2008 CONSTRUCTION LAW UPDATE

2008 CONSTRUCTION LAW UPDATE

Chapter 7:THE ADDITIONAL INSURED ISSUE: NAMED, WAIVED, AND COVERED?

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Construction Law Library

CHAPTER 7 THE ADDITIONAL INSURED ISSUE: NAMED, WAIVED, AND COVERED? Edmund M. Kneisel Jonathan M. Palmer

§ 7.01 Introduction

§ 7.02 Evolution of Additional Insured Issues

§ 7.03 Conferring Additional Insured Status: The Acord Certificate

§ 7.04 Is Additional Insured Coverage “Primary” Coverage For The Additional Insured’s Liability?

§ 7.05 Limitations on The Scope of Additional Insured Coverage [A] Statutory Limitations on Coverage [B] Contractual Limitations on Coverage

§ 7.06 The Current Form of Omnibus Additional Insured Clause Limits The Coverage Provided to The Additional Insured

§ 7.07 Drafting of Construction Contract Indemnity and Insurance Clauses

§ 7.08 Conclusion

§ 7.09 Appendix: Construction-Related Indemnity and Insurance Clauses

§ 7.01 2008 CONSTRUCTION LAW UPDATE

§ 7.01 INTRODUCTION

It is common practice for owners of major construction, or “turnaround,” maintenance projects to request that they be “named and waived” under their contractors’ insurance programs. Owners want and usually need protection against their potential liability for damages caused by the construction or maintenance work of their contractors. This protection can be provided in part by contractual indemnity clauses; however, owners also will insist that their contractors provide the additional financial security of naming the project owner as an additional insured under the contractor’s comprehensive general liability (CGL) policy. Because owners often are sued for alleged failure to maintain a safe workplace and on other premises liability theories (including toxic torts), the project owner also should insist that the contractor’s insurance carrier waive any rights to assert subrogation claims against the owner for liability arising out of the project work. General contractors ought to seek the same protections by being “named and waived” by their subcontractors for liabilities arising from the project work.1

When an accident occurs during a construction project, the question becomes, “what is being insured under the typical additional insured clause?” For instance, is the insurance coverage limited to the “vicarious liability” of the owner for the negligence of its contractor, or is the owner also protected against liability for its own negligent acts? If the contractor’s indemnity obligation to the owner is limited to claims based only on the contractor’s negligent acts, would the owner, as additional insured, nevertheless be entitled to claim coverage for its own concurring or independent acts of negligence? If the owner were solely at fault for causing the loss, how would the availability of insurance coverage be affected by the language of the indemnity and insurance clauses, by the language of the policy, or by the state’s possibly applicable anti-indemnity statute? If the owner is an additional insured and covered at least in part for its own negligence, is the insurance provided by its contractor the primary source of liability coverage, or is the owner’s CGL policy also required to contribute to the loss? If either or both of the owner’s and subcontractor’s policies (and other policies) contribute to the loss, who is responsible for the sometimes large policy deductibles or retentions that may be in place? If there is a defect or other default in having the owner named as an additional insured, such as failing to issue an ACORD certificate before the date of loss, who is responsible for the default?

These and many other related issues2 present unsettled questions of state insurance law, the answers to which may vary widely from jurisdiction to jurisdiction. As a result, while it is not

1 For convenience, the terms owner and contractor will be used in this chapter when referring, respectively, to the “additional insured” and the “named insured”; but in most instances, the rights of a contractor, as an additional insured under its subcontractors’ policies, will be identical to the rights of the project owner as an additional insured. 2 Some states allow owners who are classified as “statutory employers” of their contractors’ and subcontractors’ employees to take advantage of workers’ compensation immunity against tort lawsuits by injured workers. These laws often require the owners to make sure that every contractor working on the project has appropriate statutory coverage for their workers. See, e.g., 4 Arthur Larson, Larson’s Workers’ Compensation Law §§ 70.01 et seq. (2000). The “statutory employer” rules, which are beyond the scope of this chapter, should not affect the “independent contractor” status of the contractors and subcontractors undertaking the project work. Similarly, while some of the problems encountered in the “named and waived” scenario can be avoided by owner-controlled insurance programs (OCIPs) covering the project, questions relating to such OCIP programs are also beyond the scope of this chapter. See generally Fred Muse & Edmund M. Kneisel, Insurance Coverage for Construction Projects, Construction Business Handbook § 4.02[G], at 112 (Robert F. Cushman ed., 2004)

THE ADDITIOINAL INSURED ISSUE § 7.02

possible to address all questions that may arise, this chapter provides an overview of the basic “named and waived” issues that are most commonly presented and some of the outcomes that may be expected as the cases addressing additional insured issues continue to evolve. Owners and contractors should work together to resolve questions regarding the scope of the additional insured protections being afforded by carefully drafting the construction contract wording and by obtaining appropriate additional insured coverage in the insurance policy itself.

§ 7.02 EVOLUTION OF ADDITIONAL INSURED ISSUES

As noted above, owners typically want the broadest possible protections against potential liability arising out of a construction project. This protection can and usually is provided by indemnity clauses in the construction contract, accompanied by clauses requiring the contractor to obtain and maintain during the duration of the project, and perhaps afterwards, appropriate policies of insurance. Required policies usually include workers’ compensation, commercial general liability, builder’s risk, and sometimes professional liability coverage, especially if the contractor undertakes “design-build” work. To provide additional financial security for the contractor’s indemnity obligation and in addition to any required performance bond, the informed owner will usually require that it be named as an additional insured on the specified insurance coverage or at least on the contractor’s CGL coverage.

The forms of project-related indemnity clauses and the scope of indemnity provided are many and varied. Often, along with liquidated damages and damages limitations clauses, such clauses may be the subject of lengthy negotiations. The owner will want to be indemnified for any claims arising out of the project work, even if those claims are caused in whole or in part by the owner’s negligence. The contractor usually will want to limit its indemnity obligation only to those claims based on the actual negligence of the contractor; and in some jurisdictions, anti-indemnity statutes may prohibit an owner from obtaining contractual indemnity for its own, sole, or even concurrent negligence.3 However, some of these statutes may not bar the owner from obtaining full indemnity for all liability arising out of the contractor’s partial negligence. Negotiations about indemnity clauses have led to sometimes vague wording of the contract language that often generates protracted litigation about the scope of the indemnity provided. For instance, in adopting the so-called express negligence test for determining the scope of a contractual indemnity clause, the Texas Supreme Court stated the following:

As we have moved closer to the express negligence doctrine, the scriveners of indemnity agreements have devised novel ways of writing provisions which fail to expressly state the true intent of those provisions. The intent of the scriveners is

3 See, e.g., Or. Rev. Stat. § 30.140 (Oregon anti-indemnity statute prohibiting indemnity for the sole and concurrent negligence of the indemnitee). Anti-indemnity statutes usually are not construed to bar insurance coverage for the owner’s negligence. See, e.g., BP Chem., Inc. v. First State Ins. Co., 226 F.3d 420, 427 (6th Cir. 2000) (“[A]n insurance agreement that stands alone can validly shift the risk of insuring a party’s own negligence to another without specifically expressing the intention to do so”); Getty Oil Co. v. Ins. Co. of N. Am., 845 S.W.2d 794 (Tex. 1992) (insurance clause may protect against additional insured’s own negligence despite anti-indemnity statute); accord, Roy Anderson Corp. v. Transcon. Ins. Co., 358 F. Supp. 2d 553, 567 (S.D. Miss. 2005). But see infra note 48 and accompanying text. Thus, the obligations of the contractor’s insurance company to defend and indemnify the owner against construction-related claims may be much broader than the contractor’s more limited obligation to indemnify the owner only against claims based on the contractor’s negligence.


to indemnify the indemnitee for its negligence, yet be just ambiguous enough to conceal that intent from the indemnitor. The result has been a plethora of law suits to construe those ambiguous contracts. We hold the better policy is to cut through the ambiguity of those provisions and adopt the express negligence doctrine.4

Assuming clarity of draftsmanship, the existence of an “express negligence” rule in the governing law, or an applicable anti-indemnity statute, the owner’s protection for its own negligence may be limited. However, some owners have successfully avoided such limitations and have been allowed to recover for their own negligence and sometimes even their own sole negligence by invoking their status as an “additional insured” under the contractor’s policy.

Historically, insurance carriers have argued that an “additional insured” clause is merely intended to provide financial security for the contractor’s indemnity obligation and only covers the owner’s “vicarious liability” for the negligence of its contractor. The ruling in Harbor Insurance Co. v. Lewis5 is an example of a case sustaining this position. In this case, the court relied on (1) the language of the insurance policy and the additional insured endorsement; (2) the customary practices of the insurance industry regarding additional insureds; and (3) the intent of the contracting parties in ruling that the additional insured was only entitled to coverage for its vicarious liability for the negligence of the contractor. In reaching this conclusion, the court relied in part on expert testimony that it was “customary practice” in the insurance industry to limit the additional insured’s coverage to its vicarious liability for the acts of the named insured. Harbor Insurance is commonly cited by insurance companies for the proposition that only vicarious liability is covered, but such an argument ignores the fact that the additional insured endorsement at issue in Harbor Insurance expressly limited the scope of the additional insured’s coverage: “[B]ut only to the extent of liability resulting from occurrence arising out of negligence of [the named insured]. . .”6

The proposition that an additional insured is only protected against its vicarious liability for the negligence of the named insured is now a distinct, minority position. Rather, most courts broadly construe the “arising out of” language used in map)/ additional insured clauses to extend insurance coverage for any claim related to the contractor’s work, even if the loss or damage at issue was caused by the owner’s exclusive negligence.7 The decision in Citgo Petroleum Corp. v. Yeargin, Inc.8 illustrates such an outcome.

4 Ethyl Corp. v. Daniel Constr. Co., 725 S.W.2d 705, 707-08 (Tex. 1987). In Texas, absent express reference to the negligence of the indemnitee in the “four corners” of the indemnity agreement, neither the sole nor partial negligence of the indemnitee is covered. Id. at 708 (rejecting “comparative fault” indemnity based on jury’s finding that the contractor was 10% negligent). 5 562 F. Supp. 800, 802-05 (E.D. Pa. 1983). 6 Id. at 805.

