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Quote of the Day - Hollywood is a place where they place you under contract instead of under observation. - Walter Winchell
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Insurers Trying To Dodge The Bullet Don't Succeed

If you run a business, then at one time or another, someone has asked you for an additional insured endorsement. Careful with that last link - that's an insurance company telling you what it thinks the endorsement means.

You'll be glad to know that the courts have straightened out the insurers. Not surprisingly, the endorsements mean more than the insurance companies think they do.

Or think they don't.

As was the case in the last link. Reading the opinion is a nightmare to understand, largely because of the combination of insurance lingo and legalese. Here's how it shakes out.1

A company leased out its movie lot in North Carolina to allow a movie company to make The Crow. The two companies signed an agreement, and the movie company agreed to indemnify the movie lot company if it got sued as a consequence of someone getting hurt on the movie lot during the filming of the movie. The movie company also agreed to have its insurer name the movie lot company as an "additional insured" to its policy.

Sure enough, someone got hurt, and the movie lot company got a judgment taken against it.

But, there's a law in California (don't ask me to explain in one sentence how we got from a movie lot in North Carolina to a court in California) that says indemnity agreements that try to indemnify someone else for their sole negligence are void. Now before we go much further, we have to introduce the insurers into the equation.

Here, the movie company's insurer paid the judgment against the movie lot company as it was required to do under the additional insured endorsement. But, it then argued that it was entitled to the same rights that the movie company had under the law. That is, since the injury that resulted in the judgment was the sole fault of the movie company, it did not have to indemnify the movie lot company. So, the movie company's insurer reasoned that it too didn't have to indemnify the movie lot company.

The insurer thought that was a pretty neat trick, and then sought to get the movie lot company's insurer to contribute toward paying the judgment. You saw that coming, didn't you?

It didn't work.

The court saw right through that argument and said that the additional insured endorsement operated as independent obligation, separate from the indemnity agreement between the movie company and the movie lot company.

So the movie lot company didn't have to contribute toward the judgment and the movie company's insurer had to pay the entire judgment.

The moral of the story?

Insurers who try to avoid their own contractual agreements won't be allowed to.

Footnote

1 Or, you could just wade through the Court's description: "We conclude that while section 2782 may preclude enforcement of a promise of indemnity in a construction contract, it does not limit the enforcement of an 'additional insured' endorsement provided to the indemnitee by the indemnitor's liability insurer pursuant to the terms of the indemnity agreement. In addition, we hold 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." American Casualty Company of Reading, PA v. General Star Indemnity Co. (Jan. 27, 2005, 2nd Dist. Court of Appeal, 2005 DJDAR 1089) back.

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Printer friendly page Permalink Email to a friend Posted by J. Craig Williams on Tuesday, February 01, 2005 at 23:15 Comments Closed (0) |
 
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