New York's Additional Insured Form Endorsement

Additional insured endorsements are regularly used in commercial leases, in construction contracts, and in long-term contracts for supplying manufactured goods or services where the vendor wants to be insulated against the cost of defending product liability lawsuits. Insurers have struggled to draft additional insured endorsement language which, on the one hand, limits the insurer's exposure under an additional insured endorsement but, on the other hand, provides meaningful additional insured coverage. This balancing act has caused the ISO to repeatedly modify its additional insured endorsement forms, the latest revision of which was made in 2013.

Developments over Time

The relevant additional insured endorsement history begins with the 1985 endorsement, ISO CG 2010 11 85. The endorsement provided for a named additional insured, but only in respect to liability “arising out of” work performed by the policyholder purchasing the additional insured coverage for the named insured. Insurers found that the language of this endorsement was too broad and left them with too much risk exposure when providing additional insured coverage.

ISO in 1993 changed its additional insured endorsement to end additional insured coverage after “ongoing operations” had been completed. See CG 2010 10 93. This change cut off a subcontractor's insurance from covering a contractor or owner as an additional insured after the subcontractor had completed its operations. This risk-averse change left a coverage gap. Construction contracts continued to require that additional insured endorsements covered the additional insured after the subcontractor had completed its operations.

To fill this gap, the ISO in 2001 created an optional additional insured endorsement that would provide liability coverage for personal injury or property damage to the owner or contractor arising from the subcontractor's completed operations. However, the coverage for completed operations was limited to injuries or damage arising from the subcontractor's work performed at a specified project and only for work performed directly for the upstream contractor named in the endorsement. See CG 20 37 10 01.

In 2004, the ISO significantly changed the coverage provided by its additional insured endorsement, now designated as CG 20 10 07 04. Insurance coverage for an additional insured “arising out of” the downstream policyholder's work was now gone. The new language insured an additional insured against “liability” for “bodily injury,” “property damage” or “personal and advertising injury” caused in whole or in part by the downstream policyholder's acts or omissions or acts or omissions of those acting on its behalf.

ISO intended this new language to create a smaller circle for potential coverage of an additional insured. An injury must be “caused” by the policyholder instead of more broadly just “arising out of” the downstream policyholder's work. The new language attempted to eliminate the unintended situation in which the upstream additional insured could require the downstream insurer to defend and indemnify the upstream additional insured against its own negligence.

It may seem odd and a bit unfair that an upstream party would seek insurance coverage arising from a contractual indemnification given by a downstream party for the upstream party's own negligence. Indeed, several sections of the New York General Obligations Law prohibit an upstream party to certain contracts (for example, construction and landlord-tenant contracts) from forcing a downstream party to indemnify the upstream party for injuries caused by the upstream party's negligence. See, e.g., GOL Sections 5-322-1, 5-323, & 5-325.

However, a prohibition against indemnity for one's own negligence does not carry over to a prohibition against additional insurance coverage for one's own negligence. The issue was squarely addressed in Cavanaugh v. 4518 Associates, 9 A.D.3d 14 (1st Dept. 2004). The Cavanaugh court said there was a distinction between a statutorily unenforceable contractual indemnification provision and a contractual provision that requires one party to obtain insurance coverage for the benefit of an additional insured, even if the insurance would cover the additional insured for its own negligence. In other words, requiring the downstream party to indemnify an upstream party for its negligence may be statutorily prohibited, but requiring the downstream party to obtain insurance for the upstream party, even a negligent upstream party, is acceptable.

Needless to say, this exception to the GOL prohibition on indemnification irked insurance companies. Their additional insured endorsements not only insured an upstream party against the negligence of the downstream policyholder, but also insured the upstream party for the upstream party's negligence. Something had to be done and that something was the 2013 ISO additional insured endorsement, CS 20 10 04 13.

Important Changes

The 2013 additional insured endorsement has kept the same general language as the 2004 ISO endorsement, but has added several important changes. First, in response to Cavanaugh, the new form provides additional insured coverage only “to the extent permitted by law … ” This new language limits the insurance company's obligation to defend and indemnify to situations where its obligation is permissible under the General Obligations Law. If the latter prohibits a subcontractor or a tenant from agreeing to indemnify a contractor or landlord, respectively, from its own negligence, then the additional insured endorsement would not provide coverage to that contractor or landlord.

Nevertheless, an insurer could still not escape having to defend or indemnify an additional insured for its own negligence, unless that negligence was the sole cause of the injury giving rise to an action against it. See Brooks v. Judah Contracting, 11 N.Y3d 204 (2008) (partially negligent contractor could be indemnified by a subcontractor whose negligence also contributed to a third party's injury).