7 For instance, six years after Harbor Insurance was decided, the same court ruled that its earlier decision had not articulated “a rule of law limiting the interest of an additional insured . . . to those cases in which it is vicariously liable for the acts of the primary policyholder.” Philadelphia Elec. Co. v. Nationwide Mut. Ins. Co., 721 F. Supp. 740, 742 (E.D. Pa. 1989). The Philadelphia Electric (PECO) court construed language providing that “Philadelphia Electric Company, its officers, agents and employees are added as Additional Insureds for any work performed by [the named insured] on their behalf” as extending coverage for “all liability arising in connection with . . . [the named insured’s work], including PECO’s own negligence.” Id.


In Citgo, the owner of a petroleum refinery contracted for “turnaround” maintenance work with Yeargin, Inc. A carefully crafted indemnity clause limited the contractor’s obligation to indemnify Citgo to a pro rata portion of any damages Citgo incurred as a result of the contractor’s negligence. Yeargin did not agree to indemnify Citgo for any damages caused by Citgo’s negligence; however, Yeargin also agreed to name Citgo as an additional insured for “at least” $1 million in CGL coverage. Yeargin’ s insurance policy contained an “omnibus” clause, often available to contractors who engage in repetitive construction work, that allowed Yeargin automatically to name anyone as an additional insured who is specified as such in an underlying construction contract.9 The policy in question provided $5 million per occurrence in insurance coverage ($4 million more than the minimum amount required by Citgo’s contract) and contained a self-insured retention obligating Yeargin to pay 100% of any loss up to the $5 million policy limit. After a fire and explosion killed one worker and seriously injured more than twenty other Yeargin employees, Citgo sued Yeargin and its insurance carrier for losses incurred in settling the claims made by or on behalf of the injured workers. Because the facts ultimately revealed that Citgo was solely at fault for allowing hydrocarbons to escape into the Yeargin work area,10 Citgo’s contractual indemnity claim failed. However, the insurance claim was more successful.

The court ruled that the broadly worded additional insured clause in Yeargin’s policy provided coverage to Citgo for claims attributable to its own negligence. According to the court,

because [Yeargin] used clear language in the indemnity. provision . . . which obviously did not extend [Yeargin’s] obligation to indemnify Citgo for “the sole negligence of Citgo” and did not use as clear language in the insurance clause of the contract . . . , [Yeargin] knew that Citgo wanted to be covered for Citgo’s own negligence.11

Rejecting Yeargin’s argument that Citgo should not receive more in coverage than Yeargin had agreed in the construction contract to provide, the court held that it could not consider “extra-policy agreements between a policyholder and an additional insured which purport to extend,

(internal quotations omitted). See also McIntosh v. Scottsdale Ins. Co., 992 F.2d 251, 254 (10th Cir. 1993) (distinguishing Harbor Insurance and concluding that a clause containing language reading “ ‘but only with respect to liability arising out of [the named insured’s] operations’ “ was ambiguous and did not limit the additional insured’s coverage to vicarious liability). In addition to PECO, the McIntosh court cited an Illinois case and a New York case holding that policy language providing coverage for claims “arising out of the work of the named insured should be broadly construed to protect the additional insured against its own negligence. Id. at 255. 8 690 So. 24 154 (La. Ct. App. 1997). 9 Absent such “omnibus” clauses, insureds must obtain specific policy endorsements naming the designated entity as an additional insured. However, the applicable endorsements, when required, may be as broadly worded as the “omnibus” clause contained in the Yeargin policy. 10 Citgo continued actively to produce product in sections of the refinery near the area where Yeargin workers were engaged in pipefitting and welding work. Citgo had failed to “blind” a drain line leading from one such operating area into the Yeargin work area. When Citgo’s operations caused product to overflow into the unsealed line, explosive fumes leaked the into work area where welding was under way, resulting in the explosion and fire. 11 Id. at 159.


modify or limit coverage. . . .”12 According to the court, while the “policy gives [Yeargin] the discretion to name a third party as an additional insured . . . , it does not give [Yeargin] the right to, by separate agreement with the third party, limit the terms and conditions of the coverage under the policy as they apply to the third party.”13 Accordingly, the court held that Citgo was entitled to claim $5 million in coverage under Yeargin’s policy to compensate Citgo for liability arising from Citgo’s own negligence.

Despite the limited language of the indemnity clause, which clearly expressed the contractor’s intent not to indemnify Citgo for its own negligence in failing to blind the drain line, the court allowed Citgo to obtain insurance coverage for that negligence up to the full policy limits, even though the $5 million in self-insured coverage provided by the policy significantly exceeded the $1 million minimum coverage amount specified in the construction contract. Neither the insurance clause of the contract nor the policy specified the maximum limit of coverage to be provided. Thus, while Yeargin was not contractually obligated to indemnify Citgo for its own negligence, Yeargin had unwittingly assumed the obligation to self-insure Citgo for that negligence. The Louisiana court decided that the only limitation on Yeargin’ s self-insured exposure for the full $5 million policy limits was provided by the “other insurance” clause of the Yeargin policy. The Louisiana court enforced the clause in part, concluding that the actual insur-ance provided by Citgo’s umbrella and excess insurance coverage program took precedence over the self-insurance provided by Yeargin.14

§ 7.03 CONFERRING ADDITIONAL INSURED STATUS: THE ACORD CERTIFICATE

It is not unusual for an additional insured clause in a typical CGL policy to permit or arguably require issuance of a “certificate” designating an owner as an additional insured. Such a provision, when contained in an “omnibus” clause, allows the named insured and its broker or insurance agent freely to issue certificates for each construction project in which an owner must be named as an additional insured, without obtaining a specific policy endorsement or other authority from the carrier to do so.

The ability of the policyholder to name a third party as an additional insured does not mean that the coverage summarized in the ACORD certificate is in fact the coverage provided. Rather, based on the language of the standard ACORD form, courts uniformly rule that such certificates confer no coverage rights in and of themselves, but simply are evidence of the existence of an underlying policy. One standard form of ACORD certificate contains the

12 Id. at 163. 13 Id. at 164. As noted below, the court’s reliance on Louisiana’s “four corners” rule, which it strictly applied to bar consideration of extrinsic materials not expressly made a part of the policy, has been relaxed in other jurisdictions. See infra note 45. 14 The court refused to apply the “escape” other insurance clause in the Yeargin policy to require all of Citgo’ s coverages, both primary and excess, to be exhausted before the Yeargin policy would be triggered. The court ruled that at the primary level, Citgo’s self-insurance and Yeargin’s self-insurance should be prorated until Citgo’s primary layer of coverage was exhausted; but thereafter, Citgo’s excess coverage (not self-insured) had to be exhausted before the remaining limits of the Yeargin policy would apply. Id. at 166-71. This outcome illustrates the owner’s need for express language specifying that the additional insured coverage should be primary and should be fully exhausted before the owner’s policies must contribute to the loss. See infra 7.04.


following, explanatory comment: “THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW.”15 As a result, the fact that such a certificate has issued does not guarantee that appropriate coverage has been procured or that the coverage provided will continue in force for the duration of the construction contract.

Owners who desire additional insurance protection will want that protection to continue for the duration of the project (and perhaps afterwards); therefore, owners should insist on receiving copies of any notice of cancellation or nonrenewal of coverage far enough in advance to obtain replacement coverage, if necessary, which should be obtained at the expense of the contractor.16 Historically, ACORD certificates that confirmed coverage for the additional insured also confirmed that coverage would not be canceled without providing the required notice to the additional insured. However, more recent forms of ACORD certificates purport to relax this requirement by providing that the carrier will only “endeavor” to provide such notice and by disclaiming any liability for failing to provide it. ACORD Form 25 (2001/08) provides, under the heading “CANCELLATION”, as follows:

SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, THE ISSUING INSURER WILL ENDEAVOR TO MAIL 30 DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER NAMED TO THE LEFT, BUT FAILURE TO MAIL SUCH NOTICE SHALL IMPOSE NO OBLIGATION OR LIABILITY OF ANY KIND UPON THE INSURER, ITS AGENTS OR REPRESENTATIVES. [Emphasis added]

Obviously, such language would not be consistent with an insurance clause in a construction contract requiring (as it should) notice of cancellation to the additional insured.

For instance, in Wainwright v. Charlew Construction Co., Inc.,17 the court addressed the issue of coverage for a claim by the injured employee of a roofing subcontractor made against the general contractor, who had insisted that it receive a certificate of insurance naming it as an “additional insured” on the roofing subcontractor’s CGL policy. The subcontractor had CGL coverage at the outset of the construction work and instructed its broker to designate the general contractor as an additional insured. The broker did so and issued an ACORD certificate containing the language of Form 25 (2001/08) providing that the carrier would “endeavor” to send notice of cancellation to the additional insured, but disclaiming any liability for “failure to mail such notice.”18 Consistent with a New York statute requiring notice of cancellation to the “first named insured” only, the carrier sent notice to the named insured subcontractor advising that the policy would be canceled effective April 16, 1997 for nonpayment of premium. The

15 F. Muse and E. Kneisel, supra note 2, at 102. See Citgo, 690 So. 2d at 162-63 (refusing to limit scope of additional insured coverage based on language of the ACORD certificate). 16 See, e.g., Appendix, § 7.09, infra, ¶ 2 (“verification of continuing coverage” clause requiring at least thirty days’ advance notice of cancellation of coverage). 17 302 A.D.2d 784, 755 N.Y.S.2d 751 (App. Div. 3d Dep’t 2003). 18 Id. at 786, 755 N.Y.S.2d at 754.


additional insured did not receive notice of the cancellation of coverage and apparently believed it was still covered by the subcontractor’s policy when the work-related accident occurred three months later.

