Chapter 14 Additional Insureds and U.k. Law

• Library: The Handbook on Additional Insureds (ABA) (2018 Ed.)

CHAPTER 14 Additional Insureds and U.K. Law

Simon Moore

I. Introduction

The United Kingdom is governed by different laws, namely the laws of: (i) England and Wales; (ii) Scotland; and (iii) Northern Ireland. This chapter considers the concept of "additional insureds" under the law of England and Wales which, given the strength of the London insurance market, is the most commonly encountered governing law for insurance policies. It is recommended to consult with alternative specialist sources if the insurance policy is governed by laws of Scotland or Northern Ireland, as the laws can vary considerably.

To start at the beginning, or at least somewhere near it, it is necessary to define what an "additional insured" is or, is not, in accordance with English law¹ principles of construction. The policy may define "additional insured," in which case that definition will apply, warts and all, as long as it makes sense in itself and in the context of the policy. In the absence of such a definition, "additional insured" is a term that will be interpreted by reference to the context in which it appears but, in the broadest sense, may be applied to any legal or natural person who is: (a) insured under the policy; but (b) not the primary insured. The term "additional insured" can be understood by comparing the position of the "additional insured" with that of the "primary insured," a "loss payee" and someone whose interests are "noted" on the policy.

1. Primary Insured
The primary insured is often defined as the "policyholder," and is normally used to describe the person or entity that applies for and purchases the policy. The term is applicable irrespective of how many additional insureds there are.
2. Loss Payee
In its simplest form, a loss payable clause simply designates that the proceeds of any insurance claim (or the proceeds of any insurance claim above a specified sum) must be paid to the named loss payee. The loss payee is not an insured and is not a party to the insurance contract. Further, the loss payee does not have a right to claim under the policy. The loss payee must rely on the insurance of an insured under the policy: (a) being valid; and (b) being responsive to a loss to the point of generating a payment.
3. Additional Insured
An additional insured is much more than a "loss payee." The additional insured has insurance under the policy to which it is a party and, subject to points of joint and composite insurance dealt with later in this chapter, is master of its own destiny under the contract, even if it may not have as much cover financially or in extent as the primary insured.
4. The Noting of an Interest
The contrast between an additional insured and an entity where that entity's interest is merely "noted" on the policy is, in a different way, even starker. The noting of an interest, without more, brings no effective benefit. Even if coupled with an obligation to notify on renewal, cancellation, or rescission, it may bring no more than an opportunity to preserve the policyholder's insurance. The noting of an interest does not give that entity any right to claim under the policy or waive the insurer's subrogation rights against that entity.

In contrast, an additional insured, like any other insured, will benefit from the right to claim under the policy and from a waiver of subrogation, by operation of law, to the extent of its interest insured.²

Having dealt with some of the important distinctions, if only to get the nomenclature clearer, let us now turn to some practical examples and guidelines.

Practical Examples and Guidelines

Where two or more people who have the same interest in property or are exposed to the same liability are insured under the same policy, they are correctly called co-insureds. If their interests are truly joint, they will be joint insureds. By contrast, if their interests differ, they will be composite insureds. In circumstances where an insured is being described as an "additional insured" it is inherently likely that the policy is a composite policy. Examples of situations in which there is likely to be an additional insured under a composite policy follow:

1. The third-party manager of a business may be an additional insured under the policy covering liabilities on the part of the business, for example, public or products' liability.
2. The ship management company may be named as an additional insured under the ship-owner's hull and machinery (property) insurance for the ship.
3. A distributer of products may be named as an additional insured under the manufacturer's products' liability policy.
4. A contractor may be an additional insured on its employer's construction all risks insurance policy in respect of a project for the construction of a building, facility or plant.
5. A contractor who employs a subcontractor may be an additional insured under the subcontractor's liability policy.
6. The landlord of a property may be an additional insured under the insurance of that property which the tenant is required by the lease to purchase on behalf of both parties. Alternatively, the tenant may be an additional insured under the insurance of the property if the landlord is required by the lease to purchase the insurance on behalf of both parties.
7. In life insurance, dependent children may be additional insureds under a policy covering the life of their parent(s).
8. A joint venture partner or a minority-owned subsidiary may be an additional insured under the principal's insurance policy.
9. A mortgagee of property may be an additional insured under the insurance of that property taken out by the mortgagor owner.

Insurable Interest

Whatever the precise factual relationship of an additional insured to the other insureds, it is clear that the additional insured must have an insurable interest in the subject matter of the insurance to be insured under the policy at all.³ The Marine Insurance Act 1906 provides a definition of insurable interest in Sections 5(1) and 5(2):

5(1) "Subject to the provisions of this Act, every person has an insurable interest who is interested in a marine adventure.
5(2) In particular a person is interested in a marine adventure where he stands in any legal or equitable relation to the adventure or to any insurable property at risk therein, in consequence of which he may benefit by the safety or due arrival of insurable property, or may be prejudiced by its loss, or by damage thereto, or by the detention thereof, or may incur liability in respect thereof."

The Marine Insurance Act 1906 was an Act of codification, and Section 5(2) summarizes in brief form the principles on insurable interest that were laid down in previous cases and which remain broadly applicable to non-marine risks.⁴ The requirement of an insurable interest is a legal requirement that distinguishes insurance from gambling. It may often be that some other insurance is available for the prospective insured, but merely shoe-horning another party into an existing policy, for reasons of expediency and without regard to whether the additional party has an insurable interest, is unlikely to be successful.

II. Consequences

Having established the characteristics of an additional insured, it may be helpful to consider two important consequences.

No Degree of Insurance

Under English law, there is no degree of insurance. One is either insured or one is not. There will no doubt be limitations and conditions of many kinds. An additional insured is inherently likely to have more limitations and conditions on its cover than a principal or primary insured. Otherwise, every insured, of whatever type, has the cover stipulated by the contract. In this regard, it is worth noting that a group policy is deemed to be a bundle of contracts between each insured and each insurer.⁵ The "group" itself is unlikely to be a legal person and cannot make a contract. One consequence of this state of affairs is that, unless otherwise stated, each insured has available to it the full limit of cover.

Joint v. Composite Cover

A further point dealt with in New Hampshire v. MGN is the question of whether an insurance policy covering many insureds will be "joint" or "composite." If joint, a breach of the duty of fair presentation or breach of warranty or condition by one insured may vitiate the cover of all insureds. If composite, each insured's cover stands or falls on the disclosure and conduct of...