Insurance Allocation Strategies 2013

October 28-29, 2013

Additional InsuredsWho’s on First?

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Brian D. HarrisonSedgwick LLP

The Speakers

Michael John MiguelKasowitz Benson Torres & Friedman LLP

Coverage Priorities: Additional Insureds “Primary and Noncontributory” Language

Allocation with direct insurers

Vicarious liability: impact on priority?

Additional Insureds – Concept and Application Covers AI from risk arising out of Named

Insured’s conduct or operations In definition of “Insured” or by endorsement Benefits to the AI – determined by policy

language and applicable law Subject of frequent disagreements and litigation

over the scope of liability

“Primary and Noncontributory” Language

Contribution – what does it mean?

In General: Joint Tortfeasors/Joint & Several Liability

Insurance: Determines rights when several carriers obligated to defend or indemnify same loss or claim

Equitable and Contractual (other insurance clause)

Independent of the Insured’s rights

“Primary and Noncontributory” Language

“If the contract between the additional insured and you requires that the insurance afforded by this policy be primary and non-contributory, this insurance shall be primary and non-contributory but only as to the general/liability policie(s) where that additional insured is listed as the named insured on the declaration page(s) of such policy(ies).”

No definition of “non-contributory” Multiple possible meanings; Courts of little help so far

Other applicable insurance never to be called upon Other applicable insurance called upon only after

limits paid An agreement by insurer providing additional insured

coverage to waive its equitable contribution rights Expression of intent on PRIORITY of insurance

“Primary and Noncontributory” (cont.)

Most Reasonable Answer:

Expression of Intent on Priority; Agreement Not to Seek Contribution:

Typical requirement of limits for additional insured indicates understanding that other insurance would respond once stated limits were reached

“Other Insurance” clause altered by Endorsement for particular purposes; other insurance not considered primary

Problem Most Prevalent in non-ISO policies:

Post 1999 ISO CGL Policies deal with priority as between named and additional insureds.

But query whether subrogation rights are (or can be) affected.

“Primary and Non Contributory” (cont.)

Impact of language on Excess Liability Coverage

Vertical v. Horizontal Exhaustion Limited Case Law Depends on Whether Court looks to intent

of indemnity provision in underlying contract (Wal-Mart Stores v. RLI Ins. Co., 292 F.3d 583 (8th Cir. 2002) (vertical exhaustion) or the policy language (Bovis v. Great Amer. Ins. Co., 855 N.Y.S. 2d 459 (App.Div. 1st Dept. 2008) (horizontal exhaustion).

“Primary and Non Contributory” (cont.)

Primary and Noncontributory language Indemnity provisions in the Contract

requiring the naming of the additional insured; if additional insured is separately indemnified by name insured, named insured should pay

Coverage attaches if liability “arises out of” named insured’s work or operations. Ambiguous?

Allocation with Direct Insurers for Named Insureds:

Much of case law deals with priority among insurers in contribution setting: insurers with arguably equal obligations but for endorsements and “other insurance” provisions.

Subrogation comes into play where coverages do not arguably equally cover the loss.

Transactional Insurance Co. v. Ins. Co. of State of PA (2007) 148 Cal.App. 4th 1296 (add’l insurer entitled to recover by way of subrogation for defense costs allocable to named insured claims not covered by additional insurer.)

Contribution v. Subrogation

Policy Language controls (as always)

Additional insured covered for liability “caused by the acts or omissions” of named insured. Split among courts in how this language is interpreted.

No negligence by named insured = NO COVERAGE for additional insured

Engineering & Const. Innovations v. L.H. Bolduc Co., 825 NW2d 695 (Minn. 2013) (under fault-based interpretation, AI in only insured for vicarious liability of named insured)

Garcia v. Federal Ins. Co., 969 So. 2d 288 (Fla. 2007) (policy is not ambiguous and, therefore, only AI’s vicarious liability for negligent acts on named insured are covered)

Vicarious Liability: Impact on Priority?

Any Liability arising out of negligence of named insured: A.I. COVERED

Evanston Ins. v. Atofina Petrochemicals, 256 SW3d 660 (Tex. 2008) (AI endorsement covers direct liability as well as vicarious liability; ambiguity = coverage)

Mikula v. Miller Brewing Co., 701 N.W.2d 613 (Wis.App. 2005) (“common sense” does not limit liability to direct negligence; “there need not be negligence alleged against the named insured for the additional insured to be covered.”)

Presley Homes, Inc. v. American States Ins. Co., 90 Cal.App.4th 571 (2001) (AI entitled to complete defense even if indemnity coverage limited to liability arising from subcontractor’s work)

Vicarious Liability: Impact on Priority?

Recent ISO GCL Insurance Form Revisions

New AI and Other Insured Endorsements

Intended to address recent decisions broadly applying AI coverage?

Intended to address state anti-indemnification statutes?

Vicarious Liability: Impact on Priority?

Commercial high-rise project in major city, 50- story building, mixed-use. Two years into project, building (currently 29 stories high) found to be unfit and unstable, and project ceased. Owners and investors sue General Contractor, Engineering Sub, Framer Sub, Concrete Sub and Steel Manufacturer for $700 million. Each sub names General Contractor on a primary and noncontributory basis, each in amount of $10 million.

Whose insurance responds? In what priority?

Hypothetical:

Questions

Brian D. Harrison Sedgwick LLP 415-627-3454 brian.harrison@sedgwicklaw.com

Michael John Miguel Kasowitz Benson Torres & Friedman LLP 424-288-7904 mmiguel@kasowitz.com

Speaker Contact Info