Another significant change in the 2013 additional insured endorsement is its reliance on the insurance requirements of the parties' contract. The additional insured coverage would, in the 2013 form's language, “not be broader than that which you [the policyholder] are required by contract to provide for such additional insured.” This new reliance on the parties' contract could lead to untoward consequences for the contract's drafters. For example, if the contracting parties require the downstream party to provide the upstream party with $1 million of additional insured liability coverage, but the downstream party has a $5 million CGL liability policy it is the contract that controls. The downstream party's insurer will be responsible only for paying up to $1 million under the additional insured endorsement. In effect, the additional insured is leaving $4 million of potential coverage on the table.

There could also be worse results for the additional insured if the contract is not in sync with the downstream party's policy coverage. The additional insured could contractually agree that the downstream party provide $1 million in primary coverage and $5 million in excess additional insured coverage. This could be fine, except for the fact that the downstream party has $2 million in primary liability coverage and $5 million in excess coverage. Excess coverage will not pay a penny until the primary coverage is exhausted.

However, under the 2013 ISO form language, the downstream party is only required to provide the upstream party with $1 million in primary coverage. This means that the additional insured coverage will never reach the $2 million required for the excess policy to pay. The excess insurer would rightfully assert that it has no obligation to pay excess coverage on behalf of the additional insured because the additional insured would never exhaust the $2 million in coverage to reach the primary policy limit.

Another unpleasant surprise for the contracting parties is if their contract provided that the downstream party must provide additional insurance coverage to the upstream party, but omitted any reference to the specific amount of the coverage to be provided. The 2013 endorsement provides that an insurer will pay on behalf of an additional insured the amount required by the contract or the available limits of the policy shown in the declarations of the downstream party's policy, whichever is less. If the contract lists no amount for the additional insurance coverage, the downstream party's insurer could argue that without a specific amount in the contract, under the ISO endorsement it has no obligation to pay anything on behalf of the additional insured.

'Act or Omission' Language

A routine argument that has in the past been successfully made by insurers providing additional insured coverage to an upstream party is that the insurer's obligation to provide coverage is triggered only when there is an allegation of a “negligent” act or omission of the downstream insured. The “act or omission” language has been carried over to the 2013 ISO endorsement from the 2004 endorsement. The language makes no reference to “negligence.”

This flawed insurer argument has been put to bed by the recent case of Burlington Ins. v. NYC Transit Authority, 132 A.D.3d 127 (1st Dept. 2015). Burlington arose from a subway construction project in Brooklyn. The named insured, subcontractor Breaking Solutions, had been required to obtain additional insured coverage for New York City and its public authorities. One of Breaking Solution's excavators hit an energized electrical cable, causing an explosion that injured an employee of the New York City Transit Authority (NYCTA).

While there were several claims and cross-claims in the lawsuit that ensued, as Breaking Solutions' insurer, Burlington had successfully moved for summary judgment against the NYCTA and the Metropolitan Transit Authority by arguing that it was not required to provide the two agencies with additional insured coverage. Even though both agencies were additional insureds, because the NYCTA employee had not been injured by Breaking Solutions' negligence, Burlington successfully argued in the lower court that it had no duty to defend or indemnify them in the lawsuit.

While the Burlington court does not identify the specific ISO additional insured endorsement involved, the decision says that even if the ISO form intended the endorsement language to provide for coverage only when there were negligent “acts or omissions,” the word “negligence” is not in the endorsement. The appellate court held that Breaking Solutions' claimed negligence was therefore unnecessary to trigger Burlington's duty to defend and possibly indemnify the New York City Transit Authority against the personal injury claim, and it reversed the lower court's grant of summary judgment to Burlington and granted it for the city agencies.

Knowing the Edition Date

As of yet, the 2013 ISO additional insured endorsement is too new for any interpreting case law to have been developed. However, the interrelationship between a contract with indemnification language and the indemnifying party's insurance policies now has heightened importance. Lawyers must know the edition date of the ISO form being used to provide the additional insured coverage.

Different editions provide different coverage. With construction contracts, the drafters need to determine whether the party providing the additional insured coverage has provided the optional “completed operations” coverage. At the end of the day, the party desiring the additional insured coverage must do more than merely recite the insurance requirements in the contract or review a certificate of insurance provided by an agent. A complete review of the CGL policy and any umbrella policy purchased by the party providing the insurance is in order.

Jason L. Shaw is a partner at Whiteman Osterman & Hanna in Albany, NY. This article also appeared in The New York Law Journal, an ALM sibling publication of this newsletter.