Citing the New York notification statute and the ACORD certificate, the Wainwright court held that proper mailing of the notice to the named insured subcontractor relieved the carrier of any obligation to defend or indemnify the additional insured general contractor against the underlying claim. The court also ruled that the general contractor could not claim estoppel based on its reliance on the ACORD certificate, holding that “because the policy [had been cancelled and] was “not in existence at the time of plaintiff’s accident, estoppel cannot be used to create coverage.”19

The outcome in Wainwright illustrates the danger of relying exclusively on an ACORD certificate to verify coverage, especially where governing state law or case authority does not require that notice of cancellation must be sent to the additional insured.

Virtually every state has some form of notice of cancellation statute, sometimes several that apply to different types of insurance coverage. These statutes typically require a specified period of advance notice (usually at least thirty days) to the “insured” or the “named insured” or the “first named insured” if the carrier issues notice of cancellation for any reason other than nonpayment of premium, which may only require as little as ten days’ advance notice. While there are not many decisions that address the issue of whether such statutes also require notice to additional insureds, some courts have ruled that the additional insured is entitled to the same notice as the named insured, at least where the additional insured has been “named” as such in the policy declarations or an endorsement to the policy.”20

The outcome of a dispute between the additional insured and the carrier regarding the effectiveness of a cancellation notice may be less certain where, as is common, the policy permits additional insureds to be added by an ACORD certificate or provides that anyone

19 Id. at 785, 755 N.Y.S.2d at 753. Interestingly, six months after the decision in Wainwright, another New York appellate court upheld a claim by the owner-lessor of a stolen automobile that in its capacity as additional insured, it was entitled to separate notice of cancellation of a policy issued to the lessee. General Elec. Capital Corp. v. Volchyok, 2 A.D.3d 770, 770 N.Y.S.2d 419 (2d Dep’t 2003). Citing the policy cancellation clause, which required notice to the “named insured shown on the policy declarations clause,” the court ruled that notice of cancellation for nonpayment of premium also should be sent to the party “named as an additional insured on the declarations page” because the carrier “knew that the plaintiff [additional insured] was the owner of the [stolen] vehicle, as the plaintiff was named as an insured on the policy.” Id. at 778-79, 770 N.Y.S.2d at 420-21. 20 See, e.g., Kotlar v. Hartford Fire Ins. Co., 100 Cal. Rptr. 2d 246, 249-50 (Ct. App. 2000). In Kotlar, the court held that a California statute requiring notice of cancellation to be mailed to “the named insured” also required similar notice to “additional named insureds.” Id. at 249-50 (citing Cal. Ins. Code § 677). According to the court, the California Insurance Code expressly states that “the singular number includes the plural, and the plural the singular.” Id. at 249. Therefore, the court held that the statute requiring notice of cancellation was “not limited to a single ‘named insured’ but applie[d] to all insureds named in the policy including [the additional insured].” Id. at 249. See also Accardo v. Clarendon Nat’l Ins. Co., 751 So. 2d 975, 977-78 (La. Ct. App. 2000) (holding that, under a Louisiana statute similar to the one at issue in Kotlar, notice of cancellation must be sent to the “named insureds” and “additional insureds” in order for the cancellation to be effective); Volchyok, supra (construing policy cancellation clause to require notice to the additional, “named insured”).


requiring by contract to be “named” qualifies as an additional insured under the policy.21 Often, such omnibus clauses redefine the term insured, as used in the policy, to include entities that qualify as an “additional insured.” If so, in jurisdictions that require carriers to send notice of cancellation to the “insured,” as opposed to the “named insured,” an argument exists that to bar coverage for an additional insured, a carrier who cancels or non-renews a policy should send notice to the “additional insured,” as well as the “named insured.”22

If state law requires the carrier to send notice of cancellation to the additional insured as well as to the named insured, this requirement should not be avoided by use of the ACORD Form 25 (2001/08) quoted above, which purports to excuse the failure to provide such notice. For instance, consistent with a Georgia law notice requirement that applies when policies are canceled at the request of the named insured,23 a typical “cancellation and nonrenewal” endorsement added to a CGL policy reads as follows:

If by statute, regulation or contract this policy may not be cancelled unless notice is given to a governmental agency, mortgagee or other third party, we will mail or deliver at least 10 days notice to the first Named Insured and the third party as soon as practicable after receiving the first Named Insured’s request for cancellation. [Emphasis added]

This clause does not distinguish between additional insureds named as such in a policy endorsement and omnibus additional insureds; however, it also does not apply to a notice of cancellation for nonpayment of premium or other reasons initiated by the carrier. Because it is uncertain whether a statute that is silent regarding which “insured” (of possibly many) should receive notice and especially in jurisdictions that only require notice to the “named insured,” better practice suggests that the owner should specify in the construction contract that it must be added as an additional insured by formal endorsement to the policy and that the policy contain a specific endorsement requiring that notice of cancellation be sent to the “additional named insured.”

21 See Kotlar, 100 Cal. Rptr. 2d at 249, n.3 (contrasting “additional named insureds” actually named in the policy with additional insureds covered by virtue of a “policy’s omnibus definition of insureds” and holding that the latter “[c]learly . . . are not entitled to notice of cancellation under [the relevant statute]”). 22 Cf. Haft v. Charter Oak Fire Ins. Co., 635 N.E.2d 843 (Ill. App. Ct. 1994). In Haft, the court applied an Illinois statute that required a premium finance company to notify “the insured” of :.ancellation and held that the statute also obligated the company to notify an additional insured ander the policy. While the additional insured in that case was named as such in the policy, the court’s holding was not expressly limited to “additional named insureds” only. Rather, the court concluded hat “[Order Illinois law, the insured in a policy is not limited to the named insured, but applies to “anyone who is insured under the policy.” Id. at 845 (quoting Wasmund v. Metropolitan Sanitary Dist., 482 N.E.2d 351, 354 (III. App. Ct. 1985) and Midwest Contractors Equip. Co. v. Bituminous -as. Corp., 251 N.E.2d 349, 352 (Ill. App. Ct. 1969) (emphasis added)). In response to an argument hat requiring such notice would be unduly burdensome, the Haft court noted that the statute had been recently amended to refer to “the named insured” rather than “the insured,” thereby eliminating “the mrden of which [the finance company] complains.” Id at 846. Thus, the court effectively recognized hat a statute requiring notice of cancellation to “the insured” should be construed more broadly than a statute that only requires notice to “named insureds.” See also Wainwright, 302 A.D.2d at 785 n.2, 755 V.Y.S.2d at 753 n.2 (noting that N.Y. Ins. Law § 3426 only required notice to the “first named insured”). 23 OC.G.A. § 33-24-44.1.


In addition to invoking the cancellation language of an ACORD certificate to excuse failure to send notice of cancellation to the additional insured, carriers have argued that an ACORD certificate that is issued “late” (i.e., after the date of the underlying injury) does not confer additional insured status. However, courts, which typically are interested in spreading the risk of liability and providing compensation to injured victims, usually construe additional insured provisions broadly. Absent some evidence of collusion between the named insured and the additional insured in attempting to create coverage after the fact, courts have not barred coverage for an additional insured based on the timing of issuance of the certificate.24

While an ACORD certificate may not modify the carrier’s (or the insured’s) rights and obligations under the policy terms, an owner who negotiates additional insured status should insist on delivery of an appropriate insurance certificate before allowing its contractor to commence work on the project. Certificates should be kept on file for the duration of the project and carefully monitored to make sure that applicable coverage is maintained in force and renewed throughout the duration of the project. Moreover, because the ACORD certificate does not confer coverage or guarantee that the additional insured will receive notice of cancellation, better practice suggests that owners should include a provision in the construction contract allowing them to review the contractor’s policy for compliance with the terms of the construction contract. The owner should at least insist upon the right to review the applicable omnibus clause or endorsement providing the additional insured coverage and the applicable notice of cancellation provisions. Moreover, in the event of a third-party claim or other project liability dispute, the owner, as an additional insured, should be allowed to obtain a complete copy of the contractor’s policy. To avoid the “other insurance” problems faced by the owner in the Citgo Petroleum Corp. v. Yeargin case, the owner should insist that the policy provide “primary,” noncontributory coverage for the owner, in its capacity as additional insured. Otherwise, as in Citgo, the owner might be required to use its own insurance resources to cover a project loss rather than the additional insurance provided by the contractor.

§ 7.04 IS ADDITIONAL INSURED COVERAGE “PRIMARY” COVERAGE FOR THE ADDITIONAL INSURED’S LIABILITY?

When, as is common in a construction-related accident, multiple policies, including the owner’s policies, cover the loss, the wording of the construction contract and the applicable policy itself may be critical in determining whose coverage applies first and on what basis. ACORD certificates typically are silent on this subject and in any event, insurance certificates do

24 For instance, in Atofina Petrochemicals, Inc. v. Continental Cas. Co., 185 S.W.3d 440 (Tex. 2005), the carrier argued that a certificate confirming additional insured coverage had to be issued before the date of loss to avoid the problem of the owner and contractor “working together to create coverage after the fact.” Id. at 443. While the court agreed that it would be better practice to issue a certificate before the date of loss, the failure to do so would not bar coverage where (1) there was no evidence of collusion by the named insured and additional insured; (2) the policy did not require issuance of a certificate prior to commencement of work or before the loss; and (3) the “certificate itself states that it ‘IS ISSUED AS A MAI-1ER OF INFORMATION ONLY AND CONFERS NO RIGHTS,’ and Continental’s representative admitted the certificate date does not necessarily affect coverage.” Id. at 444.


not alter the status of the parties or the obligations of the carriers to provide primary or only excess coverage for the loss when multiple policies are triggered.

