Federal Court Enforces “Limits” and “Most We Will Pay” Clauses in Additional Insured Endorsement

Craig Rokuson | Traub Lieberman

In the recent case of Zurich Am. Ins. Co. v. XL Ins. Am., Inc., 20-CV-4614 (LJL), 2021 WL 3617218 (S.D.N.Y. Aug. 16, 2021), the United States District Court for the Southern District of New York—in deciding a motion for consideration—had occasion to review the 2013 ISO changes to the additional insured endorsement, and held that coverage under a policy providing additional insured coverage was limited to the $1,000,000 required by contract, and not the $2,500,000 limit to the policy.

In Zurich, Zurich and its named insured D.A. Collins sought the full limits of the primary policy issued by XL to the D.A. Collins’ subcontractor, HBI, which are $2,5000 per occurrence and in the aggregate, for an underlying personal injury lawsuit. XL also issued an excess policy in the amount of $5,000,000 to HBI.

The contract between D.A. Collins and HBI required HBI to obtain commercial liability coverage “in an amount of $1,000,000 per occurrence and $2,000,000 in the aggregate. It further provides that the “required limits for the umbrella excess coverage shall be sufficient to provide a total of $5,000,000 per occurrence/aggregate.”

The additional insured endorsement in the XL primary policy specified that 1) coverage shall not be broader than that which HBI is required by contract or agreement (the “Broader Clause”); 2) limits shall be the lesser of the limits in the policy and the limits required by contract or agreement (the (“Limits Clause”); and 3) the most XL will pay shall be the lesser of the limits in the policy and the limits required by contract or agreement (the “Most We Will Pay Clause”).

Initially, the court held that under the Broader Clause, coverage was limited to $1,000,000. Zurich moved for reconsideration, arguing that the Broader Clause defines the scope of coverage and not the amount of coverage. Upon reconsideration, the court agreed but held that under both the Limits Clause and Most We Will Pay Clause, the amount of insurance available is the lesser of the amount provided in the XL primary policy or the amount provided by the additional insured contract.

XL argued that because a total of $6,000,000 of coverage was required by the contract ($1,000,000 primary and $5,000,000 excess), the full $2,500,000 limit of the XL primary policy should be made available. However, the court held that the plain language of the contract requires only $1,000,000 in primary coverage. “The HBI Subcontract requires HBI only to acquire ‘umbrella/excess coverage … sufficient to provide a total of $5,000,000 per occurrence/aggregate.’ It does not require HBI to acquire a primary policy in the amount of $6 million or a combination of policies that totals $6 million.” As such, the court denied the motion for consideration.

The court also held that XL’s excess policy was not primary to the Zurich policy issued to D.A. Collins, because the XL excess policy was not triggered in the first place due to the fact that the XL primary policy would not be exhausted by payment of its full limits.

The Zurich case illustrates the need to carefully review the wording of contracts with respect to required limits of insurance. As the court pointed out, simply requiring that the insured obtain a combined amount of policies in the amount of $6,000,000 would have allowed D.A. Collins access to the full amount of the XL primary policy. Other cases have permitted access to full limits when the requirement for the primary policy is “at least” or “not less than” $1,000,000 per occurrence. However, because D.B. Collins/HBI contract specifies a specific limit for general liability insurance, only that limit was available under the Limits Clause and Most We Will Pay Clause.

Certificates as Evidence of Additional Insured Coverage Are All the Rage, But You Deserve Better

Joseph L. Cohen, W. Mason and Sean Milani-nia | Fox Rothschild

Consider the following scenario: the construction project is ready to proceed.  The deal is done.  The agreements have all been carefully crafted, with detailed provisions on insurance dedicated to reducing risk.  Those provisions require the downstream trade contractors to furnish certificates of insurance listing the owner and prime contractor as additional insureds on the downstream contractor’s policies of insurance.  A provision in the prime contract further requires the prime contractor to provide the owner with a certificate of insurance showing the owner as an additional insured on the prime contractor’s policies.  At the ceremonial ground-breaking and right before work commences, the downstream contractors deliver their insurance certificates to the prime contractor and the prime contractor delivers its certificate plus the downstream certificates to the owner.  From there, each insurance certificate will begin its final destination to the project file (either electronic or physical) where, with any luck, it will serve the regular stint before being discarded after the project’s successful conclusion.  Otherwise, it will be retrieved under much stress and heavy scrutiny.  The acceptance of insurance certificates is often viewed as standard industry practice, but should it be? 

