Insurance Marketplace Realities 2026 – The power of clarity — Why the words matter — Vol. 2

“Who is an insured?” is not just a section heading in most liability policies, but also a fundamental question at the heart of an initial coverage analysis. Consideration of what entity or organization an insurer owes coverage to is essential to policy review and analysis of a potential or actual claim. This wording is the proverbial entryway into the four corners of the policy: get it wrong and you are locked out. Yet, subtle policy language differences can impact the answer to the question, who is an insured?

In today’s corporate environment, it is commonplace for a parent company — often the First Named Insured on a policy — to have a multitude of interrelated subsidiaries and affiliates, many of which are not wholly-owned, including joint ventures and limited liability companies (LLC). These complex corporate structures can make it difficult to discern what entities are insured by a liability policy, especially in light of varying coverage terms and endorsements. And particularly when considering coverage of limited liability companies and joint ventures, policy language must be carefully analyzed and compared to the actual corporate structure to ensure that coverage expectations are satisfied.

Central to the question of coverage is who is seeking it? Essentially, whether “you” are an insured is the first step of claim analysis: does the entity seeking coverage have the right to any coverage at all — that is a question that needs to be answered, even before the specifics of a claim are considered. Without clearing the hurdle of being an insured, a defendant facing a lawsuit cannot seek defense and indemnity from a carrier. Moreover, without confirmed insured status, many entities would be in breach of contractual obligations and would be forced to absorb the cost of claims onto their balance sheet. For these reasons, it is vital for corporate policyholders to analyze their liability insurance program in light of their intricate corporate structure and coverage needs.

Examples of policy language

There is a standard provision in many primary and umbrella liability policies which states, “No person or organization is an insured with respect to the conduct of any current or past partnership, joint venture or limited liability company that is not shown as a Named Insured in the Declarations.” This language has two results. First, any partnership, joint venture, or LLC that is a separate corporate entity from the Named Insured is not a covered entity. Thus, if claims are asserted against such an entity, the policy will not provide defense or indemnity. And second, even the First Named Insured is not covered for liability arising from the conduct of such an entity. So, if the First Named Insured is sued based on the actions of a joint venture or an LLC, it will not have coverage for its own liability.

However, many policies utilize a “Broad Form Named Insured” endorsement, which are neither listed in the Declarations of the policy nor specifically scheduled by name. Under this endorsement, as long as the elements are satisfied, an entity is a “Named Insured” and entitled to full coverage rights under the policy. But the exact terminology is important. For example, some policies state that the following constitutes a Named Insured:

1. Any subsidiary or acquired company or corporation (including subsidiaries thereof) and any other legal entities (including joint ventures, limited liability companies and partnerships) in which:
   1. Any Insured named as the Named Insured on the Declarations Page has more than 50% ownership in; or
   2. Any Named Insured or its subsidiaries have the written contractual responsibility of placing insurance for each such entity; or
   3. Any Named Insured or its subsidiaries exercise management or financial control.

Based on the above, any of a., b., or c. satisfy the definition. And c. actually includes two options: management or financial control by a Named Insured or its subsidiaries. Thus, any entity, including a partnership, joint venture, or LLC, will be an insured as long as one of these elements is met.

Conversely, some Broad Form Named Insured endorsements look similar to the above, but they in fact require both management and financial control, or even management control, financial control, and a contractual obligation to place insurance. This is potentially a significant difference, if a legal entity is majority-owned but not managerially controlled by the First Named Insured.

And in fact, some carrier endorsements are even broader, providing Named Insured status to:

Any organization, partnership, joint venture or limited liability company that has an ownership interest in a scheduled premises or project to which this insurance applies and does not qualify as a Named Insured under [other provisions], but only with respect to liability for such ownership interest in the scheduled premises or project.

We can see how much more expansive this language is — an entity that only partially owns a scheduled project or location, even if it is a minority share, is a full Named Insured under the policy. The limitation at the end of the provision above prevents that entity’s other exposures from being covered under the policy. So, if this provision is included in a Broad Form Named Insured endorsement, all owners of projects will understand that they are covered for losses arising out of those projects — even if they are minority owners, and even if they are not subsidiaries of the First Named Insured.

