It is common among parties to sophisticated construction projects, service agreements, leases, and many other types of projects and transactions, to assess the risks associated with their contractual activities and allocate those risks through a combination of contractual indemnification provisions and insurance requirements. In the construction setting, for example, project owners, general contractors, and developers (so-called upstream parties) typically require their subcontractors and sub-subcontractors (downstream parties) to indemnify them for claims arising from the contract work. In addition to the contractual indemnification provisions, upstream parties frequently require that they be provided with “additional insured” status on the downstream indemnitor’s/named insured’s general liability insurance policy. This provides a number of benefits to the upstream indemnitee. It effectively gives the additional insured/indemnitee direct coverage rights under the indemnitor’s insurance policy, preserves the indemnitee’s own liability coverage, and may protect the indemnitee in the event the contractual indemnification provision in the parties’ contract is determined to be void and unenforceable.
Additional insured status may be achieved in several ways. Commonly, it is established through an omnibus definition of “Insured,” which may include, for example, the named insured and entities for whom the named insured is obligated by “insured contract” to provide insurance. Alternatively, additional insured status is often achieved through the purchase of “blanket” or “scheduled” additional insured endorsements. The additional insured status under a liability policy is an important bargained-for asset in many types of transactions.
Of course, the extent of the benefit of additional insured status hinges on the actual terms of the insurance policy and applicable law. With respect to policy terms, the Insurance Services Office, Inc. (ISO) commercial general liability (CGL) coverage forms provide the basis for many general liability policies. With respect to applicable law, the indemnity and insurance scheme has precipitated frequently conflicting judicial decisions on numerous and complex issues. A number of these decisions, based on the fact that the underlying agreement and the insurance policy are in fact separate contracts, have held that the scope and validity of the contractual indemnification provisions have no impact on the scope and validity of the additional insured coverage—with the effect that additional insureds sometimes enjoy broader protection under the insurance policy than under the contractual indemnification provisions. By way of example, although anti-indemnification statutes in many states prohibit the transfer of an indemnitee’s sole (and/or concurrent) negligence through contractual indemnity provisions, some courts have construed the terms of the insurance policy as encompassing and covering the additional insured’s negligence even where the underlying contractual indemnification provision was void and unenforceable. In addition, some courts have held that, while the underlying contract may expressly limit the named insured’s indemnification and insurance obligations to the additional insured, the scope of additional insured coverage is not so limited; rather, it is governed solely by the terms of the insurance policy.