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