.Lesson 5 Topic C Potential Problems p3 (1IC)Problems for the Named Insured continuedLearning Objective: Explain problems associated with additional insured status for both the namedinsured and the additional insured.Diminishing Limits of InsuranceCraig’s Construction Company, Inc., does concrete work all over town and for different builders. As a result,six different entities have been added as additional insureds to Craig’s CGL Policy.A large liability loss occurs, and now three of the additional insureds are each looking at Craig's 1M limit ofliability on its CGL Policy.With four insureds, the Policy limits could quickly erode and potentially leave Craig's with an insufficientamount of coverage to pay for its claim.Unintended Coverage Provided to the Additional InsuredCommercial Casualty I – CGL & AI Course Print 11.22.2013154

Rod, Inc. is a large-scale contractor building a condominium.He is hiring all kinds of sub-contractors. His insurance company attached an endorsement to his CGL Policythat states any and all “subs” are additional insureds under certain situations.The wording is so inclusive that it could extend coverage to a subcontractor that Rod did not intend toinclude.Lesson 5 Topic C Potential Problems p4 (1IC)Problems for the Named Insured continuedLearning Objective: Explain problems associated with additional insured status for both the namedinsured and the additional insured.Compliance ProblemsTim’s Toys, LLC was required in a contract to name a major toy store as an additional insured before thestore would carry its products. The contract also required Tim's to carry 1M limits for bodily injury andproperty damage. Tim's provided the store with a certificate of insurance reflecting the 1M coverage andadditional insured status.Several months later and forgetting about the contractual requirement, Tim's changed its coverage to 500,000 in an effort to reduce expenses.A loss has now occurred, and the major toy store has just learned of Tim’s apparent breach of contractwhen it failed to comply with the contractual requirement to carry 1M liability coverage.Lesson 5 Topic C Potential Problems p5 (1IC)Problems for the Additional InsuredLearning Objective: Explain problems associated with additional insured status for both the namedinsured and the additional insured.1. May lose control of defense and investigationThe additional insured may lose control of his/her defense and investigation.Commercial Casualty I – CGL & AI Course Print 11.22.2013155

The insurance company, and not the additional insured, hires and directs the legal counsel.The insurance company may, at its discretion, investigate any occurrence and settle any claim or suit thatmay result.The insurance company does not have to have the permission of the additional insured before it can settle aclaim or lawsuit.2. "Other insurance" conflictsThere may be "Other Insurance" conflicts for the additional insured.Insurance policies include "Other Insurance" provisions, which state that a particular policy is primary orexcess and contributing or non-contributing when there is other insurance in force.Disputes between insurance companies over who pays first and how much can stall or limit claim payment.We'll look at this a little more closely in this section.3. Limited coverage for the additional insuredThere may be limited coverage under current forms.There have been significant changes made to additional insured endorsements over the years.Each edition date may change the coverage provided for the additional insured.4. Dependency on another party's InsuranceIt is not a good idea to depend on someone else's insurance.Limits, edition dates of the CGL Policy, exclusions and endorsements are outside of the additional insured'scontrol.Lesson 5 Topic C Potential Problems p6 (1IC)Problems for the Additional Insured continuedLearning Objective: Explain problems associated with additional insured status for both the namedinsured and the additional insured.Loss of Control Over Defense and InvestigationCommercial Casualty I – CGL & AI Course Print 11.22.2013156

Benum Construction was named as an additional insured on Charlie’s Construction’s CGL Policy.A claim was made against both Benum and Charlie’s by someone injured at the construction site. Benumtold Charlie’s insurance company that they are not at fault for the injuries; in fact, it was the injuredperson’s own fault. Benum does not want the insurance company to settle with the injured person becauseBenum's reputation would be ruined.Charlie’s insurance company, after investigating the loss, settles with the injured party.Lesson 5 Topic C Potential Problems p7 (1IC)Problems for the Additional Insured continuedLearning Objective: Explain problems associated with additional insured status for both the namedinsured and the additional insured.Other Insurance DisputesDisputes over the priority of coverage often arise when an entity purchases its own policy and alsointentionally obtains coverage as an additional insured on the CGL Policy of another.It is generally understood that the intent of this arrangement is that the entity's own CGL Policy, the CGL onwhich the entity is listed as a named insured, is to apply as excess and not share its limits with the CGLPolicy on which the entity is an additional insured.Example:The general contractor has his own CGL Policy and is also listed as an additional insured on the subcontractor’s CGL Policy.If both policies are the 2013 ISO CGL Coverage Form, the sub-contractor’s CGL Policy will provide primarycoverage for the general contractor. The general contractor will have excess coverage provided by his ownCGL Policy.Lesson 5 Topic C Potential Problems p8 (1IC)Problems for the Additional Insured continuedLearning Objective: Explain problems associated with additional insured status for both the namedCommercial Casualty I – CGL & AI Course Print 11.22.2013157

