The Insurance Exceptions of the Missouri Anti-Indemnity Statute (Part II)

by Terry J. Galganski¹

Introduction

As mentioned in Part 1 of this article, the rules for indemnities in construction work² in Missouri changed with the governor signing into law the state's first anti-indemnity statute,³ effective for all contracts for construction work executed on or after August 28, 1999. Unless one of its nine exceptions, including the three exceptions dealing with insurance (collectively referred to as the "insurance exceptions ) applies, the statute enforces only a limited indemnity⁴ in construction work.

This article focuses on the statute's insurance exceptions: the additional insured exception, the insurance policy exception and the insurance cap on indemnity exception.⁵ With a thorough knowledge of these exceptions, a party involved in construction work can, as the situation warrants, avoid or stay within the reach of most or all of the statute.

The discussion in Part 1 left off with the following insurance policies to be addressed under the additional insured exception of the statute: umbrella or excess liability, commercial or business automobile liability, workers' compensation/employers' liability, professional liability, and contractor's pollution liability. Following their discussion in Part 2, the emphasis will shift to the remaining insurance exceptions.

Additional Insured Exception (Continued)

(2) A party's promise to cause another person or entity to be covered as an insured or an additional insured in an insurance contract;

Umbrella or Excess Liability Policy

Any discussion of additional insureds under umbrella or excess liability policies⁶ is difficult, for these policies have not been standardized like the ISO CGL policy forms or its additional insured endorsement forms. With their lack of standards and the interactive complexities between these policies and the primary layer, the effectiveness of additional insured status under either type of policy is fraught with uncertainty.⁷ Nevertheless, most umbrella forms include provisions that automatically include as insureds those organizations that the named insured is required to include as additional insureds under its primary layer of liability coverage. Thus, additional insured endorsements are not necessary. But there are other existing umbrella policy forms that do require such an endorsement.

Even where automatic additional insured coverage is provided, these umbrella policies may still require that certain conditions be met by the named insured before coverage will be afforded the additional insured (e.g., the named insured must give timely notice to the insurer of the additional insured's status; coverage is to the extent required by contract or the primary policy). From the named insured's perspective, coverage afforded to the additional insured should be equivalent to what the parties bargained for under their contract for construction work. Suffice it to say, unless the named insured understands its overall liability insurance program's abilities and limitations to afford additional insured coverage, or the additional insured does the same – which may be very impractical - the negotiations reflected in the executed contract may not be addressed properly in the umbrella or excess policies.

Commercial or Business Automobile Liability Policy (BAP)

The business automobile coverage form (CA 00 01) was first introduced by ISO in 1978, with subsequent revisions in 1990, 1992, 1993 and 1997.⁸ By introducing this form, ISO simplified the persons who are insureds under this policy. They fall into three categories: the named insured, permissive users and vicarious insureds.⁹ For this article, the noteworthy category is vicarious insureds.

Essentially, this policy form provides automatic coverage to vicarious insureds that may be liable for the actions of the named insured or permissive users. For example, if a third party makes a claim against an owner for injuries due to a general contractor's automobile at or around a construction site, the owner would be covered for its vicarious liability regardless of what the contract for construction work may say regarding naming the owner as an additional insured under the contractor's BAP.

Even though the BAP has this insured coverage built in its form, parties to construction work continue to require additional insured status. Although this request is unnecessary, ISO developed an endorsement to meet its continued demand in 1997. It is known as the designated insured (CA 20 48) endorsement.¹⁰ The endorsement's operative wording does nothing more than reaffirm that the designated party is an insured for the vicarious acts of the named insured or the named insured's permissive users.

Simply put, the BAP and its additional insured endorsement will not provide as expansive insurance coverage as an additional insured may receive under some of the ISO CGL additional insured endorsements that were discussed earlier. They will only provide protection against those insurable damages to the extent due to the tort liability of the indemnitor; that is, equal to the only indemnity now enforceable under Missouri law for contracts for construction work. But the indemnitee also receives the much-coveted insurer obligation to defend. From a practical standpoint, these protections will meet the indemnitee's needs for most automobile liability claims.

