Leases, Additional Insured Clauses, Contractual Indemnity Provisions, and Malpractice Prevention

September 8, 2025

Even if the first three topics caused your eyes to glaze over, we hope the third caught your attention.

This article is designed for two basic audiences:

those who draft leases and other commercial agreements which include provisions calling for one party to name another as an additional insured under the first party’s insurance policies, or provisions requiring one party to indemnify another; and
those who end up litigating the meaning, and implications, of those same provisions.

Do You Really Understand What It Means To Name Someone As An Additional Insured?

Virtually every commercial lease, and many non-real estate related contractual agreements, contains a boilerplate clause which provides for one party to the agreement to name the other as an additional insured under the first party’s insurance policies. However, it has become apparent to us that, virtually universally, attorneys drafting these clauses have not reviewed the applicable insurance policy, and have never seen the proposed additional insured endorsement. Thus, despite, or perhaps because of, their ubiquity it appears that almost no one drafting these clauses actually understands their real world meaning or implications.

A Case In Point

This recently came home to us in a case involving the following basic facts: A Landlord leased commercial real property to a Tenant, and required the Tenant to name it as an additional insured under its insurance policies. Tenant dutifully named Landlord as an additional insured, under both its primary, and excess, insurance policies. Some time later, a visitor to the leased premises was severely injured, and rendered a quadriplegic. She sued both the Tenant, and the Landlord. The Tenant operated a small business in the leased premises, and had modest insurance coverage: $1 million on its primary policy and $5 million under its excess policy. The size of the claimed loss, however, was estimated at $20 to $50 million!

Discovery in the case was extensive, and as trial began to draw close, it became apparent that in any comparison of the relative culpabilities of the Tenant and the Landlord for the Plaintiff’s undeniably serious injuries, the Landlord was likely to bear most of the fault. The parties engaged in mediation, but no global resolution was achieved. As a result, the Plaintiff offered to settle with the Tenant individually, and for a sum within its gross coverage limits. In the face of its potential exposure at trial, the Tenant begged its insurers to settle it out. They refused.

Why, you ask? Because the Landlord was an additional insured, and under the terms of the involved policies, entitled to all of the same benefits, and consideration, under the those policies as the Tenant himself. The insurers could not settle on the Tenant’s behalf without obtaining a release and dismissal for the Landlord – a release and dismissal which was unavailable. They could not diminish the coverage potentially available to the Landlord in the event of a Plaintiff’s verdict by paying most, or all, of the coverage to the Plaintiff on behalf of the Tenant. They had an irreconcilable conflict of interest. Because they could not treat one insured better than another, and settle out the Tenant, the Tenant was stuck in the lawsuit.

The Lesson, The Trap, And The Solution

What is the lesson to be learned here – and the potential malpractice trap to be avoided?

First, avoid, if at all possible, having your client agree to name someone else as an additional insured under its insurance policies. By doing so you may be, unwittingly, creating a situation in which, if both parties are exposed to a third, your client may be unable to extricate itself because the carrier can only settle for all insureds, not just one.

Second, take the time to read and understand your client’s insurance policies. This will require you to actually obtain them. Your client’s broker is a great resource for this material, and can also help you with obtaining endorsements to the policies, if necessary. Why do you want to read the policy? Because most commercial general liability policies contain one, or the other, of the following:

an “Insured Contract” provision. In general terms, an insured contract provision requires the insurer to indemnify the insured against an obligation to pay damages by reason of the assumption of liability in a contract or agreement (an indemnity agreement), and “insured contracts” are defined specifically to include leases.

Such a provision does not identify the other party to the underlying contract or lease as an insured, but does provide coverage to the indemnitor for indemnity claims by the indemnitee. This is generally a good thing.

A provision that defines an “insured” to include lessors of real property. Typically, such a provision will read “Persons or organizations from whom you lease premises are insureds; but they are insureds only with respect to the ownership, maintenance or use of that particular part of such premises leased to you and only if you are contractually obligated to provide them with such insurance as is afforded by this contract.