Insurance policies typically contain “other insurance” clauses that purport to govern allocation of coverage and available policy limits between different policies when more than one policy applies to the loss. The are three basic types of clauses. A “primary” clause provides that when other primary insurance applies to the loss, the two policies will share the risk, usually on a pro rata basis based on respective policy limits. Excess clauses purport to make the policy excess or secondary coverage that applies after other, primary policies are exhausted. So-called “escape” clauses are intended to make the policy apply last, only after all other possibly applicable policies are exhausted.25 As noted above, the Citgo court adopted a hybrid approach, deciding that the limits of the contractor’s self-insured policy, which contained an “escape” clause, would be prorated and share five-eighths of the loss (based on the respective policy limits) with the owner’s self-insured primary policy. Thereafter, the court applied the escape clause to require the additional insured’s umbrella and excess policies to pay the remainder of the loss.26 While Citgo is perhaps an unusual ruling in light of the circumstances presented, the question of priority between an owner’s insurance and the insurance coverage provided to the owner as additional insured has given rise to varying outcomes, as illustrated by two cases decided by the New York Court of Appeals.

In the first of these cases, Pecker Iron Works of New York v. Traveler’s Insurance Co.,27 the New York Court of Appeals addressed the question (also considered in Citgo Petroleum Corp. v. Yeargin) of whether or not an additional insured clause in a subcontractor’s policy, which provided that coverage for the additional insured would be excess unless designated as primary in the construction contract, required the policies of the project owner and general contractor to be exhausted before the additional insured coverage would apply to the loss. The subcontractor’s insurance policy contained an omnibus clause that covered any “additional insured” so designated by the subcontractor. The additional insured clause also purported to classify the coverage provided to additional insureds as excess coverage, unless the named insured “ha[d] agreed in a written contract for this insurance to apply on a primary or contributory basis.”28 However, the construction contract was silent with respect to the priority of coverage.

An employee of the subcontractor was injured at the construction site and brought suit against the general contractor and the owner of the property. The additional insured contractor then sought a declaratory judgment that the subcontractor’s insurance policy provided primary coverage to the contractor for the employee’s claim. The trial court granted the insurance company’s motion to dismiss, ruling that, in the absence of an express written agreement obligating the policy to respond on a primary basis, the policy provided only secondary, excess coverage. The Appellate Division of New York, Second Department, reversed and held that when the subcontractor agreed to provide coverage for the contractor as an additional insured,

25 See, e.g., 15 Couch on Insurance § 219:41. 26 690 So. 2d at 170. 27 99 N.Y.2d 391, 786 N.E.2d 863 (N.Y. 2003). 28 Id. at 393, 786 N.E.2d at 863.


there was no indication in that agreement that the contractor would receive only excess, instead of primary, coverage.29

New York’s highest court affirmed, ruling that despite the absence of express language in the construction contract requiring the additional insured coverage to be primary, the subcontractor’s policy nevertheless had to respond to the loss on a primary basis. There is no discussion in the case of whether or not the policy contained a separate “other insurance” clause and if so, whether it was a “primary” or “excess” clause. However, the New York Court of Appeals stated twice in its opinion that the carrier had provided “primary coverage”;30 therefore, the policy probably contained a “primary” other insurance clause. If so, the language of the omnibus additional insured clause purported to distinguish the primary coverage normally provided to the named insured from the coverage of an additional insured, which the carrier argued was excess coverage only.

The court of appeals did not accept the distinction. Rather, the court noted that the term additional insured has a “well-understood meaning” in insurance contracts and is meant to refer to “an ‘entity enjoying the same protection as the named insured.’”31 In other words, despite the absence of contract language specifically requiring primary coverage, once the subcontractor agreed to name the contractor as an additional insured on its “primary coverage,” the additional insured became entitled to the same primary coverage as the named insured:

When [the additional insured contractor] engaged [the named insured subcon-tractor] ... and in writing provided that [the subcontractor] would name [the contractor] as an additional insured, [the contractor] signified, and [the sub-contractor] agreed, that [the named insured’s] carrier . . . would provide [the additional insured] with primary coverage on the risk. Pursuant to the policy provision at issue, [the carrier] agreed to provide primary insurance to any party with whom [its named insured] had contracted in writing for insurance to apply on a primary basis. When [the named insured] agreed to it, the policy provision was satisfied.32

The Pecker Iron ruling arguably adopted a presumption that when the construction contract is silent on the subject, the coverage provided for an additional insured should be primary, but a more recent case decided by the New York Court of Appeals suggests that any such presumption cannot be used to trump express policy language to the contrary.

Like Pecker Iron, the more recent case, BP Air Conditioning Corp. v. One Beacon Insurance Group,33 involved a tort claim for work-related injuries by an employee of a subcontractor. The injured worker sued another subcontractor (BP Air Conditioning) that had been named as an “additional insured” on a CGL policy issued by One Beacon, the insurance

29 Pecker Iron, 290 A.D.2d 426, 736 N.Y.S.2d 103 (App. Div. 2d Dep’t 2002), aff’d, 99 N.Y.2d 391, 786 N.E.2d 863 (N.Y. 2003). 30 99 N.Y.2d at 393, 786 N.E.2d at 863. 31 Id. at 393, 786 N.E.2d at 864 (quoting Del Bello v. General Accident Ins. Co., 185 A.D.2d 691, 692 (N.Y. App. Div. 1992), quoting Rubin, Dictionary of Insurance Terms 7 (Barron’s 1987)). 32 Id. at 394, 786 N.E.2d at 864 (emphasis added). 33 8 N.Y.3d 708, 871 N.E.2d 1128 (2007).


carrier of the plaintiff’s immediate employer. The additional insured clause contained typically broad language, but with some limitations:

Who is An Insured (Section II) is amended to include as an insured any person or organization for whom you are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy. Such person or organization is an additional insured only with respect to liability arising out of your ongoing operations performed for that insured. A person’s or organization’s status as an insured under this endorsement ends when your operations for that insured are completed.34

One Beacon refused to defend the additional insured, arguing that the additional insured’s coverage and hence the obligation to defend could not be determined until the cause of and liability for the plaintiff’s accident had been determined. The trial court disagreed and ordered One Beacon to defend the claim against BP Air Conditioning. On appeal, the First Department, applying Pecker Iron, concluded that because “BP, as an additional insured under [its subcontractor’s] policy, `enjoy[s] the same protections as the named insured’ (Pecker, 99 N.Y.2d at 393), the same principles govern the activation of Beacon’s duty to defend for both [the named insured] and BP.”35 The intermediate appellate court also ruled, again citing Pecker Iron, that One Beacon had primary coverage for the loss and hence the primary obligation to defend:

The precise holding in Pecker was that additional insurance is primary insurance unless the controlling documents specifically provide otherwise; that holding fully applies to this case insofar as it means that BP’s additional insured coverage is primary—a point not even disputed by Beacon. Since the coverage is primary, it follows that Beacon has a duty to defend BP. . .36

It appears that this aspect of the First Department’s holding overstated the New York law on the question of which policy (of multiple policies that might apply) should be deemed the primary source of coverage for defense costs and any liability incurred by the additional insured.

On review of the First Department’s ruling, the New York Court of Appeals agreed that One Beacon had the duty to defend the additional insured, rejecting the carrier’s argument that the “liability arising out of language” of the endorsement required a determination of liability before the duty to defend could be triggered:

One Beacon argues that the portion of the additional insured endorsement that states that BP “is an additional insured only with respect to liability arising out of [named insured’s] ongoing operations performed for that insured,” requires a determination of liability for [the plaintiff’s] injuries before BP is entitled to a defense. However, when considering this policy language in light of an insurer’s

34 Id. at 712, 871 N.E.2d at 1130. 35 BP Air Conditioning, 33 A.D.3d 116, 123, 821 N.Y.S.2d 1, 6 (App. Div. 1st Dep’t 2006), aff’d in part, modified in part, 8 N.Y.3d 708, 871 N.E.2d 1128 (2007). 36 Id. at 126, 821 N.Y.S.2d at 8.


broad obligation to defend an insured, it does not affect the standard under which a duty to defend is determined. When the duty to defend is at issue, a liability alleged to arise out of [the named insured’s] ongoing operations is one “arising out of” such operations within the meaning of the policy.37

However, the court decided that the First Department had gone too far in also ruling that the coverage provided by One Beacon would be primary to other policies that might apply to the loss. The court of appeals noted that the trial court had refused to decide that issue because, in light of the absence of record evidence on the subject, it could not “ ‘ascertain whether . . . some other carrier [] should be treated as a co-insurer or an excess carrier to [One Beacon, and that its] ultimate contribution for defense and indemnification[,] if any, cannot be determined from the present submissions.’”38 The court of appeals agreed with the trial court that the record of the case did not support the First Department’s ruling regarding the priority of coverage:

Turning to the issue of the priority of coverage, we conclude that the Appellate Division erred in finding that One Beacon’s coverage is primary and BP’s coverage under its own policy is excess. In order to determine the priority of coverage among different policies, a court must review and consider all of the relevant policies at issue (see State Farm Fire & Cas. Co. v. LiMauro, 65 N.Y.2d 369, 482 N.E.2d 13, 492 N.Y.S.2d 534 [1985]). Here, Supreme Court correctly concluded that because none of the other insurance carriers are parties to this declaratory judgment action and no other relevant policies have been submitted, the priority of coverage cannot be determined.39

While the BP Air Conditioning opinion otherwise is silent on the question, the outcome and ruling reversing the First Department’s conclusion regarding the priority of competing coverages refutes the proposition that there should be a “presumption” that additional insured coverage is always primary. Rather, in New York, as in most jurisdictions, the parties should carefully allocate the risks, in light of governing policy language, to specify which coverage is primary (the owner’s own coverages or its coverage as additional insured) and whether or not other policies should be required to contribute to the loss. In other words, the outcome in Pecker Iron was based on the specific language of the additional insured clause at issue in that case, without regard to whether that clause conflicted with or was consistent with any separate “other insurance” clauses in the owner’s or contractor’s policies. The question whether or not a construction contract that expressly requires “primary” coverage can trump a separate excess or escape other insurance clause in the body of the contractor’s policy, if the policy does not otherwise permit the named insured to name another entity as an additional insured on a primary basis, arguably remains an open issue in New York.

37 BP Air Conditioning, 8 N.Y.3d at 715, 871 N.E.2d at 1132. This ruling is fully consistent with the majority of cases that broadly construe “arising out of” language. See infra notes 49 and 50 and accompanying text. 38 Id. at 713, 871 N.E.2d at 1131 (brackets in original). 39 Id. at 716, 871 N.E.2d at 1133 (emphasis added).