Workers' Compensation/Employers' Liability Policy

There is no additional insured status available under a workers' compensation/employers' liability insurance policy. These policies cover only injuries to an insured's employees, not any third party liability.¹¹ To do otherwise would transform these policies into a policy comparable in coverage to what is provided in a CGL policy. Moreover, the National Council on Compensation's Basic Manual for Workers Compensation & Employers Liability Insurance, 2001 edition, provides in one of its rules that "[s]eparate legal entities may be insured in one policy only if the same persons or group of persons, own the majority interest in such entities."¹²

Professional Liability Policy

As a matter of internal policy, nearly all professional liability insurance carriers will not allow a third party to be an additional insured under a professional liability policy. If they are willing to do so, the coverage will likely apply only to the vicarious liability of the additional insured; that is, its liability imputed solely from the professional negligence of the named insured. During my career, I have only seen two situations where a professional liability carrier was willing to add a party as an additional insured, one of which involved a project policy. Therefore, the additional insured exception will not likely alter the statute's prohibitions affecting professional liability risks.

Contractor's Pollution Liability Policy

These policies vary from carrier to carrier. I am not aware of a standard ISO policy form for this coverage or for additional insured requests. Notwith-standing this lack of standardization, a party to a contract for construction work can be added as an additional insured under a contractor's pollution liability policy. The coverage can be as broad or as narrow as the requestor desires; however, the endorsement will likely be manuscript. But either party could use the standard ISO CGL additional insured endorsements as guides to orchestrate avoiding most of, or staying within the reach of, the statute's prohibitions.

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There is one last important facet regarding the additional insured exception that needs to be emphasized. It may not be a complete panacea for the statute's prohibitions. Besides questions regarding the extent and duration of coverage to be afforded an additional insured under the applicable endorsement or the particular fact situation, which are often confusing and time-consuming, there is the additional insured's inability to control the claim's defense, issues regarding whether the umbrella policy (if any) will afford additional insured coverage (and to what extent), and the possible conflicts of interest that may arise because of multiple insureds and the multiple coverages that normally come into play when dealing with additional insureds. Hence, while this exception may prove beneficial to a party involved in construction work, its eventual impact may require some significant effort to define the extent of the party's success in avoiding the reach of the statute.

Insurance Policy Exception

(7) Construction bonds, or insurance contracts or agreements

As with the additional insured exception, this exception also reinforces the notion that risks transferred via an insurance policy should remain unaffected by the statute. Moreover, unless the terms of the contract for construction work are incorporated into the insurance policy, the terms of the insurance policy should control coverage. Simply put, an insurance policy is a distinct and separate contract between an insured and the insurer, providing unique responsibilities and obligations irrespective of the contract for construction work.

Examples of insurance contracts or agreements that are found in many contracts for construction work include provisions requiring a party to be named as an additional insured, demanding that the other party's policy or policies be primary, requiring workers' compen-sation/employers' liability coverage, purchasing an owners' and contractors' protective liability (OCP) policy, providing for a waiver of subrogation for someone's benefit, or purchasing a railroad protective liability policy. Since the additional insured requirement has already been addressed, the focus will be on the last five items.

The primary requirement refers to identifying one policy of several policies that provide concurrent coverage to an insured (whether as a named insured or an additional insured) as initially responsible in satisfying a claim until its limits are exhausted. At that time, the other applicable policies will then respond. It is a significant transfer device that is "married" to the additional insured requirement. If this requirement is not addressed in the contract for construction work, whatever risk transfer accomplished by the issued additional insured endorsement may be only half-realized.

When someone is included as an additional insured on another party's CGL or contractor's pollution liability policy, that additional insured (assuming it has comparable, concurrent coverage under its insurance program) has two policies that will respond to a claim: its own policy and the policy where it is an additional insured.¹³ Without an amendment to one of these policies (especially in the case of the CGL policy, since it provides coverage for a wide variety of occurrences), the carrier with the additional insured endorsement will try to involve any other available insurance, including the additional insured's own CGL policy, to share in or to pay for the entire loss. In this pursuit,¹⁴ the liability carrier relies on the "other insurance" clause found in these policies. Naturally, the additional insured and its own CGL carrier will take the position that their policy is excess over coverage afforded by the liability carrier providing additional insured status. On this issue the courts' analysis vary depending upon the type of "other insurance" clauses found in the policies providing concurrent coverage. Some even hold that the "other insurance" clause does not even apply in determining the parties' intent.¹⁵

To avoid this murky and uncertain situation, and to maximize the risk transfer provided by an additional insured endorsement, the additional insured has three options in ensuring that the policy in which it is named an additional insured is primary. First, the additional insured can add to its CGL policy a manuscript endorsement, adopt a relatively new ISO endorsement (discussed below) or use the 1998 or 2001 ISO CGL policy form (also discussed below) to make its policy excess over the insurance policy where it is named as an additional insured. The second approach is to require from the other party a specific endorsement that makes the other party's CGL policy primary. Of these two approaches, the former is much easier to administer, because the additional insured can more easily control its own insurance program. The final option can be used in addition to, or in lieu of, the first two options. This option requires that certain steps be followed by the additional insured when a claim is made against it. Essentially, the additional insured tenders the claim to the insurance carrier where it is named as an additional insured and specifically advises its carrier not to get involved.¹⁶ Two Illinois cases support this method of tendering defense to resolve this "other insurance" issue.¹⁷