Potential implications

The failure to secure an expansion of the Named Insured definition can have significant implications, especially for entities where regular operations are not conducted in the name of the First Named Insured parent company. For example, a real estate owner may have a parent Holdco as the First Named Insured, with each property owned by a separate LLC, which LLC is ultimately (that is, indirectly) owned by the Holdco. If the Holdco is sued based on its own alleged fault, there are no issues as the Holdco is the First Named Insured — coverage will be afforded. But, what if the Holdco is sued based on the actions of the immediate property owner LLC? Or, if the immediate property owner LLC is named in the suit? Without a Broad Form Named Insured endorsement added onto the traditional GL policy, and assuming the LLC is not specifically scheduled as a Named Insured, then the base form language will apply: “No person or organization is an insured with respect to the conduct of any current or past partnership, joint venture or limited liability company that is not shown as a Named Insured in the Declarations.”

These potential issues go even further when considering the rights afforded to Named Insureds to extend additional insured status by contract. Consider a situation where an LLC agrees by written contract to add one of our clients as an additional insured on the LLC’s general liability policies, which policies typically allow additional insureds to be added where required by written contract with a Named Insured. Our client will be counting on that LLC’s liability coverage to respond with defense and, if necessary, indemnity in the event of a claim. And with the Broad Form Named Insured endorsement, the LLC as a Named Insured has the right to add the client as such an additional insured. However, in the absence of such endorsement, the LLC is not a Named Insured — and thus, it does not have the right to add contractual partners as additional insureds. Our client will not be entitled to coverage from the insurer, which will likely lead to additional litigation. Our client could be forced to sue the LLC for breach of contract, the LLC’s insurer for denying coverage and even the LLC’s parent company for its failure to ensure that the LLC and its contractual partner are covered by the policy. These issues present threats to business continuity, relationships with vendors, clients and partners, and increased costs to resolve claims.

These issues were thrown into stark relief in the insurance litigation that arose in the aftermath of the September 11 attack. At issue was whether the commercial general liability policy issued to First Named Insured "World Trade Center Properties LLC" also conveyed Named Insured status on subsidiary LLCs formed to lease the Twin Towers and other World Trade Center buildings. The subsidiary LLCs were obligated, by contract, to provide insurance coverage for various entities, including the Port Authority, which were to be added as additional insureds on the CGL policies. But these subsidiaries were not the First Named Insured, and the First Named Insured did not have a contractual relationship with the purported additional insureds. “The issues regarding the Port Authority's [ . . .] insurance status were vigorously litigated in motions and discovery proceedings and at conferences.” In re September 11th Liab. Ins. Coverage Cases, 243 F.R.D. 114, 117 (S.D.N.Y. 2007). Ultimately, what controlled the dispute was a Broad Form Named Insured endorsement that listed as named insureds:

World Trade Center Properties, LLC c/o Silverstein Properties, Inc. and any subsidiary company as now formed or constituted, and any other company over which the named insured has active control so long as the named insured or any subsidiary company has an ownership interest of more than 50% of such company.

Id. at 119-120. Because the LLCs were subsidiaries or controlled by First Named Insured World Trade Center Properties LLC, the federal court held that “the Broad Form Named Insured endorsement would give them ‘Named Insured’ status, which, in turn, would confer ‘Additional Insured’ status on the Port Authority.” Id. Coverage was confirmed by the carrier, and ultimately, the court.

Conclusion

As in all insurance coverage issues, there can be daylight between the understanding of the various parties — insured, broker and insurer — and what the actual terms of the policy provide. While the various Broad Form Named Insured endorsements can seem similar at first glance, minor but significant differences can lead to vastly different coverage conclusions. And a policyholder that assumes its corporate structure aligns with policy language without careful investigation could be faced with an unfortunate surprise.

For these reasons, it is important that brokers, policyholders and underwriters have a mutual understanding as to what coverage is intended, and what the terms of a liability policy provide as to what corporate entities are designated as insureds. As always, the devil is often in the details, and as this segment is titled, the words matter.