THE ADDITIONAL INSURED ISSUE § 7.05[A]

§ 7.05 LIMITATIONS ON THE SCOPE OF ADDITIONAL INSURED COVERAGE

[A] Statutory Limitations on Coverage

In True Oil Co. v. Mid-Continent Casualty Co.,40 the U.S. Court of Appeals for the Tenth Circuit addressed an additional insured dispute regarding coverage for workplace injury claims brought against an oil field developer (True Oil) by an injured employee of the developer’s contractor. The contractor had agreed to name True Oil as an additional insured and also to indemnify True Oil “[t]o the fullest extent permitted by law . . . from and against all claims [and] damages . . . even if . . . caused in part by the negligence or omission of [True 011].41 The contractor also agreed to name True Oil as an additional insured, which the contractor did by delivering an ACORD certificate to True Oil confirming coverage under the contractor’s CGL policy. The policy contained an omnibus clause allowing the contractor to provide coverage to “ ‘any person or organization whom [the named insured] has agreed by written ‘insured contract’ to designate as an additional insured.’”42 The court decided that it had to review the underlying construction contract to determine whether or not it qualified as an “insured contract” within the meaning of the policy terms.43

Agreeing with the insurance carrier, the court ruled that the contract was not an insured contract and hence that True Oil was not an additional insured because the indemnity provision in the contract was “void” under the applicable Wyoming anti-indemnity statute. The Wyoming statute barred persons engaged in oil and gas wort from entering into contracts for indemnity based on the “sole or concurrent negligence of the indemnitee. . . .”44 The court rejected True Oil’s arguments that the ACORD certificate, which contained standard disclaimer language (discussed above), could broaden the policy coverage to include such claims. The court also decided, citing the “four corners” rule, that the testimony of the insurance agents who issued the ACORD certificate was inadmissible “parol evidence” that could not be considered in deciding whether True Oil qualified as an additional insured under the unambiguous policy terms.45

40 173 F. App’x 645 (10th Cir. 2006). 41 Id. at 647. 42 Id. at 649 (emphasis in original). 43 The policy defined an “insured contract” as a contract in which the named insured assumed the “ ‘tort liability of another party’ “ to pay for a bodily injury claim of another, if the tort liability so assumed “ ‘would be imposed by law in the absence of any contract or agreement.’” Id. This is the commonly accepted definition of “insured contract,” which limits coverage to contracts providing indemnity against tort liability: “Courts have consistently interpreted the phrase ‘liability assumed by the insured under any contract’ to apply only to indemnification and hold-harmless agreements, whereby the insured agrees to ‘assume’ the tort liability of another... [and not] ... to the insured’s breaches of its own contracts.” Ingalls Shipbuilding v. Federal Ins. Co., 410 F.3d 214, 222 (5th Cir. 2005). 44 173 F. App’x at 647. 45 As noted above, the Citgo court also applied the commonly recognized “four corners” rule, which holds that the obligations of the carrier to provide coverage must be determined by the contents of the insurance policy itself and cannot be modified or restricted by extraneous documents not made a part of the policy. In Citgo, the court ruled that it could not consider the limitations set forth in the construction contract in ruling on the scope of coverage provided by the policy. It is uncertain whether a policy’s express reference to the named insured’s obligations assumed in an extraneous document (the construction contract) would change this outcome; however, the True Oil court clearly relaxed the “four corners” rule in that case. See also Roberts, Taylor & Sensabaugh, Inc. v. Lexington Ins. Co., No. Civ. A. H-06-2197, 2007 U.S. Dist. LEXIS 65524, at *16 (S.D. Tex. Sept. 5, 2007) ;Texas’s “eight corner’s rule” does not bar consideration of extrinsic evidence “to show whether [the additional insured’s] ... liability in an underlying suit ‘arises out of events covered by the ) policy . . .”).

§ 7.05[B] 2008 CONSTRUCTION LAW UPDATE

Interestingly, however, the court left open the possibility that True Oil’s contractor and perhaps the insurance agent could be sued for breach of the construction contract or based on other legal theories for not obtaining proper insurance.46

The True Oil court also left open the question of whether or not an enforceable agreement to insure an oil field developer (or contractor) could ever be negotiated in Wyoming, noting that the district court had ruled that the “insurance savings” provision of the anti-indemnity statute did not apply because Wyoming “public policy” prohibited “ ‘enforcement of . . . an agreement to insure and indemnify for one’s own negligence.’ ”47 The court decided that its ruling applying the “insured contract” language of the additional insured provision to bar coverage avoided any need to address the public policy issue. Also, while the court applied the “four corners” rule to bar any “parol evidence” of contractual intent, the court obviously had to go beyond the “four corners” of the insurance policy to consider the underlying construction contract, and to review the indemnity clause to determine whether or not the construction contract was an “insured contract” or whether the indemnity clause was void as a matter of Wyoming law. Thus, assuming an anti-indemnity statute does not apply, the True Oil case suggests that an additional insured clause that expressly references the contractual indemnity obligations being assumed and that accordingly limits the scope of the additional insured’s coverage to claims based soley on negligence of the contractor-indemnitor would be enforced, as written.

Consistent with the outcome of True Oil, a few states have passed statutes expressly prohibiting insurance for the additional insured’s own negligence.”48 In those states, the typical omnibus clause, even if more broadly worded than the clause at issue in True Oil, would not shift the obligation to the contractor’s carrier to defend the additional insured for its own, sole negligence or perhaps even for its partial, “concurrent,” negligence. In those jurisdictions, the legislatures effectively have adopted the Harbor Insurance court’s approach, limiting the additional insured coverage solely to the vicarious liability of the additional insured for the negligence of its contactor.

[B] Contractual Limitations on Coverage

The outcome in Citgo Petroleum Corp. v. Yeargin, discussed above, is consistent with the majority rule in most jurisdictions that if the injury arises out of the construction work, the “additional insured” coverage is triggered whether or not the negligence of the contractor caused

46 True Oil, 173 F. App’ x at 651. Some courts have ruled that if a contractor neglects to obtain -equired insurance, such as by failing to obtain a policy for the required amount or by failing to obtain required additional insured endorsement, the contractor must step into the shoes of the “missing” :airier and provide the owner with the equivalent of the required coverage that the contractor had tgreed to provide. See, e.g., Kinney v. G.W. Lisk Co., Inc., 76 N.Y.2d 215, 556 N.E.2d 1090 (1990) bolding subcontractor that breached agreement to procure liability insurance covering general conractor liable for damages the general contractor incurred as a result of a claim by the subcontractor’s njured employee). 47 Id. at 650 n.6. Most courts, either by virtue of an “insurance savings” provision or otherwise, lave allowed parties to shift liability for the negligence of an indemnitee/additional insured to an nsurance carrier, even if the anti-indemnity statute prohibits contractual indemnity for the negli-;ence of the indemnitee. See supra note 3. 48 See, e.g., O.C.G.A. § 13-8-2 (construction contract clause providing non-project-specific nsurance coverage for another party’s sole negligence is void as against public policy). See Walsh Constr. Co. v. Mutual of Enumclaw, 189 Or. App. 400, 76 P.3d 164 (2003) (anti-indemnity tatute bars insurance coverage for the additional insured’s sole negligence), aff’d, 338 Or. 1, 104 P.2d 1146 (2005).

THE ADDITIOINAL INSURED ISSUE § 7.05[B]

or contributed to the loss. For instance, in McIntosh v. Scottsdale Insurance Co., the Tenth Circuit ruled that the “phrase ‘arising out of’ clearly relates to causation, but . . . ‘imparts a more liberal concept . . . than “proximate cause” ’ ” and that “[a]lthough a remote connection between [the named insured’s] operations and [the plaintiff’s] injuries would not suffice....” the claims of a guest injured during a city-sponsored festival while walking to portable toilets triggered the city’s additional insured coverage for its own negligence.49 However, accidents that occur at other locations or that otherwise are beyond the scope of the contractor’s work should not be covered by an additional insured clause. It is still necessary to prove that the incident (the “occurrence”) underlying the additional insured’s coverage claim is “causally connected with . . . i.e., a cause and result relationship” exists with respect to the named insured’s work.”50

Consistent with a broad interpretation of “arising out of,” and as illustrated again by Citgo, courts typically rule that an injured employee of the named insured contractor can pursue a personal injury claim against the additional insured owner, even though the contractor could not be sued directly because the employee’s personal injury claim against his or her own employer would be barred by the applicable workers’ compensation exclusive remedy rule.51 Thus, while the standard form of CGL policy contains exclusions for work-related injuries and claims within the scope of the state’s workers’ compensation act, the “severability of interest” clauses in the typical policy extends coverage to the premises owner because the owner is not the actual “employer” of the injured worker. In Citgo Petroleum Corp. v. Yeargin, the court affirmed the trial court’s ruling that the employees of the named insured contractor were not the “statutory” employees of Citgo, thereby avoiding application of the exclusions contained in the Yeargin policy.52

In response to cases broadly construing additional insured clauses, carriers began to restrict the scope of the additional insured language previously used in CGL policies. While several variations of policy language are used, carriers have added policy language to limit the scope of the coverage provided, sometimes by tying the additional insured clause to the contractual indemnity obligations of the named insured, thereby limiting the carrier’s coverage obligations to the scope of the liability assumed by the contractor and the amount of coverage specified in the construction contract. Such clauses are intended to avoid the broad rulings in cases such as Citgo Petroleum Corp. v. Yeargin. However, many other policies may still contain broadly worded additional insured clauses similar to the clause contained in the Yeargin policy.

