There is uncertainty about how hold harmless agreements apply. This is why an increasing number of firms are requesting to be added as additional insureds.

he issues involving additional insureds can be complex. Some additional insured situations are automatically covered. Some additional insured situations can be dealt with by the use of an endorsement(s). Still other additional insured circumstances are not insurable.

Although we will refer to several court cases to illustrate additional insured coverage examples, this article is not intended to be the last say on legal interpretation. A given court case may have an impact on subsequent court cases in that state. But sometimes subsequent court cases in a given jurisdiction do not follow an earlier decision. And a court case precedent set in one state does not necessarily apply in other states.

For instance, I was working with an Illinois attorney on an insurance agent's errors and omissions claim. Three Wisconsin court decisions stated that an insurance agent cannot be held responsible for the particular act that the Illinois agent had committed. Illinois had no court decisions like those found in Wisconsin. The Illinois attorney told me that Illinois courts would not be swayed by the Wisconsin decision. Thus, any or all of the examples given in this article may not apply in your state. You will need to determine if my ideas and examples are valid for your state.

What is an additional insured?

In simple terms, an additional insured is any entity, not shown in the part of the declarations page showing the named insured, that is provided liability protection on an insured's insurance policy. Sometimes the additional insured is automatically covered by a policy; in other cases, an endorsement will be needed to add an additional insured to a contract.

Additional insureds are automatically protected by several insurance policies including business auto, garage, and commercial general liability. An employee driving the employer's truck or car is an example of an additional insured that is automatically covered.

Adding the leasing company to an insured's business auto policy is an example of an additional insured's being covered by using an endorsement to add an entity to an insurance contract.

Occasionally a request is made to add an additional insured to the policy as a named insured. This cannot be done. There are several ways to distinguish the difference between a named insured and an additional insured. Named insureds can cancel an insurance policy, pay premiums and void or nullify the insurance contract. Additional insureds cannot cancel the policy, pay premiums or nullify the policy.

Additional insureds via contracts

During the early 1980s, an Illinois business we will call Small Service Station, Inc. (SSS), signed a lease for the service station that SSS would operate. The service station was owned by International Oil, Ltd. (IO). Someone was injured at the service station. The injured person sued both Small Service Station and International Oil. SSS was excused from the lawsuit. Per the court's judgment rendering statements, the court found that SSS was not negligent.

The lawsuit proceeded against IO. One item that then came into play was a hold harmless agreement in the premises lease between International Oil and Small Service Station. Per the hold harmless agreement, SSS had to protect, i.e., provide insurance, for IO. Many times this type of hold harmless agreement is thrown out by a court, but such was not the case here. SSS, per the hold harmless agreement, had to provide coverage for IO. While this is an actual case, the names used are fictitious.

In another Illinois case, the court ruled just the opposite on a hold harmless agreement. A contractor, Shaheed, had signed a hold harmless agreement in favor of a public agency, Chicago Transit Authority (CTA). The Chicago Transit Authority wanted Shaheed to respond to a claim against CTA. In Shaheed v. Chicago Transit Authority, 484 NE 2d 542 (Ill App 1985), the court ruled that the hold harmless agreement was unenforceable.

These two entirely different court decisions, rendered in the same state, show that there is nothing certain about the way hold harmless agreements apply. This uncertainty seems to be the reason why an increasing number of firms are requesting to be added as additional insureds. You may even find situations where a firm already has a hold harmless agreement and also wants to be added as an additional insured.

Additional insured introduction

Insurance Services Office's Commercial General Liability (CGL) Coverage Form CG 0001 is a commonly used liability contract. Coverage for some classes of additional insureds are automatically covered by the Commercial General Liability Coverage Form. Employees as additional insureds is an example of such a class. We will not be looking at the additional insureds who are automatically covered by the CGL. Instead we will review several aspects of one commonly-used additional insured endorsement.