Chapter 11

• Jurisdiction: United States

Chapter 11

Other Persons’ Insurance

§ 11.01 Overview

One of the most important, yet often overlooked, sources of insurance to pay for any liability (both defense and indemnity obligations) is other persons’ insurance, which is simply insurance purchased and maintained by other people. There are two essential ways to access other persons’ insurance: (1) directly and (2) indirectly. These additional sources of recovery are over and beyond any rights to indemnity one might possess and any rights to insurance coverage under such indemnifying parties’ policies for such indemnity obligations.

This chapter initially discusses indirect access to other persons’ insurance, which occurs when the other person(s) remain(s) able to use its(their) own insurance but access thereto is given to the business entity. Indirect access to other persons’ insurance is generally afforded pursuant to a contract between the other person(s) (to whose insurance access is sought) and the person seeking to access such other persons’ insurance. Here, with a focus on businesses, indirect access to other persons’ insurance occurs when the entity requires the other person(s) to name the business as an additional insured under the other person’s (persons’) insurance. The indirect access topics include additional named insured status¹ and certificates of insurance.²

The chapter then examines the direct means of access to another’s coverage, through the transfer of insurance from the other person(s) or entity to the business entity seeking such access.³ These assignments usually, but not always, occur through the purchase and sale of a business. The transfer of coverage encompasses a discussion on anti-assignment provisions in policies,⁴ contractual assignments,⁵ and transfers by operation of law.⁶

§ 11.02 Indirect Access to Other Persons’ Policies

One way to obtain and use another person’s insurance is indirectly. Indirect access to another person’s insurance occurs when another person retains rights under its own policies but also grants access to those policies to the subject business entity seeking access.⁷ As stated above, indirect access to other persons’ insurance is generally afforded pursuant to a contract between the other person (to whose insurance access is sought) and the person seeking the access to such insurance. Here, we focus on business entities. Indirect access to other persons’ insurance occurs when the business entity requires the other person to name the entity as an additional insured under the other person’s insurance.⁸

[1]—“Named Insured” Status

One way to have access to other persons’ insurance is to be named and/or to qualify otherwise on the other persons’ policies as an “insured.” If the other entity is under the control of the first person or entity, such as a corporate subsidiary, access to the insurance is rather easy to accomplish.

If, as is most often the case, the other persons are not under the subject’s control, the subject will want to request or require, to the extent it can be accomplished through contractual negotiation, that it be named on the other persons’ insurance policies as a “named insured.” This happens in a builders risk policy when the realty owner requires a contractor to name the owner a policyholder.⁹ Likewise, banks and other lenders often have themselves named as a policyholder or loss payee under first-party policies covering property on which they have a mortgage or other security interest.¹⁰ Additionally, landlords may require tenants to purchase fire insurance to protect the landlord’s interest in the estate.¹¹ Similarly, general contractors and subcontractors often work into their contracts that they be named as a policyholder under another contractor’s or subcontractor’s CGL insurance policies.¹²

Great care should be taken to ensure that the subject who is claiming rights to coverage under another’s insurance policy actually has those rights. Specifically, there may be a difference between being an “additional insured” and an “additional named insured.” Rights of a “named insured,” whether original or additional, generally are better and more extensive than those of an “additional insured.”¹³

[a]—Effectuation of Status

To be named as an “additional insured” or “additional named insured” under another’s insurance policy can be accomplished in two ways. First, the entity seeking such status can be specifically enumerated in a policy endorsement or in the declarations page. Alternatively, many policies have additional definitions and provisions that provide coverage to other persons or entities by virtue of their relationship to the policyholder (such as a family member, employee, affiliate), and there is a broad-form “additional insured” endorsement that may include certain additional parties that the policyholder has contracted with and/or agreed to indemnify.¹⁴

