The scope of coverage under an additional insured endorsement is not limited by the terms of the contract indemnity clause.

A friend of mine wrote me recently wondering how the California Court of Appeal could rule as it did in St. Paul Fire & Marine Insurance Co. v. American Dynasty Surplus Lines Insurance Co. (2002) 101 Cal.App.4th 1038. Justice Croskey and his colleagues on the Second Circuit held there that where a general contractor is indemnified by a subcontractor, and is also an additional insured under the subcontractor’s liability policy, coverage under the additional insured endorsement is limited to losses that are indemnified under the indemnity clause. In other words, a general contractor’s coverage under an additional insured endorsement to his subcontractor’s CGL is defined not by the language of the endorsement itself, but by the wording of an indemnity clause in a subcontract to which the insurer was not a party and which is not referenced in its policy. Additional insured endorsements, said the court, are intended to protect the additional insured only from the vicarious acts of the named insured.

My answer was that the St. Paul holding is not good law. The law does not assume that additional insured endorsements are intended to cover only losses for which the additional insured is indemnified under the indemnity clause of his contract with the named insured. Many courts have held found coverage under additional insured endorsements in cases where the additional insured was not entitled to be indemnified by the named insured.[1]

Indeed Justice Croskey and his colleagues later abandoned their holding in American Dynasty in American Cas. Co. v. General Star Indem. Co. (2005) 125 Cal.App.4th 1510. There American Casualty insured a movie company and covered its landlord as an additional insured with respect to liability arising out of the movie company’s use of the rented premises. An employee of the movie company was injured on the premises by reason of the sole negligence of the landlord, and sued. By its terms American’s additional insured endorsement covered the landlord for this claim, but American contended that it nevertheless had no coverage because the landlord, being solely negligent, was not entitled to be indemnified under the indemnity clause of the rental agreement, citing American Dynasty. Justice Croskey and his panel, realizing that they had erred in American Dynasty, reversed themselves and held that “the provisions of the contract of indemnity will not preclude enforcement by the indemnitee of its claim of coverage under the additional insured endorsement”. They did not overtly disavow their earlier holding, but limited it closely to its facts.[2] And in the 2007 revision of his practice guide Croskey notes that while an indemnitor does not owe indemnity to an indemnitee whose sole negligence caused the loss, this is irrelevent to insurance coverage because “the covenant to procure insurance is independent of the contract to indemnify.”[3]

An additional insured endorsement can be limited by the terms of a covenant to insure in the named insured’s contracts with its customers, as where it expressly covers anyone who the named insured has agreed in writing to insure but only to the extent of that agreement. But the terms of a covenant to indemnify in the named insured’s contracts have no bearing on the scope of coverage under an additional insured endorsement. - mam


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[1] E.g., Acceptance Ins. Co. v. SYUFY Enterprises (1999) 69 Cal.App.4th 321, Fireman’s Fund v. Atlantic Richfield Co. (2001) 94 Cal.App.4th 842, General Accident Fire & Life Assur. Corp. v. Contintental Cas. Co., 287 F.2d 464 (9th Cir. 1961), Chevron USA, Inc. v. Bragg Crane & Rigging Co. (1986) 180 Cal.App.3d 639, 644. In all these cases coverage was found under additional insured endorsements for losses for which the additional insured could not be indemnified, as they all involved accidents caused by the sole negligence of the indemnitee-additional insured, for which indemnity is forbidden by California Civil Code § 2782.

[2] Unfortunately not all courts have gotten the news. A federal district court recently relied on American Dynasty, making no mention of American Casualty v. General Star. (J&M Associates Inc. v. National Union Fire Ins. 2007 U.S. Dist. LEXIS 68914)

[3] Croskey, Heeseman & Popik, Cal. Prac. Guide: Insurance Litigation (The Rutter Group 2007) § 7:1408.2