CG 20 15–ADDITIONAL INSURED–VENDORS

(April 2019)

INTRODUCTION

The Insurance Services Office (ISO) CG 20 15–Additional Insured-Vendors endorsement provides products liability coverage for any entity listed on the endorsement schedule but only for named insured products that are sold or distributed by that entity. This is accomplished by making such parties additional insureds.

Examples:

Scenario 1: Amalgamated Ingestics distributes its popular Corndome Hot Air Corn Popper exclusively through Greatestmart Superstores. Amalgamated lists Greatestmart on CG 20 15–Additional Insured–Vendors included on its ISO CGL Coverage Form. Greatestmart is glad because it is sued by dozens of customers injured by Corndome plastic lids that shattered from the heat the corn popper generated.

Scenario 2: Greatestmart sends a loss notice to Amalgamated’s insurance company. Greatestmart asks to be defended and covered for a lawsuit brought by a person who purchased a LawnKleen rake and was seriously injured when the rake handle broke. Greatestmart expects to be defended and covered because it is listed as an additional insured on Amalgamated’s CGL coverage form. Amalgamated’s insurance company denies the claim when it learns that another company manufactured the LawnKleen rake.

CG 20 15–ADDITIONAL INSURED-VENDORS ANALYSIS

Section II–Who is an Insured

This endorsement amends Section II–Who is an Insured to include any party on the endorsement schedule as an additional insured. That party must be a vendor and the loss must arise out of the named insured's products that the vendor sells or distributes as part of its regular business.

The 04 13 edition adds two conditions to the endorsement which limit coverage.

1. This insurance provided for the vendor’s benefit is only to the extent that applicable laws permit.

Note: This is important because of anti-indemnification laws in various states that prohibit certain types of risk transfer. This limitation brings the policy into conformity with those laws.

2. There may be a contract or agreement that requires such coverage in favor of the vendor. In that case, this insurance is not broader than the coverage the contract or agreement requires.

Note: Additional insured status is normally provided because of contractual requirements. This policy should not provide more coverage than is actually required. This benefits both the named insured and the insurance company because it limits coverage to only that required.

Example: Grackle LLC sells parts to Mavis Manufacturing. Mavis uses those parts in several of its products. Mavis is a vendor for Grackle. Mavis requires that Grackle’s policy name it as an additional insured. The contract requires only coverage for bodily injury. Mavis is sued because of property damage that Grackle’s products cause. Mavis turns to Grackle’s carrier for coverage. Coverage is denied because the contract required only bodily injury coverage.

Added Exclusions

1. There are eight additional exclusions that apply to only this coverage. Insurance coverage that extends to the vendor does not apply:

a. To damages for bodily injury or property damage the vendor must pay because it assumed liability in a contract or agreement. This exclusion does not apply to the vendor's liability for damages it has without a contract or agreement.

b. For warranties the vendor made that the named insured did not authorize

c. For intentional physical or chemical changes the vendor made to the product

d. To repackaging. However, there is an exception. This exclusion does not apply to any unpacking the vendor did to inspect, demonstrate, or test and then repackage the product back into the original container. This exclusion does not apply even when the vendor substituted parts prior to repackaging but only if such a substitution was handled according to the manufacturer’s instructions.

e. If the vendor agreed to inspect, adjust, test, or service a product in the usual course of its business and failed to do so

f. When the vendor demonstrates, installs, services, or repairs. There is an exception. If the performance of these operations is in connection with the selling of the product and the operations take place while the products are at the vendor’s premises, there is coverage.

g. Products the named insured sold to the vendor for the vendor’s own use. This includes products that were labeled or relabeled. The exclusion also applies to products used as a container, part, or ingredient of anything else that belongs to the vendor.

h. For any bodily injury or property damage due to the vendor's sole negligence. This exclusion applies to the vendor's own acts or omissions and those of its employees and any other party that acts on its behalf. This exclusion has two important exceptions.

• The exceptions in exclusions d. and f. also apply to this exclusion. The exceptions in d. and f. are actions the additional insured takes and would be considered its sole negligence. However, those actions are covered because of this exception.
• Any actions the vendor takes while inspecting, adjusting, testing, or servicing the product are covered. This is provided that the named insured agrees to them in the contract with the named insured and they are part of the usual distribution process.

2. This insurance coverage does not apply to any person or organization that supplied such products to the named insured. It also does not apply to any ingredient, part, or container that becomes a part of such products, is sold with such products or has such products within it.

Section III–Limits of Insurance

This section revises Section III–Limits of Insurance with respect to the vendor as an additional insured. The limits provided to that additional insured are not the same as the limits available to the named insured. They are limited to the lesser of the following:

1. The amount of insurance the contract or agreement requires

2. The limit of insurance on the declarations that applies

Example: The contract between Grackle LLC and Mavis Manufacturing requires that Grackle name Mavis as an additional insured on its policy for $500,000. Grackle’s policy limits are $1,000,000/$2,000,000/$2,000,000. Mavis is sued because its products caused damage. Because part of the suit specifically addresses Grackle’s parts, Mavis sends the suits to Grackle and expects defense and compensation. Grackle’s carrier assesses the situation, realizes the serious nature of the situation, and offers the $500,000 limits in order to avoid protected defense costs. Grackle’s aggregate is reduced by $500,000 instead of the full $2,000,000 that would have been exposed without this condition.

The limits of insurance provided for the additional insured do not increase the limits of insurance on the declarations.