[b]—Extent of Coverage Afforded by Status

Irrespective of how an entity obtains “additional insured” status, an issue arises as to the extent of coverage afforded. For example, is the “additional insured” entitled to coverage for its own negligence or only for the policyholder’s negligence, which is attributed vicariously to the “additional insured”? Courts have come to mixed results with this question.¹⁵

[2]—Certificates of Insurance

One of the ways to ensure that the subject is getting the rights it requested or required under the other persons’ insurance policies is through receipt of certificates of insurance, which evidence the coverage. Brokers and agents generally issue these one-page documents, which are similar to a declarations page of a policy. Certificates of insurance are not contracts between the insurance company and the certificate holder.¹⁶ Rather, they are merely evidence that an insurance policy has been sold and issued.¹⁷

Certificates of insurance do not amplify, extend, or modify the coverage afforded under the insurance policy.¹⁸ However, if an insurance company or its agent issues the certificate of insurance, the doctrine of estoppel may bind the insurance company to reasonable and justifiable reliance on statements contained therein.¹⁹ Nonetheless, some courts have denied estoppel when reliance is unjustified because of a disclaimer in the certificate.²⁰

Certificates of insurance, albeit helpful, are far from foolproof and should not be the only thing relied upon in ensuring accessibility to other persons’ insurance. Two specific problems arise when certificates of insurance are the sole source of proof that insurance has been obtained by the other person(s) to whose insurance someone wants accessibility. First, certificates of insurance do not spell out all the terms of the coverage purchased, which is often necessary to ensure that the other person(s) has(have) adequately protected the entity seeking to use such other persons’ insurance. Second, and equally as significant, certificates of insurance do not demonstrate that premiums have been paid or will be paid going forward. Obtaining a copy of the policy would resolve the question of who is covered, but the only solution to making sure that premiums are paid is, if possible or feasible, to earmark funds in the contract for payment of premiums directly from the business entity to the insurance company, perhaps out of funds owed by the business entity to the other party.

§ 11.03 Transfer of Coverage

Direct access to another’s insurance may be achieved either by obtaining control over or acquiring the other entity. A corporation acquiring other companies needs to structure its deals or otherwise make arrangements to make sure there is insurance coverage under the predecessors’ policies in case it is sued as a successor to the companies it acquires. The transfer of property does not automatically also transfer the insurance coverage on that property.²¹ Rights under insurance policies may be assigned by:

(1) contract or gift; ²² or

(2) operation of law. ²³

[1]—Anti-Assignment Provisions

Insurance policies typically contain provisions restricting assignments without the insurance company’s consent.²⁴ In the vast majority of jurisdictions, these anti-assignment provisions have been enforced only as to assignments that are made before the loss has occurred.²⁵ The rational most often advanced in favor of this majority rule involves the risk underwritten by the insurance company at the time of the sale of the insurance policy. If that risk is changed, as by an assignment to a policyholder before a loss transpires, it would be unfair to the insurance company to underwrite the changed risk because it never had the opportunity to perform adequate underwriting due diligence.

As for circumstances after a loss has transpired, the rule is different because the risk cannot thereafter be changed. Once the loss occurred, the risk becomes fixed.²⁶ When the assignment is made after the occurrence of an event that creates the liability of the insurance company, assignment clauses do not operate to invalidate the assignments, whether made by agreement or through operation of law.²⁷

California, among others states, including Texas and Louisiana,²⁸ is at odds with the majority with respect to anti-assignment provisions. The California Supreme Court held that an antitransfer provision in an insurance policy is enforceable unless the claim has been “reduced to a sum of money due or to become due under the policy.”²⁹ As the dissent pointed out, this holding ignores the rule that “an insured can assign policy benefits once the loss insured against has occurred.”³⁰ In other words, it is the date a chose in action arises, not the date the claim has been “reduced to a sum of money” that should be controlling.³¹

Of less controversy, the court also held that a corporation that contracts to take on the assets and liabilities of its predecessor does so voluntarily and not by operation of law.³² Consequently, if the predecessor’s insurance policy had an antitransfer clause, the...