Every few years, changes are made to the industry standard endorsements used to add other parties as Additional Insureds to a Commercial General Liability (CGL) Policy. Prior to 2004, many of these endorsements provided coverage for liability “arising out of” the operations of the Named Insured. In 2004, the language of the endorsements was changed so that a policy would cover an Additional Insured only if the Named Insured’s acts or omissions caused the loss, at least in part. The most recent change occurred in the forms published in 2013. Three main changes were made.
- The insurance afforded to the Additional Insured applies only to the extent permitted by law.In some states, for example, one cannot use an Additional Insured endorsement to insure a party for its own negligence. Although the current Additional Insured endorsements allow a partially negligent Additional Insured to receive protection, such coverage would not apply in one of these states.
- If coverage provided to the Additional Insured is required by a contract or agreement, the insurance afforded the Additional Insured will not be broader than that required by the contract or agreement.As an example, the Named Insured may, in a contract, agree to protect the Additional Insured, but not for any independent negligence of the Additional Insured. Without this language in the endorsement, the Named Insured’s policy would likely cover the Additional Insured for its own negligence, so long as the Named Insured is partially at fault.
- If coverage provided to the Additional Insured is required by a contract or agreement, the limits available to the Additional Insured will be no higher than those required by the contract or agreement.A Named Insured could agree in a contract to provide $500,000 CGL coverage and to include another party as Additional Insured. If the CGL limit is $1,000,000, though, the Additional Insured could be covered for up to $1,000,000. This language is an attempt to prevent that from happening. The policy will no longer give more dollars of protection to an Additional Insured than the Named Insured agreed to give.
These changes to Additional Insured endorsements are an attempt to bring coverage in line with the liability the Named Insured agrees to assume. For this reason, it is more important than ever that any party entering into a contract have the contract reviewed by an attorney who is familiar with contract law and insurance matters. Failure to do so could result in unexpected surprises for both parties should a claim arise.