However, no such person or organization is an insured with respect to any:

damages arising out of their sole negligence…”

Note that this provision is broader than the “insured contract provision in that it creates an actual insurer/insured relationship. Because this second type of insurance policy provision creates insured status for the other party to the contract, it could easily lead to the same result in the scenario above, in which the Tenant could not be settled out separately. This is not a good thing.

A third variant of this latter provision is a policy endorsement which names the other party to the contract or lease as a “named insured”. This is generally the result of an eager beaver insurance broker/agent being in the mix. This is always a bad thing, as it puts your client and the other party to the contract on exactly the same footing with the insurer, and eliminates the “damages arising out of their sole negligence” concept from the equation. The insurer is then irretrievably conflicted.

The penalty for making the other party to a contract an additional insured, an “insured”, or a “named insured”, could be that a judgment is entered against your client for a sum well in excess of its coverage, when the case against it could otherwise have been settled within those same limits. Your client’s damages – in his claim against you (and, perhaps, his broker) – as the draftsman/architect of his doom, will be for all damages assessed against him in excess of his coverage limits.

So, what is the solution to this problem? Assuming that the other party insists upon being insured, the easiest is to draft the contract not so that your client is obligated to name the other party as an additional insured under his policies, but to pay the premium for a policy carrying a specified coverage limit insuring the other party separately. Yes, this might result in slightly higher cost to your client, but it entirely avoids the conflict of interest created by additional insured, or worse “named insured” status, which prevents an insurer from settling out one insured while leaving the other exposed to the Plaintiff, and permits separate settlements, when available. A second step, after reading the policy covering your client, is to make sure that it does not contain a clause like that above, making the other party to the contract an insured by definition, and if it does so, obtaining an endorsement to the policy explicitly amending it so as to exclude such coverage.

Contractual Indemnity Clauses

Just like additional insured clauses, indemnity provisions are nearly universal in most commercial leases, and many other types of contractual arrangements. They go hand-in-hand with additional insured clauses, as the insurance is intended to provide a minimum guarantee that the indemnity obligation is enforceable. However, as with additional insured clauses, the fact that such clauses are so universal often means that they are included as a matter of course, and without much appreciation for the technical niceties which govern them. Inclusion of such provisions as a hum-drum routine, and without some thought, however, could have serious, adverse, consequences for one, or the other, of the parties to the agreement – or for you as their lawyer.

In California, the rules regarding such provisions are detailed and complex. A misstep in drafting can gut the effectiveness of the provision entirely. Or, it can result in the unintended imposition of burdens upon one party that will not become apparent until it is too late. Such burdens might include one party having to indemnify the other against consequences he neither understood he was binding himself to, nor subjectively intended to indemnify against, or not being indemnified against obligations he believed were covered by the indemnity provision.

A Continuing Saga

The Tenant in the case referenced above signed a lease, drafted by his Landlord’s attorney, which contained a provision that read essentially as follows:

Lessee shall indemnify and hold harmless Landlord from and against any and all claims arising from Lessee’s use of the Premises, or from the conduct of Lessee’s business or from any activity, work or things done, permitted or suffered by Lessee in or about the Premises or elsewhere and shall further indemnify and hold harmless Landlord from and against any and all claims arising from any breach or default in the performance of any obligation on Lessee’ s part to be performed under the terms of this Lease, or arising from any negligence of the Lessee, or any of Lessee’s agents, contractors or employees, and from and against any costs, attorney’s fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon.

Thus, distilled to its essence, this clause required the Tenant to indemnify the Landlord against any claim arising from the Tenant’s use of the premises, including claims arising from the Tenant’s negligence.

Predictably, the Landlord tendered a demand to the Tenant that it indemnify it against any loss resulting from a Plaintiff’s verdict in the quadriplegia case; it also filed a cross-claim in the pending case demanding both equitable indemnity and indemnity under the express provisions of the lease.