The answer is a resounding “no.”  There are many form development and construction agreements in circulation that deem insurance certificates to be acceptable evidence of insurance. But, a certificate of insurance should not be relied upon because it does not mean that insurance has been placed.  You deserve real evidence that the requisite additional insured coverage is in place (in the form of a policy endorsement), and here is why.

First, a certificate of insurance is not evidence that the insurance has actually been placed with the carrier or provider.  There are insurance brokers, insurance agents, and insurance carriers or providers.  An insurance broker solicits insurance business from the public under no employment from any particular carrier but, having secured an order, places the insurance with the company selected by the insured.  An insurance agent, on the other hand, has a fixed and permanent relationship to an insurance carrier that the agent represents and has certain duties and allegiances to that company.  Often used interchangeably and referencing them collectively as “insurance intermediaries,” these intermediaries often generate insurance certificates from templates maintained in their own offices.  But, an insurance intermediary, particularly insurance brokers who act as agents for the insureds, may lack the authority from the carrier to actually bind coverage.  Thus, whether the coverage described in the certificate exists could be a product of whether the subcontractor’s intermediary is an insurance agent with authority to bind coverage.  No doubt, making that determination would require a fact intensive investigation into the intermediary’s agreement with the carrier.  That isn’t easy. 

If the intermediary lacks the authority to bind coverage and fails to place the additional insured coverage with the carrier, the situation could arise where a certificate showing additional insured coverage exists even though there is no coverage in place.  In that event, the putative additional insured may have no choice but to pursue the intermediary or carrier for redress under an estoppel theory.  That carries with it all the expenses and risks inherent in litigation, which the agreement’s provisions for insurance should have been designed to avoid.  See Pinski v. Adelman, 955 F. Supp. 73 (N.D. Ill. 2010) (noting that imputation of liability to an insurer for the conduct of an insurance intermediary has had a somewhat inconsistent history in Illinois).  The better practice is to confirm the coverage is in place by demanding more robust evidence of additional insured coverage in the first instance.      

Second, appearing conspicuously in all caps and bold font at the top of many certificates, but often overlooked, the certificate itself contains a disclaimer that it is not evidence of insurance.  The typical disclaimer provides:

THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER.  THIS CERTIFICATE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW.  THIS CERTIFICATE OF INSURANCE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE CERTIFICATE HOLDER.

With a disclaimer like that, a court could conceivably conclude that a putative insured had no right to rely on the certificate, which could have drastic legal implications in a coverage dispute.  

Third, if the additional insured coverage has not been placed, then whether coverage exists for the putative additional insured may depend upon whether the downstream contractor has a blanket additional insured endorsement on its policy.  A blanket additional insured endorsement is an endorsement that automatically grants insurance to:

ANY PERSONS OR ORGANIZATIONS WHEN YOU HAVE AGREED IN WRITING IN A CONTRACT OR AGREEMENT THAT SUCH PERSONS OR ORGANIZATIONS BE ADDED AS AN ADDITIONAL INSURED.

In the event of a claim and ensuing coverage dispute, a court may scrutinize the contract’s language to determine whether the agreement requires additional insured coverage under the downstream contractor’s policy.  Two observations ring true here.  First, the owner may not control, know, or have scrutinized the agreement between the prime contractor and those downstream.  Maybe the obligation to furnish additional insured coverage is adequately memorialized, maybe it is not.  Second, unless the downstream contractor had furnished its policy, the owner and prime contractor would not be in a position to know whether the downstream contractor has a blanket additional insured endorsement.  Why leave either to chance? 