As mentioned, ISO created a mandatory endorsement to address this issue for the additional insured's own CGL policy in April 1997 and subsequently included this endorsement language within the other insurance clause of its 1998 and 2001 CGL policy forms. The former is CG 00 55 03 97. This endorsement and the 1998 and 2001 ISO CGL policy forms essentially place the additional insured's own policy excess over the policy in which it has been included as an additional insured by modifying the "other insurance" clause of its own policy to so provide.

Like most agreements, contracts for construction work require the service provider to supply workers' compensation and employers' liability insurance. By imposing this obligation, the requesting party can avoid being held responsible, as a statutory employer, to provide workers' compensation benefits to an employee of an independent contractor if that contractor fails to provide them.

In lieu of providing an additional insured endorsement under a CGL policy,¹⁸ the indemnitee can provide the other party with an OCP policy.¹⁹ Unlike an additional insured endorsement, which usually has no cost or a nominal cost, an OCP policy costs more. But the policy provides a dedicated set of project limits²⁰ that remain in place until the project is completed. By the very terms of the OCP, it is also primary over any insurance that its named insured may have. Although the owner is usually the named insured, a subcontractor can be asked to purchase this policy for the general contractor's benefit, with the latter being the named insured. By so doing, the general contractor can assure the existence of insurance limits being available if a third-party-over action or defective construction work claim arises while the subcontractor performs its work.

An OCP policy provides the following coverage for the named insured: the named insured's vicarious liability arising out of the designated contractor's operations; and the named insured's direct liability arising out of its "general supervision" of the work performed by the designated contractor.²¹ Therefore, it may or may not provide as broad a coverage as afforded under an additional insured endorsement; the determining factor in this comparison is the additional insured endorsement selected or identified by the parties. In any case, however, if such a policy is purchased in lieu of providing additional insured coverage, it will provide greater protection than the limited indemnity under the contract for construction work for the indemnitee.²²

In any contract for construction work for a railroad, or in or around a railroad's property, the affected railroad will most likely require that a railroad protective liability policy be purchased. This insurance is written under either a standard policy form authored by ISO (CG 00 35) or under forms provided by insurance carriers specializing in this coverage. Like an OCP policy, it provides primary coverage for the railroad, not the designated contractor, until the designated work is complete. Furthermore, it provides bodily injury and property damage coverage for all acts or omissions at the designated job location — including the railroad's acts or omissions — except for those injuries and damages that are proven to be the sole proximate cause of the railroad. In other words, the policy does not protect the railroad against its sole negligence. Thus, this policy will provide the railroad, which will also likely be an indemnitee, greater protection than what is allowed by the statute.

Finally, there is subrogation. In the context of the insurance policy exception, it is the ability of an insurer who has made payments under an insurance policy to seek reimbursement for some or all of its payments from another party that may be responsible for them. Since only a limited indemnity in Missouri is enforceable, an indemnitee is no longer able to fully protect itself from subrogation suits from someone else's insurance carriers. For example, in the case of an injured construction worker, the employer's workers' compensation insurance carrier may wish to subrogate against the indemnitee if the facts or circumstances suggest that the indemnitee's negligence resulted in the construction worker being injured.

In Missouri, parties to a contract for construction work cannot prospectively waive their employer's workers' compensation subrogation rights. It is prohibited by state statute.²³ Therefore, the risk of subrogation remains for the indemnitee. With this statutory prohibition and the prohibitions provided under the statute, the additional insured exception's importance is magnified. If, for example, a party is an additional insured using CG 20 10 11 85 (or CG 20 26 11 85) or the new CG 20 37 under the CGL policy of the injured worker's employer, it provides risk transfer of not only the third-party-over action, but also any subrogation attempted by the employer's carrier.²⁴ Any such subrogation attempt will require the employer's CGL insurance carrier to defend and protect the additional insured, based upon the particular coverage described earlier in this article under these endorsements.

