In a ruling earlier this month, an Oklahoma appellate court ruled in JP Energy Marketing LLC v. Commerce and Industry Insurance Co., No. 115285, 2017 WL 7903997 (Okla. Civ. App. March 01, 2018), that additional insured status would be afforded to a project owner despite the absence of a direct contract between the project owner and the subcontractor requiring that the project owner be named as an additional insured, finding that a direct contract was not required where the insurance policies did not use the words “between” or “direct” to describe the level of contractual relationship that would give rise to additional insured status. The decision underscores the importance of carefully evaluating the language used in “additional insured” provisions, which can vary widely in scope and effect.

For instance, some commercial general liability policies include additional insured clauses that qualify third parties as insureds under the policy, but only for liability resulting from the acts, omissions, or negligence of the Named Insured. These provisions typically require the existence of a separate contract requiring the third party to be named as an “additional insured.” In some instances these provisions are strictly worded to require a “direct contract” between the would-be additional insured and the Named Insured.

For example, in JP Energy Marketing, a general contractor, IPS, entered into multiple agreements with various subcontractors to complete the construction of a pipeline. These agreements required the subcontractors to carry liability insurance and name the project owner, JP Energy Marketing, as an additional insured on their policies. A fire occurred during construction and numerous property owners sued JP for the fire damage. JP sought a defense and indemnity from the subcontractors’ insurance carriers. The insurance carriers denied coverage to JP because the subcontractors did not have a direct contract with JP requiring JP to be an additional insured under their policies. The court found that while a direct contract would clearly have satisfied the contractual requirement in the different policies, a direct contract was not required since the policies did not contain an explicit requirement that there be an agreement that was “direct” as “between” JP and the subcontractor. Thus, it was sufficient that JP and the general contractor, IPS, entered into an agreement requiring the subcontractors to name JP as an additional insured, even if the agreement was not with JP directly.