49 992 F.2d at 255. See supra note 7 50 Meridian Mut. Ins. Co. v. Continental Bus. Ctr., No. Civ. A. 04-1639, 2005 U.S. Dist. LEXIS 6406, at *24 (E.D. Pa. Apr. 14, 2005), aff’d, 174 F. App’x 104 (3d Cir. 2006). In this case, the district court rejected the carrier’s “vicarious liability” argument, but concluded that absent any evidence that the leasee-named insured had any responsibility for causing a fire to spread to the leased property, the additional insured owner could not “satisfy the ‘but for’ causation” required to trigger the arising out of language.” Id. at *25. See also Turner Const. Co. v. Kemper Ins. Co., 198 F. App’x 28, 31 (2d Cir. 2006) (noting that the additional insured contractor “had considerable difficulty at oral argument in identifying those facts that would permit a jury to find that its negligence somehow arose out of [its subcontractor’s] work” and remanding for a factual determination of that issue). 51 In every state, the workers’ compensation law provides the exclusive remedy for work-related injuries of the injured worker. While “intentional torts” have been recognized as exceptions to the exclusive remedy rule in some states, the worker’s remedy against his “immediate employer” is statutory only. However, unless the state’s “statutory employer” rules apply, see supra note 2, the injured worker is free to sue third parties, such as the project owner, for on-the-job injuries. 52 690 So. 2d at 165.

§ 7.05[B] 2008 CONSTRUCTION LAW UPDATE

For instance, the authors recently reviewed a broadly worded CGL policy expanding the definition of “insured” to provide full coverage to “any party who enters into an agreement with the Insured for any purpose . . . but only to the extent required by such agreement [and] . . . limited always to the extent of [coverage] and the limit of liability provided in this policy.” It is doubtful that this clause would avoid the outcome in Citgo Petroleum Corp. v. Yeargin and other cases that broadly construe such clauses to extend coverage for the negligent acts of the owner/additional insured up to the full policy limits. A more limited version of a similar clause in another policy defines the term insured to include:

Any person or organization for whose protection the named insured has agreed by written contract entered into prior to loss to provide insurance or whom the named insured has elected to designate as an additional insured upon a certificate of insurance certifying coverage under this policy. Regardless of any other written contractual provisions, in no event shall this insurance, with respect to such person or organization, exceed the actual liabilities expressly assumed by the named insured, the applicable limits of coverage that the named insured has so agreed to provide or the applicable limits or coverage of the policy. [Emphasis added]

This type of clause might avoid the “extra” coverage required by the Citgo case if the named insured agrees to provide only the amount of coverage specified in the contract. Similarly, by referring to the language of the underlying construction contract, this clause may effectively incorporate the indemnity clause and perhaps even the consequential or other damages limitations contained in the construction contract.

In a case in which the applicable policy validly incorporates by reference the obligations the named insured assumed in the construction contract, determining the scope of the additional insured coverage the contractor and its carrier have agreed to provide requires a multistep review of several contract clauses. First, it is necessary to review the construction contract indemnity obligations, damages limitations, and the insurance clause the parties negotiated. Second, it is necessary to compare those clauses to the insurance policy itself to verify that the limits and coverages provided are consistent with the required limits and coverages specified in the construction contract. This review should focus on the following three questions:

1. What liability has the named insured contractor assumed in the contractual indemnity clause (and any applicable damages limitations clauses)?

2. How much coverage is required by the applicable insurance clause? To avoid the Citgo Petroleum Corp. v. Yeargin outcome, the construction contract should specify the precise amount of coverage required or a “maximum” amount and not a minimum or “at least” coverage amount.

3. Does the policy satisfy the named insured’ s contractual obligations to provide additional insured coverage at specified amounts and has an appropriate insurance certificate been issued?

THE ADDITIOINAL INSURED ISSUE § 7.05[B]

An omnibus additional insured clause that incorporates by reference the contractual obligations of the named insured might limit the scope of coverage that otherwise would be provided by the broad form of omnibus clause construed in Citgo Petroleum Corp. v. Yeargin. However, express reference to the construction contract may not eliminate resulting confusion and uncertainty. The scope of insurance being made available still must be determined by the often disputed interpretation of the underlying contractual indemnity clause.

The ruling in another Yeargin case illustrates this point. While this case did not involve interpretation of an “additional insured” clause, it exemplifies the difficulty often encountered in attempting to interpret and determine the scope of the indemnity obligations set forth in a construction contract.

In Olin Corp. v. Yeargin, Inc.,53 the court considered a claim brought by a project owner (Olin) seeking to recover contractual indemnity for amounts paid to settle toxic tort claims of employees of the contractor (Yeargin) injured as a result of exposure to mercury that leaked from pipes the workers had been assigned to remove and replace. Subclause (a) of the indemnity provision obligated Yeargin to indemnify Olin for any and all loss and liability “arising out of” the contract work, subject to the following, limiting language in subclause (b):

This indemnity shall apply to the extent that said loss, damage, liability, claims, demands, costs, or suits are occasioned, brought about or caused, in whole or in part, by negligence of Contractor, its agent, directors, officers, employees or servants and regardless of whether such negligence be active or passive, primary or secondary.54

Olin argued that because Yeargin was responsible “in part” for not adequately protecting its workers from exposure to the mercury, Yeargin had to indemnify Olin fully for all costs incurred in settling the workers’ claims. According to Olin, when read together with the broad indemnity language of the subclause (a), which applied “without limitation” to all losses, costs and expenses Olin incurred, the “in whole or in part” wording of subclause (b) obligated Yeargin to indemnify Olin for all settlement costs, as long as Yeargin was at least partially responsible for Olin’s loss. In opposition, Yeargin argued that the phrase to the extent meant that its indemnity obligation should be limited solely to liability Olin incurred as a direct result of Yeargin’ s negligence. Because Tennessee’s comparative fault laws attributed all of Olin’s settlement costs to Olin’s own negligence, the trial court agreed with Yeargin’s position and entered summary judgment rejecting Olin’s claim.

53 146 F.3d 398 (6th Cir. 1998). 54 Id. at 403 (emphasis in original).


On appeal from the trial court’s ruling, the Sixth Circuit applied Tennessee’s version of the “express negligence” rule:

Tennessee recognizes the “near]] . . . universal rule that there can be no recovery where there was concurrent negligence of both indemnitor and indemnitee unless the indemnity contract provides for indemnification in such case by `clear and unequivocal terms.’ “ Based on this standard, we cannot ascribe to the indemnity agreement the meaning Olin proposes . . . [absent] clear and unequivocal language supporting Olin’s interpretation.55

Because the indemnity agreement did not mention the negligence of Olin, it fell short of this “clear and unequivocal” requirement. The court noted that if the parties had intended to indemnify Olin for its own negligence, they could have made such intention “clear and unequivocal” by using “appropriate express language such as ‘including indemnitee’s acts of negligence.’ ”56 Because the clause did not include such language, the appellate court affirmed the trial court’s ruling rejecting Olin’s claim.

The Olin case illustrates the dangers of using language in the insurance policy that merely incorporates the sometimes vague and often uncertain indemnity language of the underlying construction contract. Absent clarity of expression in the underlying construction contract, incorporating the contractual indemnity language may not add much certainty to the question of what coverage is being provided to the additional insured, especially if the differing indemnity laws of fifty states must be considered, as effectively ruled in True Oil. Nevertheless, some limitation on the scope of the additional insured coverage obligation is appropriate, especially where, as is so often the case, the named insured assumes a substantial portion of the insured risk by virtue of a large policy deductible or self-insured retention.

§ 7.06 THE CURRENT FORM OF OMNIBUS ADDITIONAL INSURED CLAUSE LIMITS THE COVERAGE PROVIDED TO THE ADDITIONAL INSURED

The cost of being able to name third parties as insureds is determined by the cost (if any) of including an omnibus clause in the policy and not by any individualized underwriting decision regarding the risks of a particular project. Underwriting” of individual construction risks probably was not deemed necessary because of the various limitations contained in the standard forms of CGL coverage. As noted above, CGL policies bar coverage for work-related injury claims by employees whose entitlement to recovery is governed by the workers’ compensation laws. CGL policies also typically exclude coverage for any property damage liability caused by construction defects or negligent workmanship that damages the contractor’s work or that arises out of that work and occurs during the course of performance. However, the so-called business risk exclusions have been narrowed in many jurisdictions and are subject to exceptions when the negligent workmanship of the insured contractor causes damage to other property.57 In

55 Id. at 404 (quoting Kroger Co. v. Giem, 215 Tenn. 459, 387 S.W.2d 620 (1964)). See also Eades v. Union Ry. Co., 396 F.2d 798, 799 (6th Cir. 1968); supra note 4 and accompanying text. 56 Id. at 404 (quoting Wajtasiak v. Morgan County, 633 S.W.2d 488, 490 (Tenn. Ct. App. 1982)) 57 See Edmund M. Kneisel and Elliot A. Fus, Liability Coverage for Defective Construction: The “No Occurrence” Myth, 2007 Construction Law Update 115 (Neal J. Sweeney ed., 2007). Also, where the damage occurs after the contractor’s work is complete, the so-called subcontractor exception to the “your work” exclusion has been


jurisdictions in which such exclusions have been eroded, carriers should be cautious in freely allowing their named insured contractors to designate owners or other entities as additional insureds entitled to full coverage under the applicable policy.

Perhaps as a result of these developments, the most recent version of the omnibus additional insured clause, issued by the Insurance Services Office (ISO) as Form 2004 CG 20 33, contains a significant narrowing of coverage provided to the additional insured. The revised clause limits the additional insured’s coverage to liability:

caused, in whole or in part, by [the named insured’s] acts or omissions, or the acts or omissions of those acting on [the named insured’s] behalf, in the performance of [the named insured’s] ongoing operations for the additional insured. [Emphasis added]

This language, subject perhaps to disputes over the meaning of the “in whole or hi part” wording,58 is an attempt to limit the scope of the coverage provided to the vicarious liability of the additional insured for the negligence of the named insured.

The most important limitation in this clause results from the use of the word caused, instead of the far broader “arising out of” language used in many older forms of omnibus additional insured clauses. As discussed above, the phrase arising out of has been broadly construed by most courts to extend full coverage to an additional insured for its own negligence, as long as the injury is connected with or related to the named insured’s work performed under its contract with the additional insured.59 Proof that the named insured’s “acts or omissions” actually caused or contributed to the loss is not required.

