Under a commercial insurance policy, there are several types of insured. Understanding the difference between these types of insureds can be crucial to understanding coverage.
The typical policy will have:
- A first named insured - who is responsible for premium payments and any cancellations
- Named insureds - affiliated organizations such as subsidiaries or sister companies sharing common ownership
- Additional insureds - people in a contractual relationship with the insured).
- Coverages and exclusions may not apply equally to the different insureds, however.
An Example Of How Coverage Can Play Out
This matter came up some years ago in the case Starwood Hotels and Resorts Worldwide, Inc. v. Century Surety Company. In that case, originating in Texas, Starwood Hotels had a contract with a company responsible for cleaning the windows at one of its hotels. The agreement required the window washing company to list Starwood as an additional insured on its general liability policy, and the policy (issued by Century Surety Company) was so endorsed.
An Unfortunate Accident
Sadly, a worker for the window washing company fell to his death during the course of his employment. His estate sued Starwood Hotels, and Starwood Hotels demanded that Century Surety Company provide it with a defense as an insured under the window washing company’s general liability policy. A dispute followed between Starwood and Century over whether Century owed Starwood a duty to defend under the policy terms.
Action Over Exclusion
The dispute centered on the policy’s “Action Over Exclusion.” The standard employee injury exclusion applies to injuries to employees of “the insured.” The Action Over Exclusion, however, barred coverage for lawsuits stemming from injuries to an employee of “the named insured.” Century maintained that the named insured was the window washing company, and the deceased worker was an employee of that named insured, and the exclusion would apply. Starwood Hotels argued that the named insured referred to the party being sued – in this case, Starwood. Using this construction, the deceased employee was not an employee of Starwood, and so the exclusion should not apply.
Those Named In A Lawsuit
Under the separation of insureds provision, “the insured” must be read as applying to the party being sued, and a reference to the employees of the insured would be a reference to the employees of the party being sued. However, a reference to “any insured” would be read as referring to all the insureds (and therefore the employees of all the insureds). The Court determined that the meaning of “the named insured” was even more specific, and applied only to the window washing company named as the policyholder. As a result, Starwood was not entitled to insurance coverage because they were not the named insured.
Cases Like This Happen Often With Different Decisions Being Made
These decisions may seem like they turn on small nuances of language and meaning. That’s because they do! Million-dollar cases are decided on the basis of an “and” versus an “or” or a “the” versus an “an”. It highlights the need for risk managers to understand their policies fully to know what exclusions will apply to them to them in different situations and which exceptions may be applicable.