Given the fallibility inherent in certificates of insurance, their widespread acceptance and use as evidence of insurance in the industry should come to an abrupt halt.  Why not demand more robust (or actual) evidence of insurance by simply requiring a policy endorsement (or such other evidence of insurance as the upstream contractor and/or owner requests) showing that the additional insured coverage is in place.  You deserve better than a certificate of insurance.

Are You Getting Your Money’s Worth in Additional Insured Coverage?

John P. Fischer | Barnes & Thornburg

Many commercial contracts require that one of the parties be included as an “additional insured” on the general liability policies of its contracting partner (which is the “named insured” on those policies). General contractors typically require subcontractors to include them as additional insureds on the subcontractors’ policies. Lessors often require the same from their lessees, and manufacturers from their suppliers. 

From the perspective of the party seeking to be an additional insured, the reason is to shift some or all of the burden of providing coverage onto the other party’s insurers for liabilities with some connection to that other party. This preserves the limits of the general contractor’s, lessor’s, or manufacturer’s own policies for claims that have no connection to the other party.

Not all additional insured coverage is created equal, however. Depending on the language of the additional insured endorsement, courts frequently interpret some kinds of additional insured coverage to apply more broadly than others. The following types of additional insured language, for example, have subtle (or not so subtle) differences in wording that could, depending on the jurisdiction and facts, result in different outcomes on the question of whether coverage is available for the additional insured. The key differences in the policy language are italicized:

  • liability arising out of the named insured’s ongoing operations performed for the additional insured
  • liability caused, in whole or in part, by the named insured’s ongoing operations performed for the additional insured
  • liability caused, in whole or in part, by the named insured’s acts or omissions in the performance of the named insured’s ongoing operations for the additional insured
  • liability caused by the named insured’s negligent acts or omissions at or from the named insured’s ongoing operations performed for the additional insured

In the last example, coverage for the additional insured is available, on the face of the policy, if the liability is “caused by the named insured’s negligent acts or omissions.” The other three examples are not limited, on their face, to the named insured’s negligence. Courts frequently find additional insured coverage to exist under this broader language even when the named insured was not negligent, as long as there is some connection between the named insured and the liability. 

For example, there may be coverage for the additional insured’s negligence if the plaintiff was injured in the course of their employment with the named insured, or if the plaintiff was injured in an area where the named insured was doing its work—even if the named insured itself was not negligent.

Because some types of additional insured coverage are potentially broader than others, entities seeking additional insured coverage from their contracting partners frequently specify the precise type of coverage the other party must obtain, often by identifying the exact policy form to be used. It’s important to understand the nuances in language for additional insured coverage and how that language can be interpreted by insurers and courts. 

Is Contractual Privity Required for Additional Insured Status? Courts Are Divided.

Ashley Cowgill and Eric Gold | Policyholder Pulse Blog

In a previous post, we addressed blanket additional insured endorsements and the role they play in passing insurance obligations downstream. In short, the purpose of a “blanket” endorsement is to grant additional insured status to any company as required in a written contract with the named insured. This obligation often begins in the prime contract where the owner requires additional insured status on the general contractor’s insurance. However, the general contractor typically attempts to pass this obligation downstream to its subcontractor by including a requirement in the subcontract that both the general contractor and owner are named as additional insureds. But what happens if there is no written agreement between the named insured and the company seeking additional insured status, or if there are multiple required additional insured entities and only some have contractual privity with the subcontractor?

Nationwide, courts are split as to whether direct contractual privity is required to satisfy certain additional insured endorsements. For example, cases decided under Connecticut, Maine and Texas law have held that contractual privity is not required. Courts in New York, Illinois and Louisiana, however, have held that privity is required.

