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Are You an Insured? Third-Party Relationship to the Insurance Contract - Insurance Coverage

Insurance Coverage

Posted on: Jun 18, 2018
By Robert S. O'Dell, O'Dell & Associates PC
Previously, we summarized the case law relating to whether a person is an insured under the terms of the policy itself, in a first-party relationship to the contract. In those instances, the insured was either named in the policy or was an insured by definition under that policy based upon a relationship to the named insured. Here, we will examine how a person could be insured under the policy when that person does not meet one of those two previously discussed policy definitions of insured. 
A third way a person may be added to the policy would be as an “additional insured.” This method is often completed through an endorsement which also may limit the extent of coverage. Many times in leases and construction agreements, an insured is contractually obligated to insure another party. This duty may be accomplished by listing or naming the additional party as noted previously, or through a broader additional insured endorsement to the policy (which may include its own special limitations, exclusions or conditions to coverage for the additional insured). In landlord cases where the coverage must be “arising out of” the use of the property, it has been held that more than an incidental connection with the insured property is required to obtain coverage under an additional insured endorsement. Liberty Mutual Insurance Company v. Michigan Mutual Insurance Company, 891 N.E.2d 99, 104 (Ind.App. 2008).  
A certificate holder, however, is not an “additional insured” unless the certificate specifically states such.  
A certificate of insurance is not a contract for insurance, but merely a document to provide third-parties with information relating to the coverage provided to an insured.  Most certificates indicate that they are for informational purposes only, while some do specifically state that the certificate holder is intended to be an additional insured under the policy.  Such descriptions contained in the Certificate of Insurance will be critical in determining whether any coverage is afforded.  An additional insured should verify that the policy itself lists it as an additional insured to confirm the coverage sought, as accepting the Certificate of Insurance without listing the additional insured status could be viewed as a waiver by the additional insured.  
9 Couch on Insurance § 126:7.  
A Certificate of Insurance may be for informational purposes only. National Union Fire Insurance Co. v. Glenview Park Dist., 594 N.E.2d 1300 (Ill.App. 1992); SLA Property Management v. Angelina Casualty Co., 856 F.2d 69 (8th Cir. 1988); Mercado v. Mitchell, 264 N.W.2d 532 (Wis. 1978); Moleon v. Kreisler Borg Florman General Construction Co., Inc., 758 N.Y.S.2d 621 (2003). “Ordinarily, ‘the presentation of a certificate alone does not create coverage or legal duties.’" G.E. Tignall & Co., Inc. v. Reliance Nat’s Ins. Co., 102 F.Supp.2d 300, 304 (D.Md. 2000).” American Family Insurance Company v. Globe American Casualty Company, 774 N.E.2d 932, 939 (Ind.App. 2002). “[T]he purpose of issuing a certificate of insurance is to inform the recipient thereof that insurance has been obtained; the certificate itself, however, is not the equivalent of an insurance policy.” Globe, supra; Postlewait Construction Co. v. Great American Insurance Co., 720 P.2d 805, 807 (Wash. 1986). “[A] certificate of insurance cannot contradict the terms of a policy.” Globe, supra. “Insurance certificates are documents issued by or on behalf of insurance companies to third parties who have not contracted with the insurer to purchase an insurance policy.” Windt, Insurance Claims and Disputes, 5th Ed., § 6:37A. A “certificate of insurance” is a form that is completed by an insurance broker at the request of an insurance policyholder, which evidences the fact that an insurance policy has been written; it includes a statement of the coverage of the policy in general terms. Marlin v. Wetzel County Board of Education, 569 S.E.2d 462 (W.Va. 2002). A certificate of insurance is only evidence of insurance coverage. Seal v. Hart, 50 P.3d 522 (Mt. 2002); General Accident Insurance Company of America v. American National Fireproofing, Inc., 716 A.2d 751 (R.I. 1998); Marlin, supra. A certificate of insurance is not a separate and distinct contract for insurance. General Accident, supra; Marlin, supra; Robert McMullan & Son, Inc. v. United States Fidelity & Guaranty Co., 162 Cal.Rptr. 720 (Cal.App. 1980). A certificate of insurance is not a part of the insurance contract. Marlin, supra. A certificate of insurance does not confer coverage, and is only evidence of an insurer’s intent to provide coverage; it is not a contract to insure the designated party nor is it conclusive proof that a contract exists. Tribeca Broadway Associates, LLC v. Mount Vernon Fire Insurance Company, 774 N.Y.S.2d 11, 13 (2004). A certificate of insurance issued for information only is insufficient to establish an additional insured under a policy, especially where the policy itself makes no provision for coverage. Moleon, supra.  
