July 13, 2017

A Case Study on Additional Insured Wording and Why it Matters

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Additional insured endorsements can be a tricky subject. As we’ve explored in past articles, these endorsements aren’t always what they appear to be, and many contain clauses, exclusions, or limitations that aren’t apparent until, of course, an incident occurs where the policy is closely examined. In this post, we’ll take a look at wording for additional insured endorsements and explore a case study that demonstrates why this wording is so critical.

What is the Sole Negligence Exclusion?

According to The Balance, some additional insured endorsements include a so-called sole negligence exclusion, which eliminates coverage for claims or suits that result from negligence committed solely by the additional insured.

In order to understand the exclusion, however, we must also define what “negligence” means in the context of insurance (via IRMI):

“Acts of either omission or commission, or both, may constitute negligence. The four elements of negligence are a duty owed to a plaintiff, a breach of that duty by the defendant, proximate cause, and an injury or damage suffered by the plaintiff. Liability policies are designed to cover claims of negligence.”

Why Does Negligence and Other Wording in Endorsements Matter?

It’s key to understand the precise wording of additional insured endorsements and accompanying exclusions. With a sole negligence exclusion, no coverage is provided if the policyholder did not contribute to the loss. The sole negligence exclusion means that an additional insured who is completely responsible for an incident should rely on his or her own liability policy for the coverage.

This exclusion is often found in additional insured endorsements for the following types of insureds:

  1. Project Owners
  2. Vendors or Contractors
  3. Architects, Engineers and Surveyors

It’s also important to understand that some endorsements don’t explicitly use the words “sole negligence“, so it’s critical to look beyond the obvious wording. For example, some endorsements may limit coverage to injury or damage caused, wholly or partly, by acts or omissions of the policyholder.

What does this mean? If the acts of omissions of the named insured didn’t directly cause the event that results in a claim against the additional insured, the claim isn’t covered.

A Case Study on Negligence

In a recent case, The Burlington Insurance Co. v. NYC Transit Authority et al., the surplus lines insurer did not have to cover New York transit organizations named as additional insureds on a contractor’s policy when that contractor was not at fault for an employee injury that occurred in a tunnel explosion.

A Business Insurance article explains the case (brevity and emphasis our own):

According to the ruling, the New York City Transit Authority contracted with Breaking Solutions to perform tunnel excavation work on a New York City subway construction project. To comply with the transit authority’s insurance requirements, Breaking Solutions bought commercial general liability coverage from Burlington that named the transit authorities as additional insureds.

In 2009, a transit authority employee fell off a platform as he tried to avoid an explosion after a Breaking Solutions machine touched a live electrical cable. The employee later sued and settled for $950,000. Burlington defended the suit but later sought a declaration that it did not owe coverage to the transit authorities.

Discovery in the employee’s suit showed that the New York City Transit Authority “failed to identify, mark, or protect the electric cable, and that it also failed to turn off the cable power. Documents further established that the (Breaking Solutions) machine operator could not have known about the location of the cable or the fact that it was electrified,” court records say.

Internal transit authority memos show that it accepted sole responsibility for the accident, court documents say.

According to the ruling by New York’s highest court, “Burlington maintains that the coverage does not apply where, as here, the additional insured was the sole proximate cause of the injury.”

According to the ruling, the policy states “that an entity is ‘an additional insured’ only with respect to liability for bodily injury caused, in whole or in part, by (Breaking Solution’s) acts or omissions.”

Insurance Tracking Services Help Prevent Oversight

Insurance tracking services like myCOI exist to help your compliance administrators handle the everyday tasks of managing certificates of insurance and protecting your company against underinsured claims, costly litigation and failed audits. The software is an easy-to-use, cloud-based solution developed and supported by a team of insurance professionals and is built on a foundation of insurance industry logic to automate the COI communication process and ensure you remain protected.

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