Evaluating Tenders of Defense and Indemnification

Evaluating additional insured and contractual indemnification tenders means asking what was promised by an insured to others and how the promise was made, according to Dan D. Kohane, an insurance coverage expert and senior member of the New York-based Hurwitz & Fine law firm.

Kohane, who also serves as an adjunct professor of insurance law, presented on the subject at the Property Loss Research Bureau’s national conference held in Orlando, Fla., last week.

There are separate and distinct statuses that apply and each should be analyzed separately, Kohane said. In addition, the duties owed differ as do the responsibilities of each.

According to Kohane, an adjuster receiving a tender based on contractual indemnification or additional insured status should determine the following:

• Does a contract exist?
• Is the contract in writing?
• Is there an indemnity agreement?
• What is promised?
• Are there insurance obligations?
• Is there an insurance requirement? If so, is it to only have insurance or is to provide insurance?

The next step is determining the truth, Kohane said. Often, a tender letter will describe evidence that doesn’t necessarily exist. For instance, a certificate of insurance does not create coverage, he said.

“It’s just evidence of insurance,” Kohane said.

An adjuster needs to conduct a thorough analysis of the tender by securing relevant documentation like the contract, subcontract, purchase orders and invoices.

He recommended exploring each claim separately and reviewing applicable coverage. In order to do so, the adjuster should obtain the policy, endorsements, application, underwriting file, and sometimes even the agent’s file.

According to Kohane, there may be no contract or additional insured indicated on the policy, just a certificate of insurance.

Kohane recommended separating the issues for resolution. He said it’s important to avoid intermingling the questions that arise under the trade contract with those that are policy-related.

Adjusters should also consider statutes that may impact the outcome, he said.

“In some jurisdictions, anti-indemnity provisions may apply,” said Kohane. “Some states won’t allow that indemnity to be passed down.”

In New York, for example, the party at the top of the relationship in leases and construction agreements is not allowed to pass responsibility downward.

Sometimes, there is not enough evidence to determine that a named insured has a contractual obligation to defend and or indemnify a party, he said, adding that the request may be premature.

Additional Insured

Kohane said that an additional insured stands in the same shoes as the named insured, and as such is entitled to all of the same rights an insured has under the policy. The insured and additional insured must provide timely notice, promptly forward suit papers and cooperate during the claims investigation and/or litigation.

During the policy review, Kohane recommended verifying the named insured as well as any companies listed as an additional insured. Within a policy, an additional insured can be specifically scheduled by endorsement or a blanket additional insured endorsement may apply, he said.

On the other hand, in contractual indemnity, a party must prove the terms of the indemnity provision apply, Kohane said.

“There is a natural battle that ensues between the party seeking to enforce the contract and the party deciding whether or not accept it,” he said.

More importantly, any defense or indemnity dollars paid to or on behalf of a contractual indemnitee are considered damages under the policy. A factor that can hinder the claims investigation or discovery in litigation is that there is no obligation by the contractual indemnitee to provide notice to the insurer or even to cooperate, Kohane said.

If there is an insurance procurement obligation, there may be others required to provide insurance under the contract, he said.

Kohane also recommended adjusters review a policy’s contractual liability and insured contract exclusions to evaluate contractual indemnification tenders.