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Does the Causation-Trigger Wording of an Additional Insured Endorsement Matter?



When two companies agree to work together, they will try to allocate the risk of something going wrong to the company that's in the best position to prevent that from happening. For example, in the construction industry a general contractor will usually try to push risks from construction defects onto the subcontractors. That risk-transfer usually occurs in two places in the subcontract: 1) in the indemnity language; and 2) in a requirement that the subcontractor makes the general contractor into an "additional insured" on the subcontractor's liability insurance policy. (A similar scenario happens in a commercial lease: the landlord will want the tenant to provide "additional insured" liability coverage to the landlord.)

What is "causation-trigger" wording? A subcontractor will make a general contractor into an "additional insured" by having an "additional insured endorsement" on their liability policy, usually using one of a handful of standard forms. These different forms have different provisions about when the additional insured will be entitled to benefits under the policy. For coverage to be triggered, every additional insured endorsement requires some kind of relationship between the liability asserted against the additional insured (e.g. the contractor) and what the named insured (the subcontractor) was doing. For example, an insurance company will try to prevent a contractor who is being sued due to a leaking roof from getting additional insured coverage from a policy issued to the foundation subcontractor. The language that the insurance company inserts to prevent that from happening is the "causation-trigger" language.

The problem is that many cases aren't that simple. In many cases there are several types of damage and it is not clear how the damage happened, and therefore it's not clear which subcontractor's defective work was the cause. But contractors (and landlords, etc.—everyone who wants to be an additional insured) do not want that kind of ambiguity to undermine their quest to be an additional insured. They want the broadest possible "causation-trigger." So here's the question: does it matter what "causation-trigger" language is used in the additional insured endorsement? Answer: Yes, but not as much as some think - there may be bigger issues - and which way it cuts may depend on where you are.

Different language on different forms. The most prominent distinction between varieties of "causation-trigger" language is between endorsements that use the phrase "caused in whole or in part" and those that use the phrase "arising out of." For example, the CG 20 10 04 13 endorsement says that coverage will be provided to the additional insured "only with respect to liability...caused in whole or in part by: 1) your acts or omissions; or 2) the acts or omission so those acting on your behalf, in the performance of your ongoing operations for the additional insured." (emphasis added). That appears to be currently the most common variation on the "caused in whole or in part by" language.

Contrast that with the CG 20 10 10 01 form, in which coverage is provided to the additional insured "but only with respect to liability arising out of your ongoing operations performed for the insured." (emphasis added).

It is common to see (in a contract or lease) a demand that the additional insured endorsement use the "arising out of" language, on the theory that "arising out of" is broader than "caused in whole or in part by." Problem: the "arising out of" language is from an old additional insured endorsement—the "caused in whole or in part" language was part of a 2004 revision—and some insurers won't sell the older endorsement, or will charge a higher premium for it. So if you are negotiating a contract or lease there will likely be push-back on "arising out of." Is there really a difference that's worth a fight?

Washington: "arising out of" is broad. In Washington state courts have analyzed many varieties of "causation" language and have held that "arising out of" is the broadest form of causation-trigger language. See Mutual of Enumclaw v. Jerome, 66 Wn. App. 756 (1992) (reversed on other grounds). That holding has been applied in the additional insured context. See PAR Electrical v. Blueline Rental LLC, E.D. Wa., March 17, 2017. In a different context Washington courts have specifically held that "arising out of" is broader than "caused by." See Toll Bridge Authority v. Aetna Ins., 54 Wn. App. 400 (1989). Presumably that holding would apply to additional insured endorsements, meaning that an endorsement with the "arising out of" language would be broader than one with the "caused in whole or in part by" language. (Indeed that issue is up on appeal in the case Mt. Hawley Ins. Co. v. Zurich Am. Ins. Co., which completed briefing in June.) Oregon has also interpreted "arising out of" very broadly. See Ristine ex rel. Ristine v. Hartford Ins. Co. of Midwest, 195 Or. App. 226, 231 (2004).

Maryland: the opposite? But now consider the following case: in James G. Davis Const. Corp. v. Erie Ins. Exch., 226 Md. App. 25, 28, 126 A.3d 753, 755 (2015), the named insured (a subcontractor, Tricon) had an additional insured endorsement with the "caused in whole or in part by " language. Both Tricon and the general contractor (Davis) were sued after a worker was injured by allegedly faulty scaffolding erected by Tricon, but approved by Davis. The insurer denied coverage for Davis, but the court held that Davis was entitled to coverage and specifically held that the limitation to injuries "caused in whole or in part by" the subcontractors' work provided broader coverage than would have been provided by the "arising out of" language. The court held that coverage was triggered by an allegation that Davis was liable either vicariously, or based on the acts or omissions of Davis, or of Tricon - essentially, by any allegations at all that implicated Tricon.

Even "arising out of" may not get you there. Washington courts have held that even the very broad "arising out of" language has its limits. In Absher Constr. v. N. Pacific Ins., 861 F.Supp.2d 1236 (W.D. Wa. 2012), the court held that the phrase did not extend coverage to "completed operations" losses where the endorsement contained a limitation to "ongoing operations" loss. That means that the ongoing/completed operations distinction in the endorsement may be more important than the "arising out of" language. Moreover, state "anti-indemnity" laws, which prevent a general contractor from being indemnified for its sole negligence (including through insurance), may result in broad additional insured language not being enforced. In some situations in Washington, and in almost all cases in Oregon, the anti-indemnity statute has been more often asserted by insurers as a limit on the scope of the additional insured coverage than the causation-trigger wording.

The takeaway: The causation-trigger language of the additional insured endorsement may matter, depending on what state you are in. Pushing for the broader "arising out of" language is likely to benefit the additional insured, in most situations. However, the insurance industry is making it increasingly difficult to get the "arising out of" language, and other factors (like the application of a state anti-indemnity statute) may be more important, although perhaps harder to control by contract. Before taking a stand on the wording of the causation-trigger language it may be worthwhile to take a closer look at the state of the law, other important language, and the most likely loss scenarios. It may turn out that the causation-trigger wording is less critical than you thought.

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