Yet ANOTHER Disappointed “Additional Insured”

The retail giant Costco joined the ranks of disappointed “Additional Insureds” the other day in a California Court of Appeals case, Costco Wholesale Corp. v. Tokio Marine and Nichido Fire Ins. Co. Ltd., which left Costco and its own insurers on the hook for a $5.5 million personal injury settlement.

When Costco decided to carry Yokohama tires, it prudently required Yokohama to make Costco an “Additional Insured” under Yokohama’s general liability policy. Because Yokohama’s policy had a “Blanket” Additional Insured endorsement, which made any Yokohama vendor an Additional Insured “where required by contract,” Costco was an Additional Insured.

For a while—but not long enough.

Regrettably for Costco, Yokohama’s contractual obligation to make Costco an Additional Insured terminated when Costco terminated the Costco-Yokohama contract. Thus, when four years after the contract termination, a Costco-sold Yokohama tire failed, resulting in catastrophic personal injuries, Costco was no longer an Additional Insured. The fact that Costco had been an Additional Insured when the tire was sold was, of course, irrelevant, as the occurrence-based CGL is (generally speaking) triggered only when the “bodily injury” or “property damage” takes place within the policy period. The date of the alleged negligent act or omission is (generally speaking) irrelevant.

As we have observed before, fanatical attention to detail, and ceaseless vigilance, are required to avoid “Additional Insured” heartache.