ADDITIONAL INSUREDS: ARE YOU REALLY INSURED; AND CAN YOU RELY UPON THE AGENT TO TELL YOU THAT? Davi s. Lynch April 9, 2008 Contractual insurance requirements are pervasive in the oil and gas and construction industries. Service providers are generally required to maintain specific types of general liability policies with minimum limits and are generally required to have that insurance extend additional insured status to owners, general contractors and other entities. ‘The intent is to shift the risk of liability for injury and damage to the service provider who is deemed, correctly or incorrectly, the party in the best position to control that risk. Recent appellate court decisions cast doubt upon the Jong standing practice of contracting parties’ customary reliance on certificates of insurance issued by agents to provide proof of compliance with insurance provisions in contracts. The extent of additional insured status has also been eroded by new limiting endorsements and appellate decisions. Can you trust the certificate of insuranes In order to document proof that the additional insurance obligation has been met, contractors routinely require a certificate of insurance issued by insurance agents which sets forth a description of the types of insurance issued to the contracting party. The certificate also sets forth whether the certificate holder is an additional insured on the service provider's liability policies. Additional insured certificates, however, often contain a disclaimer that the document does not alter the terms of the policy. ‘When the insurance promised on the certificate of insurance does not exist as represented, and the owner or contractor is not an additional insured on the service provider's general liability policy, the owner/contractor had several options. A suit could be brought against the service COATS | ROSE | YALE | RYMAN | LEE “A Profesional Coeratin‘Additional Insureds: Are you really insured; And Can you rely upon the agent to tell you that? David 8. Lynch April 9, 2008 Page 2 provider for breach of contract. Ultimate success in that case often depended upon the financial resources available to the service provider, since a lawsuit for failure to obtain insurance is ‘generally not considered covered by a general liability insurance policy. ‘The second option was to file suit against the agent who issued the certificate, asserting causes of action for negligence and intentional misrepresentation. That suit did not solely depend upon the agent’s financial resources since such a claim may well be within the purview of coverage afforded by the insurance agent's errors and omissions policy. Over the course of recent years, this second option has deteriorated to the point where it appears that it may not exist, and that statements made by insurance agents in certificates of insurance can no longer be reasonably relied upon. TIG Ins. Co. v. Sedgwich James of Washington, 184 FSupp.2d 591 (S.D. Tex. 2001), aff'd, 276 F.3d 754 (S" Cir, 2002); Omni Metals, Inc, v. Poe & Brown of Texas, Inc., 211 $.W.3d 310 (Tex.App—Houston {14” Dis.] 2002, pet. denied); Van Net,U.S. v. TIG Insurance Company, 211 8.W.3d 310 (Tex. 2006); Brown & Brown of Texas, Ine, v. Omni Metals, Inc., 2008 WL 746522 (Tex.App—Houston [1"* Dist.] Mar. 20. 2008). ‘The courts have held that language in the certificates, stating that they do not alter or vary the terms of the policy itself, together with the presumption that a reasonable insured reads their policy, may make reliance upon the representations of professional who procured the insurance unreasonable. As the Texas Supreme Court stated, “Given the numerous limitations and exclusions that often encumber such policies, those who take such certificates at face value do so at their own risk.” Via Net, 211 §.W.3d at 314. The courts may now require additional insureds Coats |ROSE | YALE | RYMAN | LEE “A Profesional CorporationAdditional Insureds: Are you really insured; And Can you rely upon the agent to tell you that? David 8. Lynch April 9, 2008 Page 3 to request the complete copy of the policy and require them to read that policy in order to determine whether the proper coverage has been provided. Are you really an additional insured? ‘A trend has developed in the insurance industry to issue additional insured endorsements which are more limiting than previous endorsements. For example, some of these newer endorsements exclude claims arising out of the additional insured’s sole negligence. See Atofina Petrochemicals, Inc. v. Continental Cas. Co., 185 8.W.3d 440 (Tex. 2006). This can be a problem when the only party sued is the additional insured. Another endorsement provides coverage only for the additional insured’s liability for the named insured’s negligence. In other words, this endorsement appears to provide no coverage for the additional insured’s own negligence, Assuming additional insured status does exist; it can be illusory or require further litigation against the carrier. In one case, an appellate court held that the additional insured was not protected since the only party in the lawsuit alleged to have been negligent was the additional insured. ‘The court refused to review extrinsic evidence of negligence on the part of the named insured subcontractor which may have triggered coverage. Transport Int'l Pool, Inc. v. Continental Ins. Co., 166 $.W.3d 781 (Tex.App.—Fort Worth 2005, no pet). In yet another case, the appellate court refused to extend additional insured coverage to a contractor for liability arising out of the subcontractor’s work because there were no allegations in the petition concerning the subcontractor. D.R. Horton-Texas, Ltd. v. Markel Int'l Ins. Co., 2006 WE 3040756 (Tex.App.—Houston [14" Dist.] 2006, no pet.). COATS | ROSE | YALE | RYMAN | LEE ‘A Profesional Corporation