This subrogation waiver prohibition under the Missouri workers' compensation scheme does not apply to other insurance policies, such as the CGL, BAP, professional liability, OCP or railroad protective liability insurance policies.²⁵ Under most professional liability policies, there is an insurance provision regarding subrogation. In one policy, it provides: "We [the insurer] hereby waive subrogation rights against your [insured] client to the extent that you had, prior to a claim or circumstance, a written agreement to waive such rights." (Emphasis supplied.)²⁶ Thus, a party to a contract for construction work can negotiate such a waiver with the architect or engineer, provided it is done prior to any professional services being performed. Waivers of subrogation can also be obtained via endorsements under an OCP or railroad protective liability policies, although it may be more difficult to obtain them from the carrier providing the railroad protective coverage. Since this endorsement protects the party usually buying the policy for the insured, the purchaser should automatically request its inclusion.²⁷ By obtaining such a waiver under these policies, a party is providing itself with more protection than it can receive under the limited indemnity allowed by the statute.

This discussion includes only some of the examples for this exception. There are certainly others, including builder's risk insurance, project insurance policies, and cross liability or severability of interest provisions in insurance policies. Essentially, whatever you can do via an insurance contract or agreement will be unaffected by the statute's prohibitions. Simply put, a party to a construction contract will be best served if it can look to someone who has a thorough understanding of available insurance policies and endorsements.

Insurance Cap On Indemnity Exception

(8) An agreement containing a party's promise to indemnify, defend or hold harmless another person, if the agreement also requires the party to obtain specified limits of insurance to insure the indemnity obligation and the party had the opportunity to recover the cost of the required insurance in its contract price; provided, however, that in such case the party's liability under the indemnity obligation shall be limited to the coverage and limits of the required insurance . . .

Including this exception in the statute resolved the deadlock between the opposing parties to this legislation and precipitated its passage.²⁸ It makes this statute unique among state anti-indemnity statutes. This exception creates a limitation of liability (of sorts) on any indemnity, including intermediate or broad form indemnities that were enforceable in Missouri prior to enacting the statute. Hence, this exception, if followed, will allow these indemnities to remain enforceable.²⁹

This exception enforces intermediate and broad indemnities to the extent of the limits and coverage afforded under the contract for construction work if the indemnitee has paid for the coverage in the contract price. This exception implicitly recognizes the broad contractual liability coverage found under the standard ISO and other CGL and business automobile policies.³⁰ It will not, however, provide any additional risk transfer for professional liability exposures. Professional liability policies have limited contractual liability coverage (in fact, some argue that there is no such coverage.). They will only support a limited indemnity, the only indemnity now enforceable in Missouri. Furthermore, all policies are limited by the damages they cover. For example, a CGL policy or BAP cover only certain damages. The former includes bodily injury, property damage, and personal and advertising injury.³¹ Meanwhile, the latter includes only bodily injury and property damage.³² Neither of these policies will cover lost profits, other economic damages or punitive damages. A professional liability policy, on the other hand, will cover bodily injury, property damage, lost profits and economic damages, and may include punitive damages.³³ In all of these policies, however, there is no coverage for penalties. Therefore, an author of a contract for construction work implementing this exception must be well-versed in insurance coverage to maximize its use.

In using this exception, I believe the drafter will use all of the insurance exceptions. I list below my suggested indemnity and insurance articles for a contract for design service and construction work (assuming no remediation work or work in or around railroad tracks) between an owner and a contractor that address the insurance exceptions:

Article XX

INDEMNITIES

A. Non-Professional Liability. Contractor indemnifies, defends and holds Owner harmless from all third party claims or suits for libel, slander, property damage and bodily injury, including death, due to Contractor's negligence or products, anyone for whose acts or products the Contractor may be liable or Owner's negligence, regardless of whether they are caused in whole or in part by the Owner's negligence. These obligations include all judgments or awards recovered from such claims or suits, including court costs, attorney's fees and other defense expenses.

B. Professional Liability. Contractor indemnifies and holds Owner harmless from all third party claims or suits for damages, including consequential or economic damages, to the extent caused by the negligent acts, errors or omissions of Contractor, its subcontractors or anyone directly or indirectly employed by any of them or for whose acts any of them may be liable in performing professional services under this Agreement. These obligations include all judgments or awards recovered from such claims or suits, including court costs, attorney's fees and other defense expenses.

C. Other Indemnities. Contractor indemnifies, defends and holds Owner harmless from all third party claims or suits for fines, penalties, liquidated damages or any other damages of whatsoever nature to the extent caused by the Contractor's acts or failures to act or by such acts or failures to act of anyone directly or indirectly employed by Contractor or anyone for whose acts or failures to act it may be liable. These obligations include all judgments or awards recovered from such claims or suits, including court costs, attorney's fees and other defense expenses.

