18 March 2008
As we continue to look at the issues surrounding the additional insured status, we begin to look at what is, perhaps, the most crucial element surrounding this subject: what AI status means when a claim occurs.
A few years back, I got a call that a crane had gone over during the construction of a new dormitory at a well-known college campus. The crane company, working as a subcontractor of the general, was picking and setting structural steel. As the operator swung around to set the next beam, he felt the crane's front outrigger sink into the ground, throwing the crane off level. Reacting quickly, he tried to cable down to avert the overturn, but as is the case in so many accidents, gravity was quicker than he was and the machine ended up on its side.
As the investigation unfolded, documents were requested and, it was revealed, that the crane company's broker had issued a certificate of insurance as part of the general contractor's policy renewal. The certificate stated that the general contractor was named as an additional insured under the crane company's policy as required under the signed and executed contract. Not surprisingly, a tender letter from the general's insurance carrier followed demanding a defense, and payment for the corresponding legal fees.
But where the problem lies in the above scenario is not necessarily with the tender of defense. Yes, paying the legal fees on an incident that may not be your fault is not the most econamical way to spend your company's safety budget, but a mismanaged claim at this stage of the game could end up costing substantially more. An inexperienced claim handler, assuming that certificates do not create any coverage, may not respond to the tender and may not even investigate the impact of a signed contract. And if this happens, the crane company may find itself paying expensive legal fees even after the fact.
Know the answers
On the other hand, an experienced claim handler will get a gunslinger attorney involved right away to weed out the critical issues: Is the contract signed, what do the state case and statutory laws say in regards to additional insured status, and have the courts in that state interpreted certificates to imply coverage? Knowing the answers to these questions is paramount.
In this case, it turned out that the contract was unsigned and this particular state did not recognize certificates as providing insurance coverage. The crane company's insurance carrier promptly issued a denial, the crane was fixed, and come fall, college kids moved in and news of the crane accident became a distant memory.
When an accident occurs, the last thing on the minds of those involved are insurance certificates and contractual documents. But, when the concrete dust settles and the iron finally makes it back to the yard, if the right steps pertaining the paper trail have not been followed, wallets can get substantially lighter.
An entire claims investigation even a flawless one, can fall to pieces if the claims adjuster is unaware that additional insured status has been given to anothor contractor. If a claims investication is geared towards shifting liability solely to anothor contractor, and that contractor is found to have additional insured status under the crane company's policy, we've now wasted time, money, and perfectly good brain cells. Having known that in the beginning, the fact that liability transfer was futile could have been identified and, more than likely, the case settled for a smaller amount.
Additional insured issues can be complicated but by taking the time to try and understand the difference between what you're giving and what you're getting in terms of insurance coverage, the better off you will be. Taking a proactive approach and alerting your carrier to both the incident and the possibility of additional insured status will save everyone time and money. And as is the case with so many businesses, there never seems to be enough of either.