The new ISO endorsement replaces the “arising out of” language with the word “caused” and refers specifically to the acts or omissions (if not the negligence) of the named insured. Coupled with the “in whole or in part” language, this form of endorsement should bar coverage for liability attributable to the sole negligence of the additional insured.

Because the insurance industry only recently began using the new endorsement, few, if any, courts have had an opportunity to interpret and apply it; however, courts have held that similar, narrow wording precludes coverage for the additional insured’s sole negligence. For example, in Garcia v. Federal Insurance Co.,60 the Florida Supreme Court addressed a certified question from the Eleventh Circuit regarding the scope of coverage afforded under a policy that defined a “covered person” to include “any other person or organization with respect to liability

interpreted by some courts to extend coverage to a general contractor for damage to any of the project “work,” including the damaged work performed by the negligent subcontractor. See, e.g., Lamar Homes, Inc. v. Mid-Continent Cas. Co., 239 S.W.2d 236 (Tex. 2007). 58 See discussion of “in whole or in part” language construed in Olin Corp. v. Yeargin, supra notes 53-55 and accompanying text. 59 See supra notes 49 and 50 and accompanying text. See also Acceptance Ins. Co. v. Syufy Enters., 69 Cal. App. 4th 321, 328, 81 Cal. Rptr. 2d 557, 561 (1st Dist. 1999) (giving a broad interpretation to the term arising out of and holding that it is “settled that this language does not import any particular standard of causation or theory of liability into an insurance policy. Rather, it broadly links a factual situation with the event creating liability, and connotes only a minimal causal connection or incidental relationship”). 60 969 So.2d 288 (Fla. 2007)


because of acts or omissions of you or a family member. . . .”61 The court expressly distinguished cases interpreting the broader “arising out of” language from the more limited “because of” language at issue:

The “arising out of language ... is broader than the language in Federal’s additional insured clause. ... [T]he presence of the words “because of in Federal’s policy requires that an additional insured’s liability be “caused by” the acts or omissions of the named insured. The phrase “arising out or contemplates a more attenuated link than the phrase “because of.”62

According to the court, use of the words “because of” clearly limits an additional insured’s coverage to “liability that is caused by or occurs by reason of acts or omissions of the named insured.”63 Thus, the Florida court held that the phrase “because of acts or omissions” limited coverage to an additional insured’s vicarious liability for the negligence of the named insured.

The language of ISO Form 2004 CG 20 33 requiring the liability of the additional insured to be “caused . . . by ... the acts or omissions” of the named insured probably will be construed as equivalent to the “because of” language construed in Garcia. If so, the revised ISO language will restrict coverage for additional insureds to their vicarious liability for the acts or omissions of the named insureds. Such language stands in stark contrast to the broader “arising out of” language, which has been universally interpreted to provide coverage for the additional insured’s sole negligence, unless such coverage is prohibited by statute or state public policy. If such coverage is allowed by governing state law and is required by the underlying construction contract, the named insured contractor should attempt to obtain a broader form of additional insured endorse-ment than is provided by the current ISO Form, 2004 CG 20 33. Otherwise, the contractor may in effect be required to “self-insure” the owner’s negligence if the insurance coverage actually obtained contains the limiting language quoted above and accordingly does not provide full coverage for the owner’s negligence that the contractor agreed to provide.64

§ 7.07 DRAFTING OF CONSTRUCTION CONTRACT INDEMNITY AND INSURANCE CLAUSES

The many and varied cases considering “additional insured” issues and the evolution of the language used in omnibus additional insured clauses present the following question: Can appropriate contract drafting eliminate or minimize the potential for disputes and litigation over

61 Id. at 299. (emphasis added). 62 Id. at 293. 63 Id. at 292 (emphasis in original). Other courts have interpreted similar language to reach the same result. See Vulcan Materials Co. v. Casualty Ins. Co., 723 F. Supp. 1263, 1264-65 (N.D. III. 1989) (holding that the phrase “any other person or organization but only with respect to his or its liability because of acts or omissions of an insured” is “plainly a vicarious liability provision and nothing more”); Sprouse v. Kall, No. 82388, 2004 WL 170451, at *1-*2 (Ohio Ct. App. Jan. 24, 2004) (an unreported Ohio opinion holding that the phrase “but only with respect to [its] liability because of acts or omissions of an insured” is “intended to protect [the additional insured] from vicarious liability for the acts or omissions of . . . the primary insured”); Transportation Ins. Co. v. George E. Failing Co., 691 S.W.2d 71, 73 (Tex. Ct. App. 1985) (holding that the clause “any person or organization but only with respect to his or its liability because of acts or omissions of an insured” only covers an additional insured’s liability for negligence of a named insured). 64 See supra note 46.


the status of the owner as an additional insured? The answer, as is typical in the construction arena, is “yes, but.”

As discussed above, especially when considered in conjunction with cases adopting an “express negligence” rule and in jurisdictions with strict anti-indemnity statutes, careful drafting of contractual indemnity clauses has limited some of the controversy arising out of vaguely worded contract language. Nevertheless, informed owners and contractors should be cautious about wording additional insured clauses too broadly (or narrowly), thereby unduly extending (or limiting) coverage beyond what was contemplated when the construction contract was signed. Some of the basic protections required by most owners and that should be acceptable to most contractors include:

• Coverage should be provided for any liability of the owner attributable to the fault of the contractor.

• The contractor should limit its contract obligation by agreeing to provide pro rata indemnity and insurance for its own proportionate fault and not for the portion of any damages attributable to the owner’s fault.

• The owner should be named as an additional insured on a primary basis, allowing the owner’s coverage to be triggered only after the contractor’s coverage is fully exhausted.

• Uncertainties regarding the amount of coverage to be provided should be eliminated by specifying the required coverage amount and by obligating the named insured contractor to be fully responsible for any policy deductible or self-insured retention.

The foregoing requirements will provide added financial security for the owner by substituting, at least in part, the obligation of a financially solvent insurance carrier for the perhaps less financially secure obligations of the contractor. Such coverage should be available even after the bankruptcy of the named insured. Neither the Bankruptcy Act nor state statutes permit a carrier to avoid its obligations to provide paid-up coverage merely because its policyholder has filed a bankruptcy petition. On the other hand, some bankruptcy courts have ruled that the carrier’s obligation to pay damages on behalf of its bankrupt insured should not be expanded beyond what the carrier otherwise would have had to pay under the existing policy. As a result, some courts have placed the risk of loss within the amount of a policy deductible or retention on the claimant, as unsecured creditor, rather than on the carrier.6565 Given the possibility that a bankruptcy order might place the obligation to satisfy the policy retention or deductible on the additional insured rather than the carrier, the owner may want to include a provision in the insurance clause specifying a limit on the amount of any self-insured retention or deductible allowed.

During the negotiation process, owners (and general contractors) should consider whether full coverage will be available if the contractor is not financially secure. If not, the owner should consider whether it needs to be fully protected from any and all liability “arising out of” the contractor’s (or subcontractor’s) work, regardless of whether or not the contractor is financially

65 See, e.g., In re Keck, Mahin & Cate, 241 B.R. 583, 596-97 (Bankr. N.D. Ill. 1999). Thus, in the event of the bankruptcy of the named insured who otherwise would be obligated to pay the deductible or retention, the additional insured’s claim for amounts within the policy deductible might end up as an unsecured claim in bankruptcy.

§ 7.08 2008 CONSTRUCTION LAW UPDATE solvent and able to satisfy its contractual indemnity obligation or its obligation to pay the self-insured retention or deductible in the policy. Like other risk-sharing provisions of a construction contract, this is a matter of premium cost considerations and a subject of negotiation between the contract parties.

A sample form of negotiated indemnity and insurance clause that addresses several of the foregoing issues is attached as § 7.09 to this article. This contract contains typical pro rata indemnity clauses but expands the insurance coverage provided to include all construction-related claims and hence arguably provides broader insurance coverage protections for the owner than the indemnity clause alone. This clause was made possible by the owner’s willingness to provide the same broad insurance protection for the contractor against any liability arising out of a separate project the owner planned to undertake. The availability of such broad coverage, if allowable by the underlying construction contract, the policy, and governing state law, should facilitate negotiation of the sharing of risk on the projects being insured. It may be necessary in such circumstances, if the policy contains the current ISO language limiting the additional insured coverage available, to ask the carrier for a broader form of additional insured endorsement that does not limit coverage to the contractor’s pro rata fault. Otherwise, as stated above and assuming the applicable state law allows insurance for the owner’s negligence, the absence of a broader form of additional insured endorsement might make the contractor liable for breach of the insurance obligation contained in the construction contract.

§ 7.08 CONCLUSION

Owners and general contractors should continue to insist that they be “named and waived” in their contractors’ and subcontractors’ policies. Carriers now realize that providing unlimited authority to their named insureds to add other entities as additional insureds may significantly extend coverage beyond what was initially contemplated; therefore, carriers may insist on issuing more limited omnibus clauses that restrict the scope of the additional insured’s coverage. Nevertheless, such coverage continues to provide a valuable, additional resource for satisfying the sometimes significant liabilities that may arise out of the construction work.

To be protected, both owners and contractors should be fully informed regarding the governing insurance coverage law; they should carefully consider the drafting of appropriate contractual indemnity and additional insured clauses; and they should closely compare the obligations being assumed in the construction contract with the permissible scope of the additional insured coverage granted in the underlying policy.

§ 7.09 APPENDIX: CONSTRUCTION-RELATED INDEMNITY AND INSURANCE CLAUSES

INDEMNITY AND INSURANCE ADDENDUM

This Indemnity and Insurance Agreement (“Agreement”) is made by and among OWNER-Developer, Inc. (“OWNER”) and XYZ Construction Company (“CONTRACTOR”).

