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Competing Insurance and Indemnity Clauses

Traditionally, courts resolve disparities in contracts using a holistic approach in

which each clause of the contract aids in the interpretation of the others so as to ascertain
the true intent of the parties.1 In commercial contracts containing ambiguous and
seemingly competing indemnification and insurance clauses, courts applying the
traditional rule frequently concluded that the indemnification clause controlled the
insurance clause.2 Despite this uniformity, a growing number of jurisdictions have
adopted an arguably different standard in the interpretation of competing indemnification
and insurance clauses.3 While significant vestiges of the traditional rule remain, some
jurisdictions now construct indemnification and insurance clauses as independent from
one another in the absence clear and unambiguous language to the contrary.4

Under this independent approach, parties who intend for an additional insureds
coverage to apply only to the extent as required by the indemnification clause must
include such limiting language in the applicable insurance clause of the contract even if
the language in the indemnification clause is otherwise unambiguous.5 Absent such
language in the insurance clause, courts are increasingly likely to extend coverage for the
additional insured beyond that contemplated within the scope of the indemnification
clause (i.e. sole negligence).6 While courts have never specifically stated what language
is sufficient to establish a link between the indemnification clause and the insurance
clause, commentator suggest that the insurance clause specifically state: the additional
insureds rights to coverage is limited to any obligation of the other party to indemnify it
under the contract.7

It is important to note that even if the insurance clause of the contract contains
sufficient limiting language, courts may still extend coverage for additional insured
beyond that contemplated in the indemnification clause if the executed insurance policy
does not mirror the limitations set forth in the insurance and indemnification clauses of
the original contract.8 Just as courts are becoming increasingly likely to consider
indemnification and insurance clauses within a contract as independent from one another,
courts have shown a willingness to consider a contract and the resulting insurance policy
as independent from one another.9 As such, when a contract limits an additional insureds
coverage to the scope contemplated by the indemnification clause, but this same
limitation is not unambiguously stated in the insurance policy, the policy controls and the
additional insureds rights maybe extended beyond those articulated in the underlying

As a result of this recent trend, drafting parties wishing to avoid extending

liability of additional insureds beyond that contemplated in the indemnification clause,
should: (1) unambiguously state in the insurance clause that the additional insureds
rights to coverage is limited to any obligation of the other party to indemnify it under the
contract, and (2) adopt identical limitations in the language of the resulting insurance


