Between the Lines

A Discussion of Case Law and Statutory Law Affecting Commercial Lines of Insurance

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Paying Attention to the Drafting of Insurance Provisions in Contracts Can Save Thousands in Litigation Costs

Cool drafting: Start additional insured coverage at dollar one.

A recent Texas decision makes clear that, when drafting contracts for clients, you cannot simply rely on the fact that your client has been added to a policy as an additional insured.

You need to make sure that the additional insured coverage starts at dollar one, without a deductible or self-insured retention applicable to your client.

Taking this step was the main lesson from the Texas decision. In that case, an insured leased trailers to a third party. The contract between the insured and the third party required the third party to obtain commercial general liability insurance with limits of at least $1 million, and to name the insured as an additional insured on that policy.

Later, the third party’s employee was injured, and sued the insured, who tendered the case to its insurer. The policy that the third party had obtained did, as their contract stipulated, name the insured as an additional insured, and had over $1 million in coverage. Thus, there should have been no problem. However, unbeknownst to the insured, the third party’s policy had a $2 million deductible.

The insured sued the third party, claiming that “commercial general liability insurance” meant primary insurance, without a deductible.  While the court did rule in the insured’s favor in this case, I believe that this would be a close call in many jurisdictions. A court could always rule that the insured should have done its due diligence on the insurance policy’s terms. Either way, this is a situation in which it took a lawsuit to accomplish what good drafting should have done years earlier.

Another drafting tip:

Require that the insurer be licensed to do business in the jurisdiction. For example, Massachusetts provides that, should the insurer go bust, the insured has Insurer’s Insolvency Fund protection up to a certain limit.

About the Author

Steven L. Schreckinger – Partner

Steve litigates complex insurance cases, and represents corporations in legal malpractice claims.

Please contact him with questions at sschreckinger@andersonkreiger.com or (617) 621-6537.


Posted In: Contract Claims

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