WHEREAS, OWNER and CONTRACTOR desire this Addendum to form a part of and supplement certain oral and/or written agreements, entitled “Construction Agreements”

THE ADDITIOINAL INSURED ISSUE § 7.09 previously negotiated by the Parties hereto providing for specified licenses, rights and obligations relating to construction projects described therein, and further desire that this addendum supplant and supersede any contradictory terms of the Construction Agreements to the extent any such terms address the subjects of indemnity or insurance covered by this Addendum Agreement;

WHEREAS, OWNER is developing a multi-use office building, hotel and parIchlg garage (the “Project”) and owns additional property adjacent to the Project that OWNER may also develop in the future;

WHEREAS, CONTRACTOR has contracted with OWNER to construct certain improvements to the project property and also has entered into separate contracts to construct an adjacent mixed used facility, including an underground parking garage near the vicinity of OWNER’s property (“Adjacent Project”);

WHEREAS, OWNER and CONTRACTOR desire to enter into this contract to facilitate the construction work and to address the risks of any property damage or other loss to OWNER and arising out of the Contractor’s work;

NOW, THEREFORE, in consideration of the mutual understandings and covenants in this Agreement and for other good and valuable consideration, the sufficiency of which is acknowledged, OWNER and CONTRACTOR agree as aforesaid and as follows:

1. Insurance Policies and Coverage

Insurance Provided by CONTRACTOR

CONTRACTOR shall procure and maintain throughout the period of the construction of the Project and for a period of three years after final completion and acceptance of the Project by the OWNER a comprehensive general liability policy that includes products/completed operations hazard coverage, or the equivalent; that names OWNER as additional insured; that insures against liability resulting from CONTRACTOR’s construction activities on the Project or at the Adjacent Project; and that contains coverage limits in amounts of $1 million per occurrence and $10 million in the aggregate. Each policy shall provide that the coverage provided to OWNER as additional insured is primary and noncontributory. Any insurance or self-insurance otherwise available to OWNER shall be excess of CONTRACTOR’S insurance and shall not contribute to any loss or liability until CONTRACTOR’S insurance is fully exhausted. Each policy shall provide coverage on an “occurrence” basis and not a “claims made” basis. The insurance coverage CONTRACTOR is required to provide hereunder shall support, but is not intended to limit CONTRACTOR’s indemnification obligations in paragraph 3 below.

Insurance Provided by OWNER

If, before completion of the Project or the Adjacent Project, OWNER enters into a contract with a third party or parties to develop OWNER’s property adjacent to the Project (the “New Project”), OWNER shall procure and maintain throughout the period of such construction and for three years after final completion and acceptance of the New Project a comprehensive

§ 7.09 2008 CONSTRUCTION LAW UPDATE general liability policy that includes products/completed operations hazard coverage, or the equivalent; that names CONTRACTOR as an additional insured with respect to any liability resulting from OWNER’s construction activities at the New Project; and that contains coverage limits in amounts of $1 million per occurrence and $10 million In the aggregate. Provided, however, that OWNER shall not have any obligation to procure such insurance before commencement of work on the New Project or to maintain the insurance for longer than three years following completion and acceptance of the New Project. Each policy shall provide that the coverage provided to CONTRACTOR as an additional insured is primary and noncontributory. Any insurance or self-insurance otherwise available to CONTRACTOR shall be excess of OWNER’s insurance for the New Project and shall not contribute to any loss or liability until OWNER’ s insurance for the New Project is fully exhausted. Each policy shall provide coverage on an “occurrence” basis and not a “claims made” basis. The insurance coverage OWNER is required to provide hereunder shall support, but is not intended to limit OWNER’s indemnification obligations in paragraph 3 below.

2. General Insurance Requirements Insurers

All insurance required hereunder shall be procured from insurance companies that at the time coverage commences are authorized to do business in the State and that have a current rating of not less than “A” according to A.M. Best’s Ratings.

Deductibles and Self-Insured Retentions

The additional insured(s) shall have no liability for any deductibles or self-insured retentions in the required policies, which shall be and remain the responsibility of CONTRACTOR and OWNER under their respective policies. The obligation to satisfy any deductible or any self-insured retention, whether or not a condition precedent to coverage under the policy, shall be the obligation of named insured on the policy(ies) and shall be subject to the indemnity clause set forth below.

Verification of Continuing Coverage

CONTRACTOR and OWNER shall deliver to OWNER and CONTRACTOR, respectively, certificates of insurance confirming that OWNER and CONTRACTOR, respectively, as certificate holders, are additional insureds under the terms of each such insurance policy or modification, or renewal or replacement insurance policy and all endorsements thereto. If OWNER or Contractor must be added as additional insureds by policy endorsement, copies of the endorsements should be provided to OWNER and CONTRACTOR as soon as they are available; and if OWNER or CONTRACTOR are added as additional insureds in accordance with an “omnibus” clause in the applicable policy(ies), then a copy or copies of the clause should be delivered to OWNER and CONTRACTOR with the certificates of insurance. The certificate(s) and corresponding policies must specify that the additional insured(s) shall receive no less than thirty (30) days advance notice of the termination, cancellation or non-renewal of such coverage. If current certificates of insurance confirming coverage are not provided to the additional insured(s) on commencement of and during the course of the Projects or in the event that an additional insured receives notice of cancellation of such coverage and satisfactory evidence of replacement coverage is not provided before the effective date of cancellation,

THE ADDITIOINAL INSURED ISSUE § 7.09 OWNER or CONTRACTOR may, in addition to any other available remedy, without further inquiry as to whether required insurance is actually in force, obtain replacement coverage equivalent to the insurance required hereunder; and upon demand, CONTRACTOR and OWNER shall reimburse in full the cost of equivalent, replacement coverage.

Waivers of Subrogation

OWNER and CONTRACTOR waive all rights against CONTRACTOR and OWNER, respectively, and against each of their agents, employees and Project consultants, directors, officers, employees, and subcontractors for any claims, to the extent any losses incurred by OWNER or CONTRACTOR are fully covered and paid from the proceeds of the insurance provided pursuant to this Agreement, except such rights as OWNER and CONTRACTOR may have to the proceeds of such insurance. Each policy that is the subject of this Agreement shall include a waiver of any tight of subrogation against OWNER and CONTRACTOR (and their respective, directors, officers, employees, agents, and consultants).

3. Indemnity

Indemnity of OWNER by CONTRACTOR

CONTRACTOR shall release, defend, indemnify and hold harmless OWNER and its directors, officers, employees, subcontractors and agents from and against any and all loss, cost, expense, liabilities, suits, actions, causes of action, judgments, legal or administrative proceedings and investigations, demands and losses arising out of, relating to or resulting from CONTRACTOR’ s acts and omissions in the construction of the Project or the Adjacent Project (including the acts and omissions of CONTRACTOR’S subcontractors, sub-subcontractors and materialmen and others for whom it is responsible). This obligation shall include any claim arising out of, relating to, or resulting from (i) the failure of CONTRACTOR or any subcontractor of CONTRACTOR respecting control and mitigation of construction activities and construction impacts, except for those activities allowed by applicable statutory law; (ii) the intentional misconduct or negligence of CONTRACTOR or any subcontractor of CONTRACTOR; or (iii) the actual physical entry onto or encroachment upon anther’s property by CONTRACTOR or any subcontractor of CONTRACTOR not allowed by the Construction Agreements. This indemnity includes any damage or loss arising out of the actual or alleged act, error, omission, negligence, or misconduct of CONTRACTOR or any subcontractor of CONTRACTOR in the performance of construction activities at the Project or Adjacent Project, but does not include any damage or loss arising out of the sole negligence of OWNER or the proportionate amount of any damage or loss attributable to the partial negligence, of OWNER or any subcontractor of OWNER that contributes to such damage or loss.

Indemnity of CONTRACTOR by OWNER

OWNER shall release, defend, indemnify and hold harmless CONTRACTOR, and its employees, subcontractors and agents from and against any and all loss, cost, expense liabilities, suits, actions, causes of action, judgments, legal or administrative proceedings and investigations, demands and losses arising out of, relating to or resulting from OWNER’s acts and omissions in the construction of the New Project (including the acts and omissions of

§ 7.09 2008 CONSTRUCTION LAW UPDATE OWNER’s subcontractors, sub-subcontractors and materialmen and others for whom it is responsible). This obligation shall include any claim arising out of, relating to, or resulting from (i) the failure of OWNER or any subcontractor of OWNER respecting control and mitigation of construction activities and construction impacts, except for those activities allowed by applicable statutory law; (ii) the intentional misconduct or negligence of OWNER or any subcontractor of OWNER; or (iii) the actual physical entry onto or encroachment upon another’s property by OWNER or any subcontractor of OWNER not allowed by the Construction Agreements. This indemnity includes any damage or loss arising out of the actual or alleged act, error, omission, negligence, or misconduct of OWNER or any subcontractor of OWNER in the performance of construction activities at the New Project, but does not include any damage or loss arising out of the sole negligence of CONTRACTOR or the proportionate amount of any damage or loss attributable to the partial negligence of CONTRACTOR or any subcontractor of CONTRACTOR that contributes to such damage or loss.

4. Notice

Any notice, deliveries or demands made pursuant to or relating to this Agreement shall be made via certified mail, return-receipt requested and addressed as follows:

To OWNER:

_______________________

_______________________

To CONTRACTOR:

_______________________

_______________________

5. Miscellaneous

Any portion of this Addendum Agreement held to be invalid or unenforceable by a court of law may be severed, with no effect on the remaining, enforceable provisions of this Agreement.

This Addendum Agreement shall be governed by the laws of [state], without regard to any choice of law provision of the forum state, and any dispute arising hereunder shall be resolved in a court of competent jurisdiction located in [state].

This Addendum Agreement constitutes the entire Agreement of the parties with respect to its subject matter and supersedes all prior or contemporaneous oral or written Agreements or understandings between the parties on the subject matter addressed herein.

This Addendum Agreement may be executed in multiple counterparts, each of which shall be deemed an original.


IN WITNESS WHEREOF, the parties have caused this Addendum Agreement to be executed by their duly authorized representatives to be effective as of the date of commencement of construction on the Projects.

OWNER-Developer, Inc. By: /

Name:

Title:

XYZ Construction Company By: /

Name:

Title:

2008 CONSTRUCTION LAW UPDATE

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Transcript of 2008 CONSTRUCTION LAW UPDATE