D. Contractor agrees that its indemnity obligations set forth in this Article will not be affected in any way by any limitation on the amount or type of damages, compensation or benefits payable by or for Owner, Contractor or any of their respective contractors under any workers' compensation acts, employers' liability insurance or other employee benefit acts.

Article YY

INSURANCE

A. Except to the extent set forth in Section B of this Article, Contractor will purchase and maintain the following insurance to cover its operations under this Agreement without limiting Contractor's liability under this Agreement. This insurance will be provided by insurance companies acceptable to Owner and licensed to do business in each jurisdiction where the work is performed.

• Workers' Compensation Insurance, in full compliance with the workers' compensation laws of the states within which any part of the work is to be performed, together with Employer's Liability Insurance that has minimum limits of liability in the amount of $xxx,xxx,xxx for each accident and each disease.

• Commercial Automobile Liability Insurance, under ISO form CA 00 01, covering all owned, hired and non-owned vehicles, with minimum combined single limits of liability of $xxx,xxx,xxx each occurrence.

• Commercial General Liability Insurance; and, if necessary, excess liability insurance on a "true following form" basis, all of which is written on an occurrence basis, with the following minimum limits of liability:

General Aggregate ...........$xxx,xxx,xxx

Products/Completed Operations

Aggregate….........................$xxx,xxx,xxx

Personal and Advertising

Injury………...........................…$xxx,xxx,xxx

Each Occurrence................$xxx,xxx,xxx

Professional Liability Insurance, with minimum limits of liability of $xxx,xxx,xxx each claim, $xxx,xxx,xxx aggregate.

B. The Commercial General Liability and the Commercial Automobile Liability Insurance coverage and their respective limits set forth in Section A of this Article are being specifically required and obtained to insure the indemnity obligations set forth under Section A of Article XX to meet the requirements of

§ 434.1002.(8), RSMo. The parties further acknowledge that the cost of these insurance coverages is included in the Contract Price and the limits and coverages afforded by them is Contractor's total aggregate liability under the indemnity obligations set forth in Section A of Article XX.

C. Contractor's Commercial Automobile Liability, Commercial General Liability and Professional Liability Insurance policies (and any excess policies necessary to meet the required limits) will include contractual liability coverage. Owner will be named as an additional insured on the Contractor's Commercial General Liability policy by using Additional Insured Endorsement (Form B), CG 20 10 11 85 [or new CG 20 37 or existing CG 20 26 11 85]. Contractor's Commercial General Liability and Commercial Automobile Liability policies and required excess policies must include a severability or cross liability clause and be endorsed to be made primary regarding any applicable insurance maintained by Owner.

D. Contractor waives any rights of subrogation under its Professional Liability Insurance policy for Owner's benefit and is doing so prior to commencing any of the work.

E. Contractor will furnish an insurance certificate to Owner evidencing that it has met the insurance requirements set forth in this Article, including attaching the required additional insured endorsement and the primary and waiver of subrogation endorsements or policy terms. With no exceptions, Contractor must provide these documents before beginning the work and with each renewal of the coverage set forth in this Article until final completion of the work. The certificate will provide that 30 days' written notice will be given to Owner before any policy is canceled. Contractor will give written notice to Owner, too, as soon as it receives written notice of cancellation from any of its insurance carriers. The insurance certificate must clearly designate the name of the project. A sample insurance certificate and required attached endorsements or policy terms are attached as Exhibit X to this Agreement.

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As the reader can see, my proposed insurance article addresses other issues beyond the statute, including the insurance certificate confirming that the contract's insurance requirements have been met. Although the insurance certificate is the practical method used to confirm a party's compliance with these requirements, it has one significant shortcoming: it is not the insurance policy.³⁴ Therefore, the proposed article suggests that the party attach a completed insurance certificate, including the relevant endorsements or policy terms, so there is no question about what is expected from the other party to meet the contract's insurance requirements. Moreover, it will assist the requestor's personnel in administering, and the contractor's broker in meeting, these requirements.³⁵

This exception is fraught with many questions, especially in light of what is and what is not covered by the various insurance policies. From the owner's and general contractor's perspective, each will likely stay the course of transferring risks via several insurance requirements, including now specifying the additional insured endorsement to be provided by the other, and through an indemnity provision in their respective contracts for construction work. The breadth of the indemnity will be determined by their application of this exception. Moreover, this exception may also be used by the contracting parties as the backdrop for negotiating an evenly distributed allocation of risks within the terms of the contract for construction work. We will have to wait and see how the parties to construction work will use it.

