No contract clause is more common than the one that says, in effect, “B promises to carry commercial general liability insurance, and to make A an ‘Additional Insured’ under B’s policy.” And perhaps no contract clause produces more disappointment.
For one thing, as many competent observers have noted, “Additional Insured” endorsements vary widely: to demand that someone make you “an ‘Additional Insured’” is akin to sitting down in a restaurant and ordering “some food.”
And many of the dishes are entirely unpalatable. For example, many “Additional Insured” endorsements are limited to the Additional Insured’s vicarious liability for the acts of the Named Insured. This is almost certain to cause heartache for the Additional Insured. Suppose Polly Plaintiff, while working for her employer (the Named Insured), falls off her employer’s ladder. If she sues her employer, she’ll face the worker’s comp bar. Better to sue the owner of the building (the Additional Insured). And if her Complaint alleges that her employer was at fault, her verdict may be reduced. Better not to mention the employer at all. The result? Polly Plaintiff v. Building Owner, alleging that there was something defective about the wall on which Polly’s ladder was leaning. And because such a Complaint alleges direct, rather than vicarious, liability, the Building Owner, although a bona fide “Additional Insured,” gets nothing from the insurance company – no defense, and no indemnity.
Such, in substance, was the plight of the Additional Insured in Pekin Ins. Co. v. Csr Roofing Contrs., 2015 Ill. App. Unpub. LEXIS 1733 (August 4, 1025). Happily for the Additional Insured, after losing in the trial court he managed a comeback victory in the Court of Appeals, but only after a great deal of close legal reasoning, and an unusually-detailed Complaint in the underlying action.
Curiously, the Pekin take-away is not merely to specify, in the contract, what type of Additional Insured coverage you want. The Additional Insured in Pekin did so, explicitly: “coverage must NOT be limited to vicarious liability.” What the Additional Insured in Pekin failed to do was to follow through, and look at the actual policy—the policy which said, very plainly, “[t]he Additional Insured is covered only with respect to vicarious liability,” and, for good measure, expressly excluded “[l]iability for ‘bodily injury’ or ‘property damage’ arising out of or in any way attributable to the claimed negligence or statutory violation of the Additional Insured, other than vicarious liability which is imputed to the Additional Insured solely by virtue of the acts or omissions of the Named Insured.”
Draft with care. Demand a copy of the policy, not merely the Certificate of Insurance. And read the policy when it arrives!
