Duty To Defend An Additional Insured Under A CGL Policy

Service contracts as between sophisticated parties often contain numerous indemnity and insurance provisions, subject to specific terms. Determining whether a duty to defend an additional insured under a Commercial General Liability Policy ("CGL Policy") is triggered in a particular instance is, therefore, an intricate exercise. Many CGL Policies provide that one party, for example, a subcontractor or service provider, agrees to defend (and often indemnify) the owner of the property and add them as an "additional insured".

These contracts are common within property maintenance contracts such as snow removal, property management, and custodial services. Thus, if a claim is made against the property owner, the owner may tender their defence to the service provider and the service provider's insurer, demanding that the owner be provided defence and indemnity for the claim. Depending on the facts of a particular matter, this may greatly increase the potential exposure of the insurer on the receiving end of the defence tender. Recent litigation with respect to this tender demand has focused on whether the claim "arose out of" the operations of the named insured.

This following is an overview of the recent decisions with respect to an additional insured within a CGL Policy and practical guidance based on the current state of the law.

Scope and Coverage

Generally, a duty to defend clause stipulates that one party is obligated to defend another party against any claim that arises from the execution of a particular contract. The determination of whether a claim arises from the execution of a contract is usually based on the allegations contained within the Statement of Claim.

Extending this logic, the main issue in many cases is whether the events alleged in the Statement of Claim would "arise out of" the operations of the named insured. The courts will attempt to narrow in on the "true nature" of the claim. Therefore, the process for defining the scope of coverage is highly fact-specific and requires careful analysis.

A typical scenario is as follows: A municipality contracts with a road maintenance contractor to maintain city streets. The contract requires the contractor to obtain CGL insurance naming the municipality as an additional insured. The contract will also include a clause that stipulates that if the municipality is sued, the contractor's insurer will be required to defend (and often indemnify) the municipality against such claims. When a claim is made against the municipality for damages arising from alleged deficiencies in road maintenance, the parties must determine whether the claim engages the duty to defend clause and requires the contractor to defend the municipality.

Determining the Differences between Covered and Non-CoveredClaims

To determine whether a duty to defend is triggered, the court must determine whether the claim falls within the scope of the contractor's insurance coverage. This investigation will include an analysis of the "true nature" of the claim.

In Non-Marine Underwriters, Lloyd's of London v. Scalera,1 the court advised that a proper interpretation is not limited to the mere language chosen by the plaintiff in its pleadings, but rather entails examining the actual...