ADDITIONAL INSUREDCOVERAGE

By Julie A. ShehaneCooper & Scully, P.C.

900 Jackson Street, Suite 100Dallas, Texas 75201

(214) 712-9500Email: Julie.Shehane@cooperscully.com

© 2016 This paper and/or presentation provides information on general legal issues. It is not intended to provide advice on any specific legal matter or factual situation,and should not be construed as defining Cooper and Scully, P.C.'s position in a particular situation. Each case must be evaluated on its own facts. This information isnot intended to create, and receipt of it does not constitute, an attorney-client relationship. Readers should not act on this information without receiving professional

legal counsel.

What Is An AdditionalInsured?

1. A person or entity added to a policy byspecial endorsement.

2. Always obtain a copy of the contractbetween the named insured and AI.

Reasons for AdditionalInsured Status

Reinforce the risk transfer accomplishedwith indemnity agreements;

Provides additional insured with the rightto an immediate defense by the namedinsured’s insurer;

It may allow one party to transfer liabilityarising from its sole negligence to theother party’s insurer;

Reasons for AdditionalInsured Status

It may prohibit the indemnitor’s insurerfrom subrogating against the indemniteewhen a loss is caused by the indemnitee’sacts or omissions;

It may avoid having losses impact the losshistory of the additional insured;

It may substantially increase the limits ofinsurance available to the additionalinsured for a given project;

Reasons for AdditionalInsured Status

It may lessen the chance that theadditional insured will be forced to sue theindemnitor directly to be made wholefollowing a claim or suit;

It may avoid the impact of anti-indemnitystatutes

Additional InsuredEndorsements

Scheduled Basis – the additional insured islisted either on the endorsement itself oron the declarations page;

Blanket Basis – the additional insured isdetermined by whether a “writtencontract” requires that such insurance beprocured

AI Endorsements

Typically require either “caused, in wholeor in part, by” or “arising out of”language.

Apply to either ongoing operations orcompleted operations

“Arising Out Of” Language

Only a moderate connection between thenamed insured and the injury or damagecomplained of is required

Does NOT require proximate causation

Duty to defend has been determined to havebeen triggered by pleadings referencing thenamed insured, or that the injured party wason a project working for the named insuredwhen injury occurred

“Caused In Whole Or In PartBy” Language

Requires proximate causation

In order to trigger the duty to defend, thenamed insured’s actions MUST be allegedto have caused the injury or damagecomplained of (in whole or in part).

Duty to indemnify will trigger when namedinsured is adjudicated to have caused theinjury or damage by even 1%.

What About Certificates ofInsurance?

– No coverage conferred

• Via Net v. TIG Ins. Co., 211 S.W.3d 310 (Tex.2006)

– Claim against contracting party

– Claim against agent

Issues with AI Coverage

Primary and Non-Contributory;

Other insurance

Use of extrinsic evidence to trigger AIstatus;

Application of exclusions to additionalinsured;

“You”

“The Insured”

Refresher On Duty ToDefend

In Texas, we follow the Complaint AllegationRule or 8 Corners Doctrine

Exception for duty to defend AI

Only documents needed to determine duty todefend an AI are:1. The contract between the named insured and

AI, depending on language of AI endorsement

2. The pleadings

3. The policy

What About the Duty toIndemnify?

The “actual facts determined in theunderlying litigation, or otherwise madeavailable, determine whether the insurerhas the duty to indemnify.” Westport Ins.Corp. v. Atchley, Russell, Waldrop &Hlavinka, LLP, 276 F. Supp. 2d 601, 625(E.D. Tex. 2003).

Gilbane Bldg. Co. v. AdmiralIns. Co. (5th Cir. 2011)

FACTS:

PARR SUSTAINED INJURY ON JOBSITE WHILE CLIMBING DOWN ALADDER

GILBANE -- GENERAL CONTRACTOR

BAKER CONCRETE-INSTALLEDLADDERS

EMPIRE STEEL-PARR’S EMPLOYER

Gilbane Cont’d

IN TRIAL COURT:

PARR SUED GILBANE AND BAKERCONCRETE

ALLEGED THAT RECENT RAINSTORMSHAD CAUSED THE WORKSITE TOACCUMULATE MUD AND GILBANE WASNEGLIGENT IN FAILING TO KEEPWORKPLACE CLEAN

