Our good friend, Christopher Boggs, Chief Marketing consultant with Boggs Danger and Insurance coverage Consulting, returns to answer an ideal remark left on his current submit. He’ll let you know extra under. Completely satisfied studying.

A number of days in the past I printed an article entitled, “Banks Ought to NOT be Asking for Further Insured Standing.” On this article I argued that banks ought to NOT be requiring further insured standing on the borrower’s legal responsibility coverage as a situation of the mortgage.

After a number of makes an attempt at posting this text in numerous areas I lastly acquired a response from a celebration defending a financial institution’s request to be a further insured. The response learn:

Lenders have deep pockets so are sometimes named, whether or not rightly or not, as co-defendants together with the borrower when somebody suffers harm or injury due to the borrower’s operations. This may be a problem notably within the context of loans secured by actual property. As a result of the lender is at arm’s size from management, you might be proper that they shouldn’t be implicated, however usually they get dragged in anyway. Having further insured standing helps tackle protection expense till the lender can get dismissed. The borrower might be obligated to indemnify the lender anyway, so this isn’t as misdirected as you counsel.

I’m so blissful to lastly have somebody provide an opinion. Whereas I believe this can be a nice level, sadly, this opinion doesn’t provide legitimate reasoning for extra insured standing. It is a cause with out impact.

ISO’s business common legal responsibility (CGL) coverage extends insured standing to 3 “ranges” of insureds inside the coverage language:

Named Insureds: Granted the broadest protection
Prolonged Insureds: Usually these pure individuals who personal and/or run the enterprise akin to administrators, officers and LLC managers/members.
Automated Insureds: These are mostly the individuals who truly do the work of and supply the companies/merchandise of the enterprise akin to staff and volunteers.

Past these, the coverage permits for the inclusion of “further insureds” by endorsement. Further insureds, as said within the prior article, are these with an ongoing enterprise relationship (normally created by contract) or a symbiotic relationship with the insured.

Banks, as beforehand said, maintain neither of those relationships.

However the one that responded to and commented on the prior article talked about that regardless that banks don’t have both of those relationships, they could get pulled right into a go well with and thus must be further insureds.

Whereas it could be true {that a} lender could also be improperly pulled right into a go well with, this rivalry forgets one key ingredient of ISO’s CGL. Not solely does the CGL prolong protection to the beforehand referenced insureds, the coverage additionally extends safety to contractual indemnitees.

Paragraph 2 in SUPPLEMENTARY PAYMENTS – COVERAGES A AND B reads:

If we defend an insured in opposition to a “go well with” and an indemnitee of the insured can also be named as a celebration to the “go well with”, we’ll defend that indemnitee….

Standing as an indemnitee is created by the provisions of the mortgage paperwork and the inclusion of an indemnity settlement. Further insured standing is NOT required for the financial institution to garner protection and safety from the insurance coverage provider.

If the financial institution actually believes it has an publicity, such publicity must be managed by way of contractual threat switch and the indemnity provisions that requires the borrower to indemnify, defend and maintain the financial institution innocent within the occasion they’re pulled (even wrongly) right into a go well with. That is the suitable technique for the financial institution to handle this potential.

Further insured standing must be restricted to ONLY these events with an ongoing enterprise/contractual relationship with the named insured or these with a symbiotic relationship. Solely these events having such a relationship with the insured have TRUE vicarious legal responsibility for the actions of the named insured.

Insurance coverage insurance policies are NOT supposed to perform a purpose that’s significantly better achieved by contract and contractual threat switch. Insurance coverage is barely a financing mechanism; contracts and contractual threat switch is the first supply for managing and transferring threat. The unendorsed CGL helps the right use of contractual threat switch.

To this point, nobody has supplied a viable cause a financial institution must be granted further insured standing as a requirement for a mortgage. However I’m nonetheless involved in opinions.