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Triple-I Blog | Additional insured: How policy language can create dramatic consequences



By John Novaria, CEO, Amplify

Subcontractors routinely receive requests to add additional policyholders to the policy. However, failure to add insureds correctly can open insurers to potentially large losses.

Companies usually need to add additional insured persons in order to be able to fulfill their obligations with their contractual partners. The inquiries are usually associated with coverage for marine and energy companies, but the construction and other industries often need to add insured as well. These requests may include commercial general liability, surplus and umbrella and other liability policies.

Maritime Legal Expert Harold "Hal" K. Watson recently conducted an interactive training webinar on the proper addition of insureds for the American Institute of Marine Underwriters (AIMU). Watson, a partner at Chaffe McCall LLP in Houston, is a former president of the Maritime Law Association in the United States and an internationally renowned agency in marine and energy insurance.

Using detailed examples from actual cases – including the Deepwater Horizon disaster – Watson illustrated how policy language around additional insureds can cause claims to go wrong. He offered the audience of insurers, brokers and claim adjusters practical suggestions for writing policy language in specific ways to prevent problems.

Watson explained how dubious ambiguous policy language became an important factor in Deepwater Horizon, an offshore drilling rig that blew up in April 2010, resulting in an explosion that killed 11 crew members and caused billions of dollars in pollution and environmental damage in the Gulf of Mexico. Transocean owned the drilling rig, but it was on a contract with BP. Watson stated that the agreement between the two companies required Transocean to name BP as further insured for certain purposes. But there was uncertainty as to whether the insurance policy incorporated the restrictions in the drilling contract or not.

The U.S. District Court of Appeals for the Fifth Circuit initially ruled that the insurance policy did not include the limitations of the agreement, but then confirmed the case to the Texas Supreme Court since Texas law. The Supreme Court of Texas finally ruled that the insurance policy included the restrictions, but if the original ruling of the fifth district had been upheld, BP would have been entitled to all of Transocean's insurance limits.

Watson explained how wording can be used to avoid situations that essentially provide insured coverage. He also discussed other areas involving risks and exposures, including:

  • The difference and nuances between indemnity clauses and insurance policies.
  • The need for caution when providing broad coverage for additional insureds.
  • How additional insured persons play into umbrella and surplus policies, including specialized maritime policy.
  • The Effect of Charges Against Damages Claims Relating to Oil and Gas Wells in Texas and Louisiana

AIMU has seen a growing interest in its educational offerings as it ranges from live to virtual events. According to AIMU President John Miklus, there were nearly 100 participants in the "Additional Insured" Webinar and a similar number in a recent recent seminar on basic yacht insurance.

AIMU's main focus is education for members and the insurance community as a whole. and continues to deliver its programs with innovative methods. Click here for more information about upcoming classes.


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