Conclusion

Unless one of its exceptions applies, Missouri's relatively new anti-indemnity statute will mandate a limited indemnity in each new contract for construction work. But a party to construction work that has adequate knowledge of the available, relevant insurance tools can effectively skirt many of its prohibitions. This legislation implicitly recognizes insurance as an effective risk transfer tool that remains unaffected by it. Thus, an attorney or an insurance broker, with the appropriate expertise, can aid a party to construction work to effectively use or prevent another from implementing one or more of the insurance exceptions. Their involvement could pay huge dividends.

Endnotes

¹ Terry J. Galganski, J.D. is Risk Manager, Corporate Risk Management for Jacobs Engineering Group Inc, a publicly traded engineering and construction firm, located in its St. Louis offices. He received his law degree at St. Louis University Law School in 1980 and his undergraduate degree at Northwestern University in 1977. He extends his gratitude to Kenneth A. Slavens and Kristin Figge, a partner and an associate, respectively, with the law firm of Brown & James in St. Louis, for their efforts in providing him with certain court cases.

² For purposes of this article, the term "construction work" will be given the meaning set forth in § 434.100.3, RSMo 2000.

³ Section 434.100, RSMo 2000.

⁴ A limited indemnity provides for the indemnitor to protect the other party to the contract from third party claims to the extent due to the indemnitor's negligence.

⁵ These respective exceptions are found in § 434.100.2(2), (7), and (8), RSMo 2000.

⁶ These terms are often used interchangeably; however, they are not the same. An umbrella policy can provide additional limits beyond the underlying policy, can include additional coverages, and will drop down if the underlying policy does not apply. An excess policy, on the other hand, provides only additional limits beyond the underlying policy, usually an umbrella policy. It provides no greater coverage than the underlying policy and does not drop down if the underlying policy does not apply.

⁷ See Donald S. Malecki, Pete Ligeros & Jack P. Gibson, The Additional Insured, Ch. 14 (4th ed. 2000).

⁸ Donald S. Malecki, Pete Ligeros & Jack P. Gibson, The Additional Insured, Ch. 15 (4th ed. 2000).

⁹ See the paragraph entitled: "WHO IS AN INSURED" of SECTION II – LIABILITY COVERAGE of ISO's business auto policy form CA 00 01 07 97. An individual can obtain a copy through the Insurance Services Offices, Inc., which is headquartered in New York City, from International Risk Management Institute, Inc. (RMI) or through an insurance broker.

¹⁰ In Texas, a similar additional insured endorsement (TE 99 01 B) is used for all of its commercial automobile insurance policies. In addition, this endorsement requires that notice of policy cancellation be sent to the additional insured.

¹¹ In the case of Reagen's Vacuum Truck Serv., Inc. v. Beaver Ins. Co., 37 Cal. Rptr. 2d 89 (Cal. App. 1994), the court held additional insured coverage under a workers' compensation/employers' liability policy existed only if the additional insured was an employer of the injured employee.

¹² Basic Manual for Workers Compensation & Employers Liability Insurance, § A.5.a of Rule 3 (2001).

¹³ This statement is true for the business automobile liability policy if the named insured's policy for such coverage covers all vehicles.

¹⁴ "Other insurance" clauses in policies will only operate when there is concurrent coverage. See Continental Cas. v. Medical Protective, 859 S.W.2d 789, 791 (Mo. App. E.D. 1993).

¹⁵ In one federal case applying Missouri law, the court allowed concurrent insurers to recover from one another under a contribution theory. See Gulf Ins. Co. v. American Family Mut. Ins. Co., 962 F.2d 834, 835-36 (8th Cir. 1992). A good discussion regarding the different types of "other insurance" clauses, including pro rata clauses, excess clauses and escape clauses, and how the courts have ruled in reconciling these clauses in the applicable policies providing concurrent coverage, can be found in Douglas R. Richmond, The Additional Problems of Additional Insureds, 33 Tort & Ins. L. J. 945, 984-999 (1998). See also the discussions: Gary D. Nelson, "Additional Insured" Endorsements, the Brief 29 (1995) and in Donald S. Malecki, Pete Ligeros & Jack P. Gibson, The Additional Insured, pp. 117-130 (4th ed. 2000).

¹⁶ To establish an effective tender to the insurance carrier where it is as an additional insured, the additional insured should take the following steps:

1. Advise the insurer to whom it is tendering the claim that it is doing so as an additional insured.

2. Inform that insurer that it must defend because the additional insured has determined such action is in its best interests.

3. Indicate that its comparable policy has been endorsed as excess of any other insurance.

4. Inform that insurer that it is relying on that carrier to protect its interests and to not contact its own carrier for defense or indemnity.