Gilbane Cont’d

EMPIRE, PARR’S EMPLOYER, INSURED BYADMIRAL

GILBANE REQUESTED DEFENSE ASADDITIONAL INSURED FROM ADMIRAL

THE ADMIRAL ADDITIONAL INSUREDENDORSMENT PROVIDED:

Gilbane Cont’d

SCHEDULE Name of Additional Insured Person(s) or

Organization(s): Any person or organization that is an owner of real

property or personal property on which you areperforming ongoing operations, or a contractor onwhose behalf you are performing ongoing operations,but only if coverage as an additional insured isrequired by written contract or written agreementthat is an “insured contract,” and provided that the“bodily injury,” “property damage” or “personal &advertising injury” first occurs subsequent toexecution of the contract or agreement ....

Gilbane Cont’d

A. Section II—Who Is An Insured is amendedto include as an additional insured the person(s)or organization(s) shown in the Schedule, but onlywith respect to liability for “bodily injury,”“property damage” or “personal & advertisinginjury” caused, in whole or in part, by:1. Your acts or omissions; or

2. The acts or omissions of those acting on your behalf;

in the performance of your ongoing operationsfor the additional insured(s) at the location(s)designated above ....

Gilbane Cont’d

Gilbane requested AI coverage underAdmiral policy pursuant to TradeContractor Agreement (TCA) betweenGilbane and Empire Steel

In the TCA, Empire Steel had agreed tosecure AI coverage for Gilbane

Admiral denied coverage (presumablybecause Parr never sued Empire Steel oralleged its liability as opinion is silent as toreasons for denial.)

Gilbane Cont’d

Gilbane settled with Parr, then filed suitagainst Empire Steel and Admiral

Gilbane sought the Court to declare thatAdmiral had both a duty to defend and toindemnify

Trial court found that Admiral had a dutyto defend and indemnify Gilbane

Gilbane Cont’d

The 5th circuit began by analyzingGilbane’s duty to defend claim.

It found that Parr never alleged that he orEmpire Steel caused his injuries.

Although Gilbane argued that the Courtshould look to extrinsic evidence, the 5th

circuit rejected the argument

Gilbane Cont’d

Ultimately, the 5th Circuit found thatAdmiral owed no duty to defend Gilbanebecause Parr’s pleadings did not allegethat either Parr or Empire Steel caused hisinjuries.

The holding is tied directly to the languageof the AI endorsement containing the“caused, in whole or in part, by” language

Gilbane Cont’d

CONSIDER: Would the holding onAdmiral’s duty to defend be different hadEmpire Steel’s AI endorsement containedthe “arising out of” language? Why?

Gilbane Cont’dTURNING TO DUTY TO INDEMNIFY

Trial Court found that Parr fell whileclimbing down a ladder and carrying anextension cord.

He told another employee that his feetbecame entangled in the extension cordwhen he fell.

The trial court concluded that a jury wouldhave found Parr or Empire Steel at least1% at fault for Parr’s injuries.

Gilbane Cont’d

Based on the trial court’s determinationthat a jury could have found Parr orEmpire Steel at least 1% at fault, the 5th

Circuit ruled that Admiral had a duty toindemnify.

Holding implies that Admiral would 100%indemnity even if Empire Steel was only1% liable.

Considerations from Gilbane

Would Texas Courts ever allow apercentage of indemnity to equal thepercentage of the named insured’s fault?

Dividing causation in bodily injury casesvs. property damage cases.

Am. Empire Surplus Lines Ins.Co. v. Crum & Forster Spec.

Ins. Co. (S.D. Tex. 2006)

Finger was a general contractor that hiredMulti as a framing subcontractor

Entered into a Contractor-SubcontractorAgreement whereby Multi was required toname Finger as an AI to its policy

Crum & Forster was Multi’s insurer, andissued an AI endorsement

Am. Empire Cont’d

The AI Endorsement stated:Who Is An Insured is amended to include as an additional insured theperson(s) or organization(s) shown in the Schedule, but only withrespect to liability for “bodily injury”, “property damage” or “personaland advertising injury” caused, in whole or in part, by:

1. Your [Multi's] acts or omissions; or

2. The acts or omissions of those acting on your [Multi's] behalf;

in the performance of the ongoing operations for the additional insuredat the location(s) designated above. There is no coverage for theadditional insured for “bodily injury”, “property damage” or personaland advertising injury” arising out of the sole negligence of theadditional insured or by those acting on behalf of the additionalinsured.