In Pekin Insurance Company v. American Country Insurance Company, 572 N.E.2d 1112 (Ill.App. 1991), the court addressed a situation in which a general contractor and its insurer brought an action against a subcontractor’s insurer to accept the defense of a lawsuit by the subcontractor’s employer based upon a certificate of insurance. A certificate of insurance was issued “as a matter of information only.” Id., at 1112-1113 and 1114. This language in the certificate of insurance confirms that the certificate is not a part of the policy, and it conveyed no rights to the certificate holder. Id., at 1114.  This language also advised the contractor “certificate holder that it had to look to the policy to determine the extent of coverage as well as any existing exclusions.” Id. Any contract for which the certificate was issued was subject to all the terms, exclusions and conditions of such policies. Id., at 1114-1115. The certificate only served to inform the certificate holder that it had the insurance coverage subject to all of the terms and exclusions within that policy, such that there is no conflict between the certificate and the policy. Id., at 1115. This holding was entered even though the certificate named the contractor as an “additional insured.” 
When a certificate of insurance is issued for informational purposes, no coverage us created by the certificate and the recipient is on notice that coverage afforded by the policy might be different than that stated in the certificate. TIG Insurance Co. v. Via Net, 178 S.W.3d 10, 18-20 (Tex.App. 2005). An insurer has no obligation to notify a certificate holder of any change in status of the policy, including the expiration of the policy. Mountain Fuel Supply v. Reliance Insurance Co., 933 F.2d 882, 890 (10th Cir. 1991); Insurance Co. of North America v. Aberdeen Ins. Services, Inc., 253 F.3d 878 (5th Cir. 2001).    
Fourth, in a similar fashion, a person may be treated as an insured where he has a third-party beneficiary interest in the policy. “The intent of the contracting parties to bestow rights upon a third party ‘must affirmatively appear from the language of the instrument when properly interpreted and construed.’” OEC-Diasonics, Inc. v. Major, 674 N.E.2d 1312, 1315 (Ind. 1996).  The OEC Court found no third party beneficiary status where the third party was not mentioned in the agreement. Id. The intent of the contracting parties to benefit the third party is the controlling factor. National Board of Examiners for Osteopathic Physicians & Surgeons, Inc. v. American Osteopathic Association, 645 N.E.2d 608, 618 (Ind.App. 1994). Such intention may be demonstrated by naming the third party. Id. The necessary intent is an intent that the promising party or parties shall assume a direct obligation to him. Id. The intent must affirmatively appear from the language of the instrument. Evan v. Poe & Associates, Inc., 873 N.E.2d 92, 98 (Ind.App. 2007). Intent may be shown by naming a specific third party. St. Paul Fire & Marine Insurance Co. v. Pearson Construction Co., 547 N.E.2d 853, 856 (Ind.App. 1989).  Naming an entity as an additional insured on the policy evinces an intention to render a direct benefit to that party. Rollins Burdick Hunter of Utah, Inc. v. Board of Trustees of Ball State University, 665 N.E.2d 914, 923 (Ind.App. 1996).  
To enforce a contract as a third-party beneficiary, the third party must show:
  1. A clear intent by the actual parties to the contract to benefit the third party;
  2. A duty imposed on one of the contracting parties in favor of the third party; and
  3. Performance of the contract terms is necessary to render the third party a direct benefit intended by the parties to the contract.
