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Vol. 6, Iss. 6
July 12, 2017

“Whooo Are You?”: I Can See For Miles That It’s Time For ISO To Act

It is not a state secret buried at Langley that insurers sometimes believe they are affording more coverage to an additional insured than appropriate. The situation often stems from the additional insured obtaining coverage for its own acts or omissions or acts or omissions that are not sufficiently tied to those of the named insured. And insurer frustration is often exacerbated when the premium received for the additional insured coverage is less than the cost of a medium latte.

Some insurers often drafted endorsements designed to provide what they believe to be the appropriate extent of additional insured coverage. Many of these insurers likely believed that the off the rack additional insured endorsements from ISO were not doing the trick. So they got out a pen and drafted couture provisions.

ISO got in the game in 2004 when it amended its principal additional insured endorsements to specify that, in general, an additional insured would only be covered for liability “caused in whole or in part” by the acts or omissions of the named insured. The goal was to avoid additional insureds being covered for their sole negligence, which some courts were doing based on additional insured endorsements that tied the scope of coverage for the additional injury to liability “arising out of” the named insured’s operations. How much of a difference this amendment has on additional insured coverage is a question for another day.

In 2013 ISO introduced more changes to its additional insured endorsements. Here too the amendments were designed to limit additional insured coverage. In general, under these endorsements, the scope and limits of liability of additional insured coverage are not to exceed what’s specified in the contract creating the obligation to name a party as an additional insured. Additionally, the extent of additional insured coverage is tied to what’s permitted by law.

But while ISO has taken steps, in some ways, to limit the scope of additional insured coverage, it has not reacted to court decisions that have, or potentially give, additional insureds the greatest gift of all – a policy with some significant exclusions eliminated. If insurers are not happy providing additional insured coverage for next to nothing in premium, what must they think of coverage for an additional insured that has fewer exclusions than those applicable to the actual purchaser of the policy, i.e., the named insured.

This situation can take place because ISO’s standard commercial general liability policy states that the terms “you” and “your” refer to the named insured. So if “you” and “your” do not refer to an additional insured, then some exclusions, including “your work” and “your product” and the owned property exclusion ((j)(1)), may not apply to additional insureds.

A Georgia federal court recently discussed the “you” and “your” issue in some detail. Employers Mutual Casualty Co. v. Shivam Trading, 2017 U.S. Dist. LEXIS 74490 (S.D. Ga. May 16, 2017) does not involve a “you”- or “your”-based exclusion. However, the decision, and the cases it cites, makes clear that the risk for insurers – of providing fewer exclusions to an additional insured than a named insured -- is a real one. Not to mention America First Credit Union v. Kier Construction Corporation, 2013 UT App 256 (Utah Ct. App. Oct. 24, 2013), which is not addressed in Shivam Trading, also demonstrates this risk.

I have never been one to knee-jerk that insurers or ISO need to go back to the drawing board every time a court interprets a policy provision other than intended. But there have now been enough decisions on the “you” and “your” issue to warrant an ISO response, especially given that ISO has not been shy about addressing the extent of additional insured coverage.

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