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There is an insurance industry organization called the Insurance Services Office (ISO) that, among other things, writes the standard insurance policy forms used by the large majority of all insurance companies. Chances are good that if you look at some of the more common property and liability policies you buy such as general liability, business auto and such, the policy forms and most of the endorsements attached to them are on, or based on, ISO standard forms.
This bit of insurance trivia is important to you because ISO has made it a practice over the years to revise and alter these standard forms periodically, usually about every three years or so. Plaintiff’s attorneys are ever creative in seeking to establish new theories and precedents for liability, politicians constantly pass new laws (though they seldom seem to ever repeal any), and evolution in new products, technology and society all combine to create new risks and exposures for businesses. Insurance policy forms have to change and evolve over time to keep up with evolving events and exposures. That means that the policy you bought five years ago is different than the one you have now, and different from the one you bought five, ten or fifteen years before that. Most significant for this discussion, the policy you have now will be changing in 2013.
The changes to the General Liability policy and its many standard endorsements will be of interest to almost all commercial insurance buyers. Many of the changes are editorial in nature; there are a couple of other changes that will affect only businesses dealing with liquor. There are, however, significant changes in standard general liability additional insured endorsements that will affect almost everyone; in fact twenty-four of the thirty one standard ISO additional insured endorsements are amended in the 2013 filing.
We have written about these endorsements, and problems with them, in past issues. Additional insured (“AI”) status is perhaps the most common risk transfer method used across all industries, likely effects almost everyone reading this, and is often required between entities who do not share a direct contractual relationship. Additional insured endorsements as currently written pose some problems; most current standard blanket AI endorsements require a direct contractual relationship between the parties providing and receiving AI status, which often doesn’t exist. By way of example in a construction setting project owners (the so-called “upstream” party) will always require AI status from all contractors on their job, but customarily do not contract directly with subcontractors or sub-subcontractors (the “downstream” parties). The owner’s expectation is that the subcontractor’s AI endorsement will cover their upstream interests, but in current AI endorsement forms, absent a direct contractual relationship between parties coverage can be problematic.
ISO fixes this with the 2013 edition by introducing a brand new AI endorsement. The Additional Insured – Owners, Lessees or Contractors – Automatic Status for Other Parties When Required in Written Construction Agreement allows additional insured status to be extended to an upper tier party as required by a contract, but who may not be a direct party to the contract. For instance, a contract between the general contractor and a lower-tier subcontractor may require the sub to extend additional insured coverage to the property owner (who is not a direct party to the contract between the GC and the sub). This new endorsement would allow the extension of additional insured status to the owner without the need for a specific listing.
This is generally a positive change, and will make administration of certificates of insurance easier for most organizations. The key, of course, will be to make sure that affected policies have the new 2013 AI endorsement. An additional premium applies to this endorsement and will most likely vary with each insurance company.
Along with this useful change, however, all AI endorsements are also changing in other ways. In the 2013 revisions there are three significant changes:
• There is new wording specifying that the coverage afforded the additional insured will not be broader than the contract or agreement requires.
• There is a limitation on the amount of coverage afforded to the additional insured party. The endorsements now state that the coverage limit extended to the additional insured is the lesser of: 1) the amount required by the contract; or 2) policy limits.
• And new endorsement language now states that the coverage afforded to the additional insured only applies to the extent permitted by law in the subject jurisdiction.
These changes create some challenges. Express reference to numerous external factors or documents to determine the scope or limits of coverage available to the additional insured brings with it obvious inherent difficulties. Disputes over the application of a statute or the meaning of contract wording can be anticipated, all of which operate to reduce the certainty of coverage available to the additional insured. Indemnification provisions and additional insured requirements in contracts and leases are often drafted by attorneys with minimal knowledge or understanding of what coverage is actually available in insurance policies. There has also been a trend in many states to enact anti-indemnification laws that specifically restrict the breadth of allowable additional insured coverage.
Staying on the subject of contractual insurance requirements, the Primary and Noncontributory – Other Insurance Condition endorsement is another new optional endorsement introduced in response to contractual wording often found in contracts and leases requiring coverage extended to the additional insured be provided on a “primary and noncontributory” basis. This creates potential problems with the “other insurance” provision in policies. This new endorsement applies when:
• The additional insured is a named insured on another policy; AND
• A written contract or agreement requires the named insured’s policy to be primary and to not seek contribution from other insurance available to the additional insured.
The endorsement, like the others mentioned, applies to the CGL only, not any umbrella that may be attached. Whether and how much of an additional premium applies is subject to the insurance carrier. Put all these changes together, and the landscape has shifted for any commercial liability insurance buyer who is party to any lease, contract or other agreement that limits or transfers risk to or from other parties with contractual insurance requirements.
ISO says they have filed in most jurisdictions for these new forms to be effective as of April 1, 2013, so chances are good they will have already begun affecting you by the time you are reading this. If you think you need more information or a better understanding of the way these changes will affect you give us a call.