Tendering a claim to another party's insurer

To tender a claim means to send a written demand to another party, and to that party's liability insurer, asking them to take over your defense and pay any resulting loss because a contract or an insurance policy makes them responsible. It is how a general contractor, landlord, vendor or property owner shifts a lawsuit onto a subcontractor's, tenant's or supplier's insurance. Done early and correctly, it can move the defense bill and the settlement off your own policy; done late or to the wrong party, it can forfeit the right.

Tender is different from simply giving your own insurer notice of a claim (see notice of claim and late notice: why timing matters). You do both.

The two routes to someone else's policy

1. Additional insured status. A contract often requires the other party to name you as an additional insured on its commercial general liability policy. If the policy has an endorsement that covers you, you are an insured, and you can tender directly to that insurer for a defense and coverage. ISO's common endorsements include CG 20 10 (ongoing operations for a scheduled person or organization), CG 20 37 (completed operations), CG 20 26 (designated person or organization), CG 20 11 (managers or lessors of premises) and CG 20 15 (vendors). The wording differs by edition and carrier. Many current editions cover liability for injury or damage caused, in whole or in part, by the named insured's acts or omissions in the ongoing work, and limit coverage to what the contract requires. See additional insured endorsements explained.

2. Contractual indemnity. The contract may also contain an indemnity or hold harmless agreement under which the other party promises to defend and pay for claims arising from its work. That promise is the party's own obligation; the party's liability insurer may cover that assumed liability under the CGL's "insured contract" provision. See indemnification and hold harmless clauses and your insurance and contractual risk transfer: shifting liability by contract and insurance. Under the standard CGL form's Supplementary Payments section (CG 00 01), the insurer may also defend an indemnitee named in the same suit if listed conditions are met, including that the indemnitee agrees in writing to cooperate, send papers, notify other insurers and authorize the insurer to control the defense, and that no conflict appears between the insured's and the indemnitee's interests. Confirm the conditions in the actual policy.

The two routes are separate. Additional insured coverage protects you from your own liability under the other party's policy. Indemnity makes the other party pay for what it agreed to, which the other party's insurance may then fund. Tender under both, since either may fail on its own facts.

Reading the contract clause

Say a subcontract contains this clause (a hypothetical):

"Subcontractor shall, to the fullest extent permitted by law, defend, indemnify and hold harmless Contractor and Owner from claims for bodily injury or property damage arising out of the Work. Subcontractor shall maintain commercial general liability insurance of $1,000,000 per occurrence naming Contractor and Owner as additional insureds on a primary and non-contributory basis, including completed operations for three years after completion."

• "To the fullest extent permitted by law" acknowledges state anti-indemnity statutes. Texas Insurance Code chapter 151 and New York General Obligations Law section 5-322.1 are examples of laws limiting construction indemnity for a party's own negligence. A tender can succeed on additional insured status even where the indemnity is cut back.
• "Defend" is a separate obligation from "indemnify." Defense is owed from the start of a suit; indemnity depends on the outcome.
• "Arising out of the Work" is broad, but the insurer will compare it with its policy's trigger, such as damage caused in whole or in part by the subcontractor's acts.
• "Additional insureds on a primary and non-contributory basis" is what lets you demand the subcontractor's policy respond first, ahead of your own; see primary and noncontributory wording in contracts and other insurance clause.
• "Including completed operations" matters for claims that arise after the work is finished.

A certificate of insurance is not the coverage. Ask for the endorsements and a copy of the policy; see certificates of insurance: what they prove and what they do not.

What a tender letter contains

1. Who you are and the contract basis: contract name and date, the indemnity and insurance sections, and, if known, the policy number.
2. The claim: the lawsuit or demand with copies of the complaint, summons and any correspondence, and the deadline to respond.
3. The demand: that the party and its insurer accept your defense and indemnity, as an additional insured and under the indemnity clause, and appoint or reimburse defense counsel.
4. A request for a written response within a stated time, and for a certified copy of the policy and endorsements.
5. A reservation of rights: your rights under the contract and the law are preserved, and you will continue to defend yourself and your own insurer will participate until the tender is accepted.
6. A request to notify other insurers (umbrella and excess).

Send it to the other party's registered contact, its insurer's claims address, the broker who issued the certificate and your own broker. Use a method that proves delivery. Keep a record of every follow-up.

Why timing matters

Tender early. Many courts treat the duty to defend as beginning on tender, and they have held that an insurer need not reimburse defense costs you paid before tendering, though courts differ and some require the insurer to show prejudice. Missing a response deadline in the lawsuit, or letting your own coverage lapse into late notice, makes a bad situation worse. Continue defending yourself and notify your own insurer at the same time.

What the answers look like

Common reasons for denial: the endorsement covers only ongoing operations, not completed work; the claim stems from your sole negligence and a statute limits the indemnity; the endorsement requires the injury to be caused by the named insured; the policy limits are exhausted; or the other party never obtained the insurance. If the other party failed to buy the required insurance, that can be a breach of contract claim by itself.

A hypothetical example

Say a general contractor (General contractor insurance) is sued by a drywall subcontractor's employee who was hurt on a job site. The subcontract required additional insured status on a primary and non-contributory basis. The contractor tenders the same day to the subcontractor and to its CGL insurer, with the contract pages and complaint, and notifies its own insurer. The subcontractor's carrier accepts the defense as to the contractor under a reservation of rights. The contractor's own carrier then stands behind as excess for that loss, which can keep the claim off the contractor's own loss history and limits. If the carrier had denied, the contractor would press the denial with the endorsement in hand and consider a coverage action. The facts are made up for illustration.

For the insurer's side of defense obligations, see the insurer's duty to defend: what triggers it and when it ends; for the sort of requirements to put in subcontracts, see managing subcontractor insurance and certificates.

Key takeaways

• Tender goes to the other party and its insurer, under two routes: additional insured status and contractual indemnity. Use both.
• Send it the day you receive the claim, in writing with the contract, complaint and deadlines, and keep proof of delivery.
• Keep defending yourself and keep your own insurer informed until the tender is accepted.
• Read the endorsement: ongoing versus completed operations, "caused in whole or in part" language and contract limits control what the other insurer owes.
• A certificate of insurance is not coverage; get the endorsements, and know your state's anti-indemnity rules.