By Todd Rossi and Mark Mese

Almost everyone knows insurance policies provide a defense and indemnity for insureds, if the terms and conditions of the insurance policy are met. Insureds include named insureds, other insureds (as defined by the policy) or additional insureds as provided by endorsement. However, insurance policies may also provide payment and defense to others who are not insureds under the policies.

Most liability policies provide coverage to the insureds for liability when the insureds have contractually agreed to provide indemnity and/or defense to or party to a contract. A typical example of contractual indemnity coverage can be found in a construction contract to supply labor and materials related to electrical wiring in the construction of a home, office, pipeline or oil rig.
 

The insured electrical company enters into a contract with a general contractor which may contain language whereby the electrical subcontractor agrees to defend and indemnify the general contractor and/or the owner for damages arising out of, or related to, work performed by the electrical subcontractor.

The electrical subcontractor’s insurance policy will typically contain contractual indemnity coverage (“insured contract”) whereby the insurer agrees to indemnify the electrical subcontractor for claims related to his contractual liability to the owner and/or the general contractor if the electrician’s work causes damage on the construction project.

The coverage provided by contractual indemnity may be limited or quite broad depending on the language of the policy’s contractual indemnification coverage. It is interesting to note that many policies issued before the year 2000 may contain exceptionally broad coverage that may provide indemnity and/or defense for actions of an insured who has agreed to indemnify a party that took place many years ago. Very old policies or policy information can be found using insurance archeologist. This may be particularly important when a construction defect or some type of pollution has been caused by an insured who agreed to indemnify owners or general contractors many years ago. Contractual indemnity coverage has the advantage in some cases of avoiding disputes between various insurers over the ranking of insurance policies, i.e. when multiple insurers provide coverage and which insurer must defend or pay first.

Contractual indemnity coverage can exist even after an insured files bankruptcy. Contractual indemnity coverage is often provided in the body of the policy on a blanket basis, i.e. there is no need for a specific amendment or endorsement to an insurance policy to provide this type of coverage contrary to additional insured coverage, which often requires specific amendments or endorsements.

Contractual indemnitees and indemnitors should consider contractual indemnity as a mechanism to obtain defense and/or indemnity in addition to, or in the absence of, additional insured coverage.