Exploring protected parties & coverage for misnamed additional insureds

There are numerous ways that contract parties can shift the risk of certain types of losses between each other. One approach is to require one party to list the other, protected party as an additional insured on its own purchased insurance policies, thereby giving the protected party direct access to insurance coverage. Such agreements often appear in circumstances in which one party's services or activities may expose another party to a liability.

Additional insured status allows the protected party direct access to the other party's insurance coverage for losses within the scope of the additional insured designation. In contrast to contractual indemnity from the other party, the protected party's recourse is directly to the insurance coverage, rather than through a claim against the other party. As a result, the protected party has a source of recovery for covered loss that does not depend entirely on the financial condition of the other party. When additional insured status is granted under a liability policy with a duty to defend, the additional insured is entitled to coverage of its defense under the broad standards typically applicable to this duty, rather than the stricter standards found in many indemnity provisions. Because an entity's right to additional insured status often turns on a few phrases within an endorsement to an insurance policy and the contract requiring such status, it is very important to properly identify the party being named an "additional insured." Still, misdesignation, misnomers or other errors in the policy's identification of the proper entity to be "additional insured" will inevitably happen, especially in instances in which a subsidiary or affiliate entity of the designated "additional insured" is the entity that actually needs the additional insured status.

Insurers may seize on these errors, however immaterial, to deny coverage to the party intended to be an additional insured.

Obtaining Additional Insured Status

Given that status as an additional insured can be very important to a company that is relying on a "shift of risk" to protect its interests, one would expect that the company would take the utmost care to insure that it properly appears as an additional insured under the language of the policy.

There are two general ways to obtain additional insured status. First, one can use an endorsement to an insurance policy that expressly names the protected party as an additional insured, or specifies that all parties to an expressly-listed contract are additional insureds. Such endorsements should name the protected party, as well as expressly designate all subsidiaries and corporate affiliates of that named entity as additional insureds, since their interests may appear in relation to the insured contract. Alternatively, the parties can use more broadly-worded endorsements that incorporate the obligations of a separate contract. By its own terms, such an endorsement provides additional insured status to any party with which the named insured has separately contracted to provide coverage under its own policies.

However, even obtaining such broadly-worded additional insured endorsements can fail to provide the required protection. In the case of Strauss Painting Inc. v. Mt. Hawley Ins. Co., New York's highest court found that the Metropolitan Opera Association ("the Met") was not covered as an additional insured under a liability policy sold to Strauss Painting Inc., despite (a) language within the liability policy's additional insured endorsement extending coverage to any entity for which Strauss was performing operations "when [Strauss] and such person or organization have agreed in writing in a contractor agreement that such person or organization be added as an additional insured on [Strauss's] policy[;]" (b) a separate contractor agreement requiring Strauss to purchase both a liability policy and a contractor's protective policy; (c) that agreement's language appearing to require that Strauss would add the Met as an additional insured under its insurance policies. Strauss Painting Inc. v. Mt. Hawley Ins. Co., 26 N.E.3d 218 (N.Y. 2014). The court's decision turned on its reading of the contractor agreement between the Met and Strauss to only require that the Met be named an additional insured to the contractor's protective policy, and not the liability policy. The court concluded that because there was never a written agreement to make the Met an additional insured under the liability policy, the liability policy's additional insured endorsement therefore did not operate, under its own language, to provide coverage to the Met. The dissent pointed to evidence that the contracting parties did in fact intend to add the Met as an additional insured under the liability policy, and that the failure to do so was a drafting error. Nevertheless, this error cost the Met the coverage it likely expected.

In another recent instance, both a condominium developer and its general partner faced a construction defect lawsuit and sought coverage as additional insureds under their contractor's liability policy. See St. Paul Fire & Marine Ins. Co. v. Cypress Fairway Condo. Ass'n, Inc., 2015 WL 4429269 (M.D. Fla. July 20, 2015). The contractor had a written agreement to indemnify the developer and its affiliates for certain liabilities and to maintain liability insurance for the benefit of these indemnitee entities. In turn, the additional insured provision in the contractor's liability policy covered "[a]ll Owners, Contractors or Equipment Lessors who require that [insured contractor] add them as an Additional Protected Person in a specific written contract entered into by [insured contractor]." The court ruled that the developer was covered because it was, as required by the additional insured endorsement, an "owner" of the property for which coverage was required by separate agreement with the contractor. On the other hand, the court ruled that the developer's general partner was not covered, despite being an indemnitee in the separate agreement with the contractor, because the general partner did not qualify as an "owner" or "lessor" under the additional insured provision of the insurance policy. No form of additional insured endorsement is without its risks. Strauss Painting and Cypress Fairway Condominium Association underscore that those endorsements that are broadly worded to import the obligations of a separate, risk-shifting contract into a policy's coverage may not accomplish the shift of risk that the parties intended.

When using such endorsements, it is crucial to confirm that the language of the additional insured endorsement matches with the language of the separate, risk-shift agreement, and, therefore, that the additional insured endorsement indeed encompasses all the parties intended to be protected by that separate agreement. The alternative method of expressly listing the entities that are to be considered as additional insureds comes with its own risks. Misnaming or failing to list the proper entity can lead to disputes regarding coverage, even where it is otherwise apparent which entity was intended to have additional insured status under a given policy. Therefore, special care should be taken that the exact name of any entity to be additionally insured is used in such endorsements. Fortunately, protected parties may nonetheless sometimes be able to obtain coverage as additional insured under an insurance policy.

Obtaining Coverage When the Entity Is Not Designated Additional Insured

In several instances, an entity has succeeded in obtaining status as an additional insured, despite not being properly named in the policy. In one case, the owner of a building was not properly identified in a policy issued to the builder insuring for construction defects. The entity identified as the building's owner in the builder's policy was a nonexistent entity. Because the policy included an obvious misnomer and the intent to include the building owner was otherwise clear, the building owner successfully argued that reformation of the policy was warranted in order to grant it additional insured status.

Courts around the country have similarly held that the entities intended to be protected by additional insured status should be granted that status. Although it is best to designate correctly the entity that is to be additionally insured, policyholders are not without recourse to insurance coverage merely because the additional insured language of a policy misnames them. Where a party seeking coverage can clearly show from evidence extrinsic to the additional insured language that there has been a misnomer, and that the misnomer would result in meaningless or illusory coverage, the policy should be read to cover the correct protected party.