Eckman v. Green, 869 N.E.2d 493, 496 (Ind. Ct. App. 2007) (quoting Lunhow v. Horn, 760 N.E.2d 621, 628 (Ind. Ct. App. 2001)), trans. denied.
Celadon Trucking Servs., Inc. v. Wilmoth, 70 N.E.3d 833, 844 (Ind. Ct. App. 2017), transfer denied, 2017 WL 2258769 (Ind. May 18, 2017)
One not a party to an agreement may nonetheless enforce it by demonstrating that the parties intended to protect him under the agreement by the imposition of a duty in his favor. To be enforceable, it must clearly appear that it was the purpose of a purpose of the contract to impose an obligation on one of the contracting parties in favor of the third party. It is not enough that performance of the contract would be of benefit to the third party. It must appear that it was the intention of one of the parties to require performance of some part of it in favor of such third party and for his benefit, and that the other party to the agreement intended to assume the obligation thus imposes.
OEC-Diasonics, Inc. v. Major, 674 N.E.2d 1312, 1315 (Ind. 1996).  
Fifth, a person may be insured under the policy if he has an interest in the property, such as a mortgagee, contract seller or other interest. Almost all homeowner’s policies contain a mortgagee clause, and many other policies contain coverage for third-party or additional interests.  
Most homeowner's policies contain a “standard” or “union” mortgage clause. “[I]f the mortgagee is listed under a New York, or standard, or union, mortgage clause, it is universally held that the mortgagee has entered into a separate contract with the insurer and is entitled to payment regardless of the mortgagor's acts or omissions.” Property Owners Insurance Co. v. Hack, 559 N.E.2d 396, 400 (Ind.App. 1990); Federal Nat. Mortgage Association v. Great American Ins. Co., 300 N.E.2d 117, 119 (Ind.App. 1973). An insurer “will not be permitted to defeat a recovery by proving the existence of such an incumbrance as would render the policy void, where it had full knowledge of the incumbrance when the policy was issued by it.” German-American Ins. Co. of New York v. Yeagley, 71 N.E. 897, 899 (Ind. 1904).  
In addition, Indiana law appears to legally imply the contract with the mortgagee under equity.  The “mere existence of the duty [to insure for the benefit of the mortgagee] is sufficient to impress upon the proceeds of any policy taken out by the mortgagor an equitable lien in favor of the mortgagee.” Lakeshore Bank & Trust Company v. United Farm Bureau Mutual Insurance Company, Inc., 474 N.E.2d 1024, 1026 (Ind.App. 1985); Marling Family Trust v. Allstate Ins. Co., 981 N.E.2d 85, 89 (Ind. Ct. App. 2012). Equity will treat as being done that which should have been done. Id. “Once the insurer has notice of the mortgagee's rights it is considered to have a duty to treat the proceeds of the policy as though the provision that the proceeds should be payable to the mortgagee were written into the policy.” Lakeshore, supra, at 1026; Marling, supra, at 90. After notice is given, Lakeshore explains, an insurance company becomes “accountable to [the mortgagee] for the disposition of the proceeds.” Lakeshore, supra, at 1027; Marling, supra, at 90.
Coverage under the mortgagee clause is not always limited to a mortgagee. Under Prop. Owners Ins. Co. v. Hack, 559 N.E.2d 396 (Ind. Ct. App. 1990), contract sellers were determined to be analogous to mortgagees for purposes of recovery of insurance proceeds. The Court went on to find that a mortgagee's interest in insurance proceeds is limited to the extent of the debt secured by the property. Hack, supra, at 400.  Contract sellers would also be entitled to recover proceeds equal to the amount due on the contract, subject to the policy's limits of liability. Id.  
Thus, in addition to being named in the policy or an insured by definition, parties may also qualify as an insured if they are included in an endorsement, meet the requirements of a third-party beneficiary, or have a mortgagee type interest.


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