Contracts record specific promises agreed to between parties. At best, contract negotiations can be time consuming, complicated and frustrating. Construction contracts are no exception. One of the promises that the parties make to each other is the kind and amount of insurance required for a construction project. Project owners will require contractors on a project to name the project owner as an additional insured on the contractor’s casualty insurance program (excluding workers’ compensation). General contractors will require subcontractors to do the same. It is very important that project owners and contractors alike -- ‘the parties’ -- understand the coverage provided by additional insured endorsements. It is equally important for the parties to understand what limitations or conditions are found in these endorsements.
Project owners request to be an additional insured on a contractor’s casualty program for several reasons, including but not limited to the following:
For these reasons, and others, project owners require additional insured status and other insurance coverage on a contractor’s casualty program. Contractors will also require similar coverage for tiers of contractors below them.
There are many types of additional insured endorsements available in the insurance market. However, this article will focus on four common ISO additional insured endorsements related to commercial general liability policies purchased by contractors. While the endorsements discussed are commonly found in the market, insurance companies may prefer to offer their own version of these endorsements. The additional insured endorsements that will be discussed are:
The first two ISO endorsements require specific information regarding the additional insured and the project. The third and fourth ISO endorsements are “blanket” additional insured endorsements and do not require specific information concerning the additional insured or project information be shown on the endorsements. Instead, they require a written contract to be in force which requires the additional insured status. We will reference the endorsement form numbers in this article.
This endorsement has changed significantly since the 1980s, and not for the better. The CG2010 additional insured endorsement has the following important characteristics:
While the coverage can be quite broad and beneficial to the additional insured, the endorsement is riddled with conditions, limitations and additional exclusions. A savvy project owner or general contractor may attempt to counter these conditions and limitations by telling the contractor the conditions and limitations are not permitted. However, it is unlikely that most of the insurance companies would (or could) change the endorsement. Therefore, all the project owner or general contractor accomplish is to potentially place the contractor in a breach of contract situation because the contractor cannot comply with the demand.
This endorsement contains the same limitations and conditions as the CG2010 EXCEPT that this endorsement insures the additional insured for completed operations of the contractor and not ongoing operations. This endorsement supplements the CG2010.
Therefore, if an additional insured requires additional insured status for the project, the contractor will need BOTH the CG2010 and the CG2037 endorsements in order to comply.
For example, ABC University is accepting bids from contractors to build a new student center. ABC University requests additional insured status on the commercial general liability policy from each contractor on the project which will insure ABC University during the construction phase and after the construction phase is completed. In this situation, the CG2010 (or its equivalent) would be required to insure for ongoing operations PLUS the CG2037 (or its equivalent) would be required to insure for completed operations once the work was completed.
This additional insured endorsement is a blanket additional insured endorsement and has the following limitations and conditions:
While this endorsement provides automatic coverage to additional insureds, there are still numerous conditions, limitations and exclusions. Additionally, since completed operations are not included in this endorsement, a second endorsement is needed to provide coverage for completed operations for the additional insured.
This endorsement is very similar to CG2033. The primary difference between these two endorsements is that CG2038 applies to a party or parties requiring additional insured status within a construction agreement that are not the actual contracting party with the contractor. In other words, the parties are referred to – but not specifically named – in the construction contract. These “silent” parties are referred to as “upstream parties.” As with the CG2033, additional insured coverage for these upstream parties is for ongoing operations only. Therefore, a second endorsement should be included that provides coverage for completed operations if required by the contract.
Additional insured endorsements, whether they are issued by ISO or by insurance companies using their own equivalent endorsements, are not as broad as they were years ago. These endorsements include limitations, conditions and additional exclusions that did not exist in the past. Project owners may request broader coverage in their construction contracts than additional insured endorsements can currently provide. Therefore, it is not always possible for the contractor to obtain the requested insurance protection, causing frustration to both parties. It is important for all contracting parties to understand the additional insured endorsements that are available in the market and appropriately manage their expectations.
This article was written by Jennifer Walker, CPCU, CRM, CIC, CEBS, CIT, GBA, ARM, AIM, AIC, ALCM, associate broker with AmWINS Brokerage of Georgia in Atlanta.