See generally Eric A. Posner, The Parole Evidence Rule, The Plain Meaning Rule, and the Principles of
Contractual Interpretation, 146 U. Pa. L. Rev. 533 (1988).
See Hartford Cas. Ins. Co. v. Mt. Hawley Ins. Co., 123 Cal.App.4th 278 (Cal. App. 2004); Rossmoor
Sanitation, Inc. v. Pylon, Inc. 13 Cal.3d 622 (Cal. 1975) (holding indemnity provision would be essentially
negated if recovery for sole negligence was permitted under insurance provisions); Wal-Mart Stores, Inc. v.
RLI Ins. Co., 292 F.3d 583 (8th Cir. 2002) (holding the indemnity agreement controls the outcome, not the
other insurance clauses); Lloyds v. Travelers Prop. & Cas. Co., 189 F. Supp.2d 630 (S.D. Tex. 2002);
Chubb Ins. Co of Canada v. Mid-Continent Cas. Co., 982 F. Supp. 435 (S.D. Miss. 1997); J. Walters
Constr. Inc. v. Gilman Paper Co., 620 So.2d 219 (Fla. App. Ct. 1993); Truck Ins. Exchange v. Liberty Mut.
Ins. Co., 428 N.E.2d 1183 (Ill. App. Ct. 1981); See generally, Randall L. Smith & Fred A. Simpson, Excess
Other Insurance Clauses And Contractual Indemnity Agreements Shifting An Entire Loss To A Particular
Insurer, 30 T. Marshall L. Rev. 215 (2004).
See Hartford Cas. Ins. Co. v. Mt. Hawley Ins. Co., 123 Cal.App.4th 278, 289 (Cal. App. 2004) (holding
courts will assess whether the factual circumstances create a relationship between the indemnity [clause]
and insurance [clause]); Travelers Cas. & Surety Co. v. American Equity Ins. Co., 93 Cal.App. 4th 1142,
1154 (Cal. App. 2001). See also OneBeacon Ins. Co. v. Pankow Res. Builders, No. A124986 (Cal. App.
See Infra Note 4.
See Shell Oil Co. v. Nat. Union Fire Ins. Co., 44 Cal.App.4th 1633 (Cal. App. 1996), 44 Cal.App.4th
1663, 1637-43 (holding coverage extended to claims arising from additional insureds sole negligence). In
Shell, a company entered into a services contract with an engineering firm. Id. Contract required the
engineering firm to indemnify the company and obtain general liability insurance that would include the
company as an additional insured. Id. After a loss resulted from the companys sole negligence, the
company demanded coverage. Id. The court held that since the insurance clause of the contract did not
contain limiting language to bring it inline with the indemnity clause, the company could seek coverage
from the firm for its sole negligence. Id. at 1642-44. Hartford Acc. and Ind. Co. v. U.S. Natural Resources,
Inc., 897 F. Supp. 466, 468-70 (D. Or. 1995) (holding similarly, Nothing in [the] language, or in any other
provision of the policy, purports to provide any different coverage for additional insured persons than is
provided for the named insured). In U.S. Natural Resources, a company entered into a service contract with
a machinery firm. Id. The contract required the company to indemnify the engineering firm expect for
losses sustained due to the engineering firms sole negligence. Id. The contract also required the company
include the engineering firm as an additional insured under its general liability policy. Id. After a loss was
sustained due to the engineering firms sole negligence, the firm sought coverage under the companys
general liability policy. Id. The court determined that the plain language, without language to the contrary,
suggested that coverage was identical to that of the named insured. Id. at 471. See also e.g. McIntosh v.
Scottsdale Ins. Co., 922 F.2d 251 (10th Cir. 1993); Saavedra v. Murphy Oil U.S.A., Inc., 930 F.2d 1104,
1109-10 (5th Cir. 1991); Philadelphia Elec. Co. v. Nationwide Mut. Ins. Co., 721 F. Supp. 740 (E.D.Pa.
1989) (holding absent language in insurance clause limiting coverage, court will not infer such a
limitation). But see Hartford Cas. Ins. Co. v. Mt. Hawley Ins. Co., 123 Cal.App.4th 278 (Cal. App. 2004);
Rossmoor Sanitation, Inc. v. Pylon, Inc. 13 Cal.3d 622 (Cal. 1975); Wal-Mart Stores, Inc. v. RLI Ins. Co.,
292 F.3d 583 (8th Cir. 2002).
See Supra Note 4.
John Denton, Additional Insured: The Importance of Indemnity and Insurance Provisions in Contracts and
Policy Language, Marsh USA News and Insights.
See In re Deepwater Horizon, 710 F.3d 338, 341-43 (2013) (Opinion withdrawn and certified to Texas
Supreme Court) (holding insurance policy and not drilling contracts indemnity clause controlled
coverage). In Deepwater Horizon, the owners of an oil platform entered into a drilling contact with an oil
company; the contents of which specifically stated the oil company was to be named as additional insured
for liabilities assumed by the owners. Id. After the oil platform exploded, the oil company sought coverage
as an additional insured arguing, the insurance policies alone and not the indemnities detailed in the
Drilling Contract govern[the oil companys] rights as an additional insured, the thus the policy
provided direct liability coverage for the third party. Id. The court held that any limitations expounded in
the drilling contract were insufficient and only the policy could limit the scope of additional insured
status. Id. at 347, *17 (citing Pasadena Refining System, Inc. v. McCraven, 2010 WL 1338068 (S.D.Tex.


2010)); Evanston Ins. Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d 660 (Tex. 2008) (looking to
terms of insurance policy to determine scope rather than underlying service contract). In Atofina, the court
noted that if parties intended to limit the scope of the policy to the underlying service contract and option
was available at the time the policy was drafted. Id. at 667. Since the parties chose not to include such
limiting language in the policy, they waived any non-articulated limitations. Id. See also Shell Chemical
L.P. v. Discover Prop. & Cas. Ins. Co., 2010 W.L 1338086 (upholding policy limitations on additional
insured concurrent with service contract); Engineering & Const. Innovations, Inc. v. L.H. Bolduc Co., Inc.,
825 N.W.2d 695 (Minn. 2013) (holding additional insured could not seek coverage under policy containing
limitations similar to service contract).
See Supra Note 8
See Supra Note 8
See Transcontinental Ins. Co. v. National Union Fire Ins. Co. of Pittsburgh, 662 N.E.2d 500, 502
(Ill.App. 1996) (detailing appropriate limiting policy language). This insurance does not apply to: (a)
Liability arising out of the negligence of the additional insured. Id.