Insurance Mic

Use Caution When Approving Additional Insured Endorsements Issued 2004 and Beyond

In July of 2004 the additional insured endorsements had a significant change that may have a dramatic impact on the various construction firms using them. The concern emanates from the substitution of a few select words, "arising out of" versus "caused, in whole or in part, by". I can spend quite some time on the nuance of this change, but I want to focus most of the attention it's effect on New York Labor Law Claims ( Third Party Action Over).

The substitution of "arising out of" versus "caused, in whole or in part, by" substantially narrows the scope of the endorsement's coverage significantly in my opinion. The injury or damage under Additional Insured endorsement CG 20 10 07/04, must be " caused by in whole or in part" , not just the named insured's (Entity Issuing the Cert) ongoing operations (as in the current endorsements), but by the named insured's "acts or omissions" in the performance of those operations. It may be interpreted, absent any fault of the Named Insured, there will be no coverage for the Additional Insured.

If this proves true, it may be problematic in how insurance companies will apply the new endorsement to third party-over actions ( Labor Law) claims. These claims typically involve actions by employees of named insureds, such as sub-contractors, against the Additional Insureds such as General Contractors and/or owners. This is one of the largest exposures to loss construction firms face, with the average awards increasing dramatically,(see table). They often allege failure to maintain a safe work place, with the general contractor / owner having additional insured status in the sub contractor's general liability policy. These claims have been historically covered under the pre-2004 additional insured endorsement. The employee is typically not allowed by workers compensation statute to bring suit against his employer, alleging only negligence against the additional insured (general contractor/owner). The big concern is that since the suit does not allege any degree of fault or negligence against the named insured ( entity issuing the cert) subcontractor/employer, insurance carriers can take the position that the employee of the sub's injuries were not "caused in whole or in part" by the subcontractor (Entity Issuing the Cert).

Naturally, the subcontractor (Entity Issuing the Cert) will usually have been somewhat at fault even though the suit does not contain allegations against it. State laws typically vary in the obligation they place on insurers to seek beyond the allegations in the suit itself to see if a duty to defend exists. Typically the duty to defend is much broader than the duty to indemnify. The only allegations that would fall clearly outside the coverage provisions of the new additional insured endorsements (07/04 Edition) would be explicit allegations of the additional insureds sole fault. In most cases insurance carriers should consider facts beyond the allegations in the lawsuit to determine if coverage applies under Additional Insured Endorsement CG 20 10 07/04. If their named insured's (sub-contractor) acts or omissions contributed to the bodily injury or property damage, they should defend and indemnify on behalf of the additional insured even though these acts or omissions are not mentioned in the underlying suit. We may see an emerging trend whereby additional insureds attempt to prove some degree of culpability against their sub-contractors to obtain coverage under the sub-contractors general liability policies.

We realize in writing this article how difficult it is to procure these certificates in the first place. Where you can exercise the control, it may be best to request or contractually dictate that the subs cannot use this particular additional insured endorsement , CG 20 10 7/04, Instead request CG 20 10 11/85.

For more information on which additional insured endorsement to use click here.

All Additional Insured Endorsements Are Not The Same

Having the right tool for the job is imperative if you are in construction. Having the correct additional insured endorsement protecting your interest is absolutely critical, saving hundred's of thousands of dollars in most liability claims situations. The fact is most of the Development / General Contractor companies I consult with spend countless hours, and thousands of dollars on their construction contracts. Conversely the task of making sure there is a pool of capital from the sub-contractors in the event of a claim , as they flash that fancy contract is often overlooked or misunderstood. The goal of this article is to highlight the various differences between all the disperate additional insured endorsements, and make a recommendation as to which one you should request depending on which side of the transaction you fall on, and what you agreed upon in the contract you signed, and to whom. I will endeavor to give you the knowledge, you negotiate what you can in your companies best interest. If you have a staff person dedicated to managing the sub contractors Certs, make sure they book mark this post and download this table for future reference. Due to the software limitations I was unable to translate directly this table, so please down load the file for the rest of this to make sense.

Please click on this file to view and download : Evolving Coverage Standards for Additional Insured Endorsements Evolving Coverage Standar-2.doc

Some notes of interest on the various terms that have a substantial impact on the coverage afforded to the additional insureds. Pay attention to "your work" v.s. "your on going operations". "Your work" has been interpreted broadly to include both work in progress and work that has been completed. Thus the end result would be that coverage would be available to the additional insured (entity receiving the certificate) long after the work by the named insured ( entity issuing the certificate) has been done. Conversely if the Additional Insured endorsement only affords coverage for your "On Going Operations" , then once the job is complete your status as an additional insured ends, irrespective of how your contract reads with the sub, which is why it is critical that the sub-contractors policy meet the obligations set forth in the builder contract.

If you are a General Contractor / Developer/ or Building Owner CG 20 10 11/85 is the specific additional insured endorsement that you should require any construction entity below you on the food chain to carry for the reasons noted above.

If the carrier insuring the sub contractor or GC is unwilling to issue the CG 20 10 11/85 endorsement, you may request that the carrier issue CG 20 37 10/01 (Titled Additional Insured - Owners, Lessees Or Contractors Completed Operations. which adds the Products & Completed extension. without this endorsement, you will lose your status as an additional insured the moment the final check is cut, and the job is deemed complete by that particular sub-contractor or G.C. If you are the building owner. This is used in tandem with CG 20 10 ( Various Issuing Years). This is not as good as the (11/85) version because of the revised "arising out of " language was changed to "caused in whole or in part by acts or omissions of the named insured", which first appeared in the 2004 revisions. For more on that topic, I have devoted a whole article on the 2004 Additional Insured Revisions. Click here for the post (forthcoming).

If you are a Trade Sub-Contractor, I would think you would like your obligation to the job to cease once the work has been completed. Therefore it's in your best interest to use one of the narrower additional insured endorsements. If this is your chosen path, please be certain the contract you signed with the owner or G.C. is consistent with your narrow additional insured endorsement, other wise you will have promised contractually a dollar, but in effect will deliver only pennies. Remember, insurance is only a financial instrument meant to cover your contractual promises and obligations made to your clients