insured and the additional insured.More About Other Insurance DisputesThe April 2013 ISO CGL Coverage Form “other insurance” wording generally (with some notable exceptions)complies with this intent when the additional insured has been listed by endorsement to the other party’sCGL Policy.Problems can arise when the CGL Policy is an earlier edition date or the CGL Policy is an insurancecompany's proprietary form and not an ISO form. The “other insurance” language in either of these couldinclude very significant differences, which could take away primary coverage for an additional insured.It should also be noted that the “other insurance” language in the ISO CGL 2013 edition applies to additionalinsureds that have been added to the insurance policy of another.Additional insureds added to the policy of another will have primary coverage under that policy and excessunder their own CGL Policy.This wording does not provide the same coverage for “automatic insureds”. Automatic insureds, such as areal estate manager, could find themselves with two policies providing coverage on a primary basis.This will result in the policies sharing of limits, which might not have been the intent of either party.Lesson 5 Topic C Potential Problems p9 (1IC)Problems for the Additional Insured continuedLearning Objective: Explain problems associated with additional insured status for both the namedinsured and the additional insured.Example of Other Insurance DisputeBenum Construction was also named as an additional insured on the CGL Policy for Kitchens 4 You. Benumrequired and understood Kitchens’ Policy to provide liability coverage on a primary, non-contributory basis.A loss occurs at which time Benum discovers Kitchens' CGL Policy states that coverage available to anyadditional insured applies only as excess to any insurance purchased by the additional insured.While Benum expected Kitchens’ Policy to pay on a primary basis, it is now looking to its own insurancepolicy for primary coverage.Commercial Casualty I – CGL & AI Course Print 11.22.2013158

Lesson 5 Topic C Potential Problems p10 (1IC)CG 20 10 Endorsement Form Edition DatesLearning Objective: Explain problems associated with additional insured status for both the namedinsured and the additional insured.Limited Coverage for Additional InsuredAs we will discuss shortly, the 11/85 edition of the CG 20 10 included additional insured status for liabilityarising out of the insured’s work while the 04/13 edition provides coverage for liability caused in whole or inpart by the named insured’s acts or omissions or those acting on behalf of the named insured.In other words, the latest edition requires at least partial responsibility for the damages to be the namedinsured’s or those working on behalf of the named insured. This does not provide coverage if the loss issolely caused by the additional insured.The 11/85 edition also provided coverage for liability arising out of the named insured’s work, whichincluded Completed Operations. Subsequent editions provide coverage caused in whole or in part by theongoing operations for the Additional Insured of the named insured. Ongoing operations does not includecompleted operations.You can see the importance of knowing the edition date of the additional insured endorsement being used.Lesson 5 Topic C Potential Problems p11 (1IC)Problems for the Additional Insured continuedLearning Objective: Explain problems associated with additional insured status for both the namedinsured and the additional insured.Dependency on Another Person's Or Entity's InsuranceHow does the additional insured know that the policy is still in effect, the required limits still carried, theedition date of the CGL Policy, and the endorsements or exclusions that apply?These factors are outside of the direct control of the additional insured; yet they potentially impa

This lesson explains what an additional insured is, the reasons that a named insured is willing to add another person or organization as an additional insured, the problems associated with doing so, and . Endorsement Forms - Business Auto . Lesson 5 Intro p3 (1IC) Lesson 5: Learning Objectives . 1. Define what an additional insured is.