¹⁷ Institute of London Underwriters v. Hartford Fire Ins. Co., 599 N.E. 2d 1311 (Ill. App. 1992); its holding was affirmed in John Burns Constr. Co. v. Indiana Ins. Co., 727 N.E.2d 211 (Ill. 2000). The additional insured tender steps described in footnote 16 come from the directions set forth in these two cases.

¹⁸ The author has seen some contracts for construction work require both an OCP policy and additional insured coverage. He still does not understand why a party would require both unless a party wants to guarantee there is at least some casualty insurance other than its own available if an insurable claims arises during the construction work.

¹⁹ Although the discussion between the coverage afforded under OCP policies versus additional insured coverage is beyond the breadth of this article, parties should understand and appreciate the differences provided by each and the infrequent use of the former as they negotiate a contract for construction work in light of the statute. A concise and solid discussion comparing the coverages afforded by each can be found in Section XII Protective Liability Insurance, CONTRACTUAL RISK TRANSFER, Strategies for Contract Indemnity and Insurance Provisions, Volume II, International Risk Management Institute, Inc., 2000 and in Mo. Construction Law, ch. 4 (MoBar 2000 Cum. Supp.).

²⁰ An additional insured may be able to receive a project location each occurrence and project location aggregate limits from the other party's CGL policy. If so, it will have dedicated limits for the additional insured's project similar to what is found under an OCP policy.

²¹ This coverage is similar to what is provided under ISO additional insured endorsement form CG 20 09 03 97. For a more in-depth discussion of Owners and Contractors Protective Liability policies, see Terry J. Galganski's article: Owner's and Contractor's Protective Liability: An Insurance Tool in Construction, 15 The Construction Lawyer 1 (1995), a publication of the Forum of the Construction Industry, American Bar Association.

²² There is a comparable product to an OCP policy known as a Project Management Protective Liability (PMPL) Policy. It is referred to in the General Conditions Of The Contract Of Construction, AIA A201 (Am. Inst. of Architects, 1997). This policy was created to respond to the concerns voiced by design professionals regarding their vicarious liability arising out of a construction contractor's means and methods and the adequacy of the scope of coverage design professionals may receive as additional insureds under a contractor's CGL policy. CNA Insurance Company is the only insurer to offer a PMPL policy, but it has withdrawn this policy form due to a general lack of interest. With that said, in its 2001 CGL program changes ISO has introduced the Construction Project Management Protective Liability Coverage endorsement (CG 31 15 10 01). It can be attached to its OCP coverage form.

²³ Section 287.150.6, RSMo 2000, provides (emphasis supplied):

Any provision in any contract or subcontract, where one party is an employer in the construction group of code classifications, which purports to waive subrogation rights provided under this section in anticipation of a future injury or death is hereby declared against public policy and void. Each contract of insurance for workers' compensation shall require the insurer to diligently pursue all subrogation rights of the employer and shall require the employer to fully cooperate with the insurer in pursuing such recoveries except that the employer may enter into compromise agreements with an insurer in lieu of the insurer pursuing subrogation against another party. The amount of any subrogation recovery by an insurer shall be credited against the amount of the actual paid losses in the determination of such employer's experience modification factor within forty-five days of the collection of such amount.

²⁴ The additional insured may not even experience a subrogation attempt by the workers' compensation insurance carrier, especially if it is the same carrier that provides CGL coverage for the injured worker's employer. The carrier will not go after itself.

²⁵ In some contracts for construction work, there are requirements to be named as an additional insured under certain policies and to obtain waivers of subrogation from these same carriers. The latter is not needed if one is listed as an additional insured. There is a rule commonly referred to as the "antisubrogation doctrine," which provides that an insurer generally has no right of subrogation against its own insured arising from an insured risk. This doctrine extends to additional insureds. See Jos. A. Bank Clothiers v. Brodsky, 950 S.W.2d 297, 303 (Mo. App. E.D. 1997).

²⁶ This policy language comes from CNA's Professional Liability and Contractor's Pollution Incident Liability Insurance Policy, Form No. G-22558-A Section V(D) (1995).

²⁷ Under an OCP policy, this endorsement is identified as CG 29 88 10 93. If however, the OCP carrier is the same carrier providing CGL coverage for the designated contractor (i.e., purchaser) of the OCP policy, the danger of subrogation is essentially eliminated and this endorsement may not be included. Provided the contractor does not have a substantial deductible under its CGL policy, the risk of subrogation does not exist because the amount the OCP insurer would be entitled to collect from the contractor in subrogation would be the amount it would need to pay on behalf of the contractor as the CGL carrier. Unlike OCP policies, there are no standard subrogation waiver endorsements in use for railroad protective liability policies. They will need to be manuscripted.

