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When the county of Los Angeles was sued by a patient for injuries sustained during childbirth, the county presumably expected that the hospital’s insurer would hold it harmless. After all, the county’s contract with the hospital provided that the hospital would indemnify the county against “any claim for damages arising from or connected with [the hospital's] operations or its services thereunder.” The county was added as an “additional insured” on the hospital’s insurance, but when that suit occurred, the insurer not only didn’t indemnify the county, it was permitted to seek reimbursement from the county for the hospital’s defense costs. Truck Ins. Exchange v. Los Angeles, 95 Cal.App.4th 13. How can attorneys protect their clients from such outcomes? The only answer is for corporate attorneys as well as litigators to know more about the minefield through which they walk should they rely on another entity’s insurer to protect them. The issue arises because when a person or entity contracts with a manufacturer, contractor, architect, engineer, consultant or tenant — to name a few — that other party may agree to hold the other organization (the indemnitee) harmless from liability. By agreeing to a “hold harmless” provision, that other contracting party (indemnitor) promises to pay the costs of hiring attorneys to defend and indemnify the indemnitee for any judgment or reasonable settlement that may result, usually because of the indemnitor’s wrongdoing. Lawyers being lawyers, most employ a “belt and suspenders” approach to such arrangements. Since the “hold harmless” provision will be worthless if the indemnitor is without sufficient assets to defend or indemnify, counsel usually add into the contract that the indemnitor will add the indemnitee as “an additional insured” on the policy issued to the “named insured” indemnitor — the professional, vendor, tenant, consultant, etc. Counsel routinely add this contractual language and then assume that their client is fully protected by the contracting party’s insurance. They may be shocked to find out that this insurance coverage is not as helpful as they expected for a number of reasons. For instance: COVERAGE NEVER PURCHASED Simply reciting in a contract that the indemnitor will buy coverage for the indemnitee is not the same as actually securing the insurance. Depending on the situation, the indemnitor’s insurance policy might by its terms cover the indemnitee’s liability as well. But in many situations it will not automatically cover a claim against anyone other than the “named insured” — the contractor, professional or other party who purchased the policy. For the indemnitee to have coverage, an amendment (called an endorsement) must be issued by the insurer, specifically naming the additional entity as an “additional insured.” Sometimes an extra premium is required to purchase such an endorsement. In the rush to begin a project, the detail of actually securing the additional insured endorsement may be overlooked. THE TERMS MAY BE TOO NARROW Insurance contracts and arm’s-length agreements do not necessarily secure the same level of protection for the indemnitee. For example, the contract may require a manufacturer to hold the retailer harmless from any claim whatsoever arising from the sale of a defective product. But the “additional insured” endorsement may not cover the vendor if it failed to conduct routine tests of the product before distribution or sale. A suit alleging both a defective product and a failure to inspect would create a coverage issue. LIMITS MAY BE DILUTED OR EXHAUSTED As an additional insured, the indemnitee typically does not obtain more coverage dollars than that purchased by the indemnitor. For example, assume an architect bought $1 million in errors and omissions coverage for all claims filed that year, and she names the owner as an additional insured. If a claim is brought against the owner and the architect for $750,000 in damages, there may be enough in policy limits to pay the claim, so long as the architect doesn’t have the bad fortune to encounter multiple claims in the same policy year. And any excess or umbrella policy issued to the architect may have no obligation to step up to the plate if not endorsed before the claim arises to add the owner as an additional insured. EXCLUSIONS DENY COVERAGE The underlying contract usually requires that one party be added as an additional insured on the indemnitor’s insurance policy, but rarely specifies the details of what that policy must include or — as importantly — not include. A claim may arise, therefore, that falls within a specific exclusion in that policy. For example, the policy may exclude injury caused by pollutants, thereby precluding coverage for cleaning up a contaminated stream caused when a truck rolls over, rupturing a container of lubricants on the truck. And policies may include an “insured vs. insured” exclusion, which can prevent the indemnitee from accessing the insurance should it sue the indemnitor for negligence or wrongdoing. “OTHER INSURANCE” CLAUSES CONFLICT One reason parties want to be an additional insured is to avoid having their own policy limits (and premiums) adversely affected by a claim. But the policy language may dictate a different result. Insurance policies typically include an “other insurance” clause that says if another policy covers the same loss, that policy pays first, or alternatively, the other policy shares the cost pro rata. These clauses allow one insurer to transfer some or all of the obligations to another policy. CONTRACTUAL LIABILITY EXCLUSIONS Most policies contain an exclusion that prevents coverage for liability assumed by contract — precisely what the indemnitor does by agreeing to “hold you harmless.” While there are exceptions to this exclusion, an issue may be created, giving the insurer a potential basis for disputing coverage. AVOIDING THE PITFALLS Some of these pitfalls may be impossible to solve: For instance, some risks are not insurable by law or by the choice of the insurer industry. California, for example, by statute precludes insurers from insuring anyone for intentionally causing injury. But other problems can be avoided by careful contract drafting and insurance planning: � Get a copy of the indemnitor’s insurance policies — preferably before signing the contract. � Have an insurance attorney review the indemnitor’s policy and your policy to spot and avoid troublesome exclusions and identify needed endorsements. � Review the “other insurance” clauses in your organization’s and the indemnitor’s policies, and endorse the indemnitor’s policy to clearly state that as to claims against you as an additional insured, that policy is solely responsible. � Review the additional insured endorsement issued by the insurer to be certain it is consistent with the terms of the contract. � Consider asking the indemnitor’s insurer to provide specific policy limits applicable only to claims against your entity. That approach will avoid the possibility of other claims diluting the policy limits available to respond to claims against your organization. Alternatively, simply demand that the indemnitor obtain higher policy limits, and endorse the indemnitor’s excess or umbrella policy to include your entity as an additional insured so that dilution of primary limits does not leave you without insurance. � Consider obtaining an endorsement identifying your specific contract as an “insured contract” to avoid disputes regarding the contract liability exclusion. � Make your contract contingent on the other party actually obtaining an endorsement naming your company as an additional insured and providing you a copy. Be clear that the endorsement must be signed by the insurer, not the broker. Brokers may have no authority to bind the insurer. � Be sure that your client has adequate insurance coverage to fill in any coverage gaps in the indemnitor’s coverage. � Utilize insurance brokers, agents and risk managers to assist counsel in identifying options and resolving disputes with insurers. With careful thought and planning, “hold harmless” agreements and additional insured coverage can actually provide substantial protection. Alison Hightower, a partner at Nossaman, Guthner, Knox & Elliott, www.nossaman.com, in San Francisco, specializes in maximizing insurance coverage for companies and public entities.

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