The Lesson Of California’s Law Regarding

Express Indemnity Provisions And Equitable Indemnity

As in most states, California follows more or less standard principles of equitable indemnity, under which a defendant who pays more than his share of a judgment in favor of a plaintiff can recover the excess payment from a co-defendant. A careful examination of the California case law, however, reveals that express contractual indemnity claims are generally pre-emptive of all equitable indemnity claims, no matter how denominated. (E.L White v. City of Huntington Beach (1978) 21 Cal. 3d 497; Maryland Casualty Co. v. Bailey & Sons (1995) 35 Cal. App. 4th 856). Thus, under the language of the lease referenced above, the Landlord’s equitable indemnity claims were ineffective, and all indemnity claims were governed solely by the language of the contract.

A second flaw in the indemnity language in the Tenant’s lease quoted above is that the lease contains no express obligation to indemnify the Landlord against the consequences of the Landlord’s own conduct. E.L. White (supra) stands for the proposition that, while the parties to an express indemnity provision may, if they use sufficiently specific language, create a duty on the part of the indemnitor to save the indemnitee harmless from the results of active negligence on the indemnitee’s part, in the absence of such language, the indemnity provision will be construed to provide indemnity only if the party to be indemnified has been no more than passively negligent. In other words, the Landlord, by virtue of the language of the lease provision drafted by its own lawyer was not entitled to indemnity against the consequences of its own conduct – either actively negligent or willfully wrongful. Given this assessment, any finding of active negligence on the part of the Landlord would absolutely preclude indemnity from the Tenant under the terms of the parties’ lease – even if under standard principles of equitable indemnity the Landlord would have been entitled to such relief.

The Solution To (Your Potential Malpractice) Problem

Again, if you are the Landlord’s attorney, and you drafted the contract in such a way as to preclude your client from obtaining indemnity rights because you drafted a broadly phrased, but non-specific, indemnity provision, you may want to “call the carrier”. The solution, draft the provision to clearly state that the indemnitor (here, the Tenant) will indemnify your client not just against the consequences of its own conduct, but also against any claim that your client itself was “actively” negligent or liable as a result of “willful conduct or misconduct”.

We know that some of you are thinking “No one will ever sign that”, or “but it’s unlawful to contract to be indemnified against willful misconduct. As to the first, we can only suggest that there are a plethora of California cases dealing with contracts where just such express indemnity clauses were executed by the parties. Equally, and contrary to popular belief, at least in California, such clauses are neither unlawful nor unenforceable.

Conclusion

We are all creatures of habit and routine. It is why we strive to create forms that we can repeatedly use for standardized transactions, so that each document is not a unique, one of a kind, creation. All we need to do is make case or client sensitive modifications to standardized forms. Habit and routine eliminate the need to critically think through each clause each time we prepare a document. Having done it once, we need not do so again.

When properly prepared the first time, such documents can streamline our drafting, and reduce the cost of legal services to our clients. But the starting point here is “when properly prepared the first time.” Uncritically including “boilerplate” “standard”, “routine”, language, perhaps borrowed from someone else’s work product (admit it, we’ve all “borrowed” language from someone else’s work because it sounded good) may be the road to disaster for both the client, and ourselves Certainly, when drafting additional insured or indemnity provisions it can be. Next time you are asked to draft, or review, a lease, think about whether you want to name, or be named as, an additional insured. Think about your client’s insurance policies and the coverages they afford – because they may afford more rights to the other party to the contract than you want to provide. Finally, think about what it is, exactly, your client is agreeing to indemnify, or be indemnified, against. Your own well being, and that of your client, may both be at stake.

Peter H. Cuttitta is an attorney practicing in California and Nevada, and is a principal in the Porter Simon law firm located Truckee, with offices in Reno and Tahoe City. He practices primarily in the areas of personal injury, accidents, insurance defense and other litigation matters. Peter may be reached at cuttitta@portersimon.com or www.portersimon.com.

The content contained and opinions expressed in this blog are solely those of the author. This blog contains content and opinions concerning the law generally, and is not intended to constitute legal advice or to create any attorney‑client relationship with the reader. The reader should consult with an attorney about any specific legal issues prior to embarking on any course of action or inaction involving legal matters. The author makes no claims, promises or guarantees about the accuracy, completeness, or adequacy of the contents of this blog and expressly disclaims liability for any errors and omissions.