²⁸ This information was received from Richard A. Stockenberg, a principal of the law firm of Gallop, Johnson & Neuman, L.C., located in Clayton. He represented and assisted the American Subcontractors Association in pursuing the passage of this legislation.

²⁹ Although the author assumes the old Missouri case law on indemnities will remain obsolete under this exception, courts may still use it in their interpretation of this exception. For a brief synopsis of this old case law, see Mo. Construction Law ch. 4 (MoBar 2000 Cum. Supp.).

³⁰ Contractual liability coverage under the 1998 ISO CGL forms (CG 00 01) and BAP forms (CA 00 01) are found in an exception to a policy exclusion. The relevant sections of the 1998 ISO CGL policy forms (CG 00 01 07 98 or CG 00 02 07 98) providing this coverage involve exceptions to a policy exclusion, combined with a definition:

2. Exclusions.

This insurance does not apply to:

b. Contractual Liability

"Bodily injury" or "property damage" for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or an agreement. This exclusion does not apply to liability for damages:

(1) That the insured would have in the absence of the contract or agreement; or

(2) Assumed in a contract or agreement that is an "insured contract," provided the "bodily injury" or "property damage" occurs subsequent to the execution of the contract or agreement. . . .

SECTION V – DEFINITIONS

9. "Insured contract" means:

f. That part of any other contract or agreement pertaining to your business (including an indemnification of a municipality in connection with work performed for a municipality) under which you assume the tort liability of another party to pay for "bodily injury" or "property damage" to a third person or organization. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement.

Copyright, Insurance Services Offices, Inc., 1997

Almost identical language is found in the 1997 ISO BAP form (CA 00 01 07 97). See the second exclusion (with its exceptions) to the policy and its definition of an "insured contract."

³¹ The respective definitions of these terms under the 1998 ISO CGL policy forms follow:

"Bodily injury" means bodily injury, sickness or disease sustained by a person including death resulting from any of these at any time. . . .

"Property damage" means:

a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or

b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the "occurrence" that caused it."

c. . . . .

"Personal and advertising injury" means injury, including consequential "bodily injury," arising out of one or more of the following offenses:

a. False arrest, detention or imprisonment;

b. Malicious prosecution;

c. The wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor;

d. Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services;

e. Oral or written publication of material that violates a person's right of privacy.

f. The use of another's advertising idea in your "advertisement"; or

g. Infringing upon another's copyright, trade dress or slogan in your "advertisement."

Copyright, Insurance Services Office, Inc., 1997

³² The 1997 ISO BAP policy form (CA 00 01 07 97) has nearly an identical definition of "bodily injury" as the ISO CGL policy forms discussed in footnote 31, with a more succinct definition of property damage: "damage to or loss of tangible property."

³³ For example, under CNA's professional liability and contractor's pollution incident liability insurance policy form, G-22558-A, p.3 (1995), there is no definition of "damages" under the professional liability coverage of the policy. Subject to the policy's exceptions (e.g., liquidated damages), this part of the policy covers "a demand for money or services, naming you and alleging a wrongful act. . . ."

³⁴ In the most familiar, current insurance certificate form, identified as ACORD 25-S (7/97) (the "ACORD form"), it specifically provides at the right hand top:

"THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE PROVIDED BY THE POLICIES BELOW." (Emphasis supplied.)

The ACORD form also states just above the listed policies:

"THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. AGGREGATE LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. (Emphasis supplied.)

If this language is not enough to emphasize that only the insurance policy is the policy, with the ACORD form being modified in 1997, the Accord Corporation added a second page to its form containing three additional warnings regarding the certificate's inability to legally bind others on coverages. They read (emphasis supplied.):

IMPORTANT

If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s).

If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s).

DISCLAIMER

The Certificate of Insurance on the reverse side of this form does not constitute a contract between the issuing insurer(s), authorized representative or producer, and the certificate holder, nor does it affirmatively or negatively amend, extend or alter the coverage afforded by the policies listed thereon."

³⁵ The other changes that are contained in ACORD 25-S (7/97) include adding a box to check for noting additional insured status being provided to the certificate holder, removing the standard coverages from the CGL section, and using the "special conditions" box to now address "EXCLUSIONS ADDED BY ENDORSEMENT" because of deleting standard coverages under the CGL section from the previous ACORD form (ACORD 25-S (1/95)).

JOURNAL OF THE MISSOURI BAR
Volume 58 - No. 3 - May-June 2002