Am. Empire Cont’d

Two employees were injured (one died)and both made allegations against Multiand Finger.

Finger’s insurer, American Empire,demanded that Crum & Forster defendFinger. Crum & Forster refused.

American Empire then filed a declaratoryjudgment action against Crum & Forster.

Am. Empire Cont’d Crum argued that the policy only covered

Finger if Finger is found vicariously orderivatively liable for the acts of Multi

Because the Petition did not allege factsindicating that Finger was vicariouslyliable, Crum argued that there was nocoverage for Finger

American Empire argued that Finger’sliability was irrelevant – only Multi’s wasrelevant

Am. Empire Cont’d The Court disagreed with Crum’s

argument, and found that the AI coveragecould trigger for joint liability, not justvicarious liability

“The focus . . .is on whether Plaintiffs allege atheory in the operative pleading in theUnderlying Lawsuit under which Finger could beheld liable for conduct by Multi that ‘caused’injury to a third party in any way. The sentencedoes not address the conduct of the otherwrongdoer or wrongdoers, whether they be theadditional insured (Finger) or not.”

Am. Empire Cont’d

As the pleadings in the underlying suitcould easily be interpreted as alleging thatMulti’s acts or omissions, in whole or inpart, caused the injuries, Crum had a dutyto defend.

Crum also argued that the AI coveragewould not apply where Multi and Fingerwere alleged to have committedindependent acts of negligence thatcaused the injuries.

Am. Empire Cont’d The Court noted that it was not persuaded

by Crum’s argument because it relied on anarrow interpretation of the underlyingpleadings.

BUT: The Court declined to decide theviability of Crum’s linguistic interpretationof the policy.

Could it be possible for AI coverage(indemnity) to be limited to the liabilitycaused by the named insured?

BP Air Condition Corp. v.One Beacon Ins. Group (N.Y.

2007) Henegan Construction Company

subcontracted HVAC work to BP AirCondition Corp.

BP then subcontracted out HVAC-steamfitting work to Alfa Piping Corp.

Alfa was required to sign indemnityagreement and name BP as an AI to itspolicy. One Beacon was Alfa’s insurer.

BP Air Condition Corp.Cont’d

Alfa’s AI endorsement stated:Who is An Insured (Section II) is amended to include as aninsured any person or organization for whom you areperforming operations when you and such person ororganization have agreed in writing in a contract oragreement that such person or organization be added asan additional insured on your policy. Such person ororganization is an additional insured only with respect toliability arising out of your ongoing operations performedfor that insured. A person's or organization's status as aninsured under this endorsement ends when your operationsfor that insured are completed.

BP Air Condition Corp.Cont’d

An employee of another subcontractor ofBP’s was injured when he slipped on an oilslick.

The employee sued Hennegan, andHennegan brought 3rd party claims againstBP and Alfa.

Although One Beacon agreed to defendAlfa, it declined to defend BP as an AI.

BP Air Condition Corp.Cont’d

BP then filed a 4th Party action againstOne Beacon seeking a declaration ofcoverage

One Beacon opposed by arguing that itowed no defense obligation to BP until itwas shown that the injuries arose out ofAlfa’s activities.

Court took note that NY is also acomplaint allegation state

BP Air Condition Corp.Cont’d

Court found that an AI is entitled to thesame coverage as a named insured, sothe defense obligation does not hinge onproven liability.

Moreover, duty to defend analysis is thesame for an AI as the named insured andis based on pleadings and policy.

The Court held that the allegations raisedthe possibility that the injuries arose fromAlfa’s work for BP. Duty to defendexisted.

Important Considerations1. Obtain the contract between named

insured and potential AI

2. Review AI endorsements and determinewhich triggering language is used

3. Determine if AI endorsement applies toongoing or completed operations

4. Apply the language of the endorsementto the pleadings to determine if triggered

5. Percentage of indemnity owed could beundecided.