Even within jurisdictions, there is not always uniformity on this issue. In New York, for example, a trial court held in All State Interior Demolition Inc. v. Scottsdale Insurance Co. that contractual privity was not required for additional insured status. A previous post discussed that decision in detail but, in sum, the court granted additional insured status to entities that did not contract with the named insured but were referenced in the named insured’s subcontract. In that case, the subcontractor was required to name the contractor, the Owner and “their respective partners, directors, offices, employees, agents and representatives.” The court read that language in the subcontract broadly and required the insurer to defend the contractor, owner, ground lessor and construction manager under the terms of the additional insured endorsement.

However, the New York Court of Appeals found in Gilbane Building Co./TDX Construction Corp. v. St. Paul Fire & Marine Insurance Co. that a construction manager was not covered as an additional insured because that entity did not have a direct contractual relationship with the general contractor. In that case, the policy’s “Who is an Insured” section included “any person or organization with whom you have agreed to add as an additional insured by written contract.” The court held that the phrase “with whom” meant that a party qualified as an additional insured only if it had a contract directly with the named insured.

These cases, while not exhaustive, highlight the potential pitfalls of certain blanket additional insured endorsements and how courts in different jurisdictions may address the question of whether contractual privity is necessary to establish additional insured status. In addition to evaluating the language used in the subcontract, the above cases underline that additional insured status may turn on the specific language of the policy endorsement. Below are two examples of language used in common blanket additional insured endorsements that may impact additional insured status:

  • CG 20 33 04 13: provides additional insured coverage to “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.”
  • CG 20 38 04 13: includes the same language as above, plus a provision including as an additional insured “any other person or organization you are required to add as an additional insured under the contract or agreement described … above.”

Courts may interpret the language in the first provision narrowly to require contractual privity, while the language in the second provision is broader and arguably encompasses other entities named in the subcontract.

A denial of additional insured coverage based on a lack of direct contractual privity leaves all parties involved at a disadvantage. To help avoid these issues, it is critical for contracting parties to understand the contract terms, requirements and risk transfer mechanisms to ensure that an appropriate policy and endorsement is secured. Where parties added as additional insureds lack a direct contractual relationship with the policy’s named insured, endorsements specifically naming them or blanket additional insured endorsements like form CG 20 38 04 13 should be used. It is then imperative that the parties carefully review the policy terms and confirm the scope of additional insured coverage prior to a project’s commencement.

When 1% Equals 100%: New York Rejects Fault Based Approach to Additional Insured Coverage

Laura Dowgin | Cozen O’Connor

When a named insured is only 1% responsible for an accident, what percentage of indemnity coverage is owed to an additional insured? A recent New York federal court says 100%. In New York, additional insured coverage may very well extend to the additional insured’s own independent negligence, so long as the named insured was at least 1% negligent. This is in contrast to other states where additional insured coverage might apply only to vicarious liability for the named insured’s negligence.

At the outset, the specific policy language will always control an insurer’s obligations. A standard blanket additional insured endorsement will have two requirements: (1) that the named insured has agreed in a written contract to provide additional insured coverage to an organization; and (2) that the additional insured’s liability was caused, in whole or in part, by the named insured’s acts or omissions in the performance of its ongoing operations. We refer to the first prong as the “written contract” requirement, and the second prong as the “nexus” requirement. Either prong can be modified by policy language. For example, the written contract prong can require direct contractual privity between the named insured and additional insured. The nexus requirement can be expanded to liability “arising out of” the named insured’s work.

Where both prongs are potentially satisfied, an insurer owes a duty to defend. The duty to indemnify is narrower than the duty to defend, however. There is an argument that additional insured coverage should apply only to vicarious liability for the named insured if the nexus requirement is “caused, in whole or in part,” language. If the named insured is only 30% responsible for the accident, the additional insured should not be covered for the remaining 70% that was not caused by the named insured.

The Southern District of New York has rejected this argument. In Starr Indem. & Liab. Co. v. Excelsior Ins. Co., No. 19 CIV. 3747 (KPF), 2021 WL 326209 (S.D.N.Y. Feb. 1, 2021), the underlying plaintiff was injured on a job site performing drywall and ceiling work when his scaffolding tipped. He filed a New York Labor Law action against the owner and general contractor, and the owner and general contractor sought additional insured coverage from subcontractor Tri-State Computer Flooring Co.’s  commercial general liability insurer, Excelsior. Ultimately, Tri-State was found to have been 35% at fault for the accident, and the owner/general contractor were found to have been 65% at fault.

The Excelsior policy had two additional insured endorsements. Both required a written contract obligating Tri-State to name the owner and general contractor as additional insureds, which was satisfied. The first endorsement stated that coverage was available only with respect to liability “arising out” of Tri-State’s ongoing operations. The second endorsement stated there was coverage for liability “caused, in whole or in part” by Tri-State’s acts or omissions. Both endorsements stated that additional insured coverage did not apply to bodily injury arising from the sole negligence of the additional insured.

Excelsior had agreed to defend the owner and general contractor under a reservation of rights, but refused to indemnify the owner/general contractor for their 65% share, arguing that the additional insured coverage did not apply to the sole negligence of the additional insured.

The Court held that Excelsior owed a complete duty to indemnify, under either endorsement. It acknowledged that the “arising out of” nexus requirement is broader than the “caused, in whole or in part by,” nexus, based on Burlington Ins. Co. v. NYC Transit Auth., 29 N.Y.3d 313, 79 N.E.3d 477 (N.Y. 2017).[1] However, even under the narrower “caused, in whole or in part by” language, the Court held that “so long as the named insured is more than 0% liable for the underlying plaintiff’s injuries, additional insured coverage is triggered. For, in such circumstances, the plaintiff’s damages are caused, in whole or in part, by the named insured’s operations.” Starr at *8. Tri-State had caused the accident in part because it was 35% responsible for the plaintiff’s damages. While the Court did not focus on the exclusionary language in the endorsement, it did hold that the owner/general contractor were not solely negligent and were therefore entitled to complete indemnity as additional insureds.

This case means that when an additional insured endorsement has standard “caused, in whole or in part,” language, so long as the named insured is more than 0% negligent, the additional insured is entitled to 100% coverage. This is so even if the endorsement states there is no coverage if the liability arises from the sole negligence of the additional insured.

It is critical to remember that other states may interpret this language differently and that specific policy language will control. For example, just across the Hudson River in New Jersey, courts have come out on both sides of this question. Compare Schafer v. Paragano Custom Bldg., Inc., 2010 N.J. Super. Unpub. WL 624108 (App. Div. Feb. 24, 2010), cert. denied, 202 N.J. 45 (2010) (finding coverage only for vicarious liability under “caused, in whole or in part” language) with Friedland v. First Specialty Ins. Corp., No. ESX-L-4155-15, 2016 WL 4162282, at *7 (N.J. Super. Ct. Law Div. 2016) (“Accordingly, if IPC is found to be 1% responsible for the incident, the Mall Defendants will be entitled to full indemnification pursuant to the endorsement. Conversely, if IPC is found to be 0% liable, the Mall Defendants will not be entitled to indemnification at all.”). 

To the extent an insurer wishes to limit additional insured coverage to its named insured’s fault percentage, it may do so — even in New York — by using express language indicating that intent. See, e.g., Crespo v. City of New York, 2 Misc. 3d 1008(A), 784 N.Y.S.2d 919 (N.Y. Sup. Ct., Bronx Cty, 2004) (finding additional insured coverage applies to vicarious liability percentage where endorsement states “only to the extent that such person or organization is held liable for your acts or omissions…”).


[1] For a further discussion of this case, please see https://www.cozen.com/news-resources/publications/2017/new-york-high-court-no-coverage-for-additional-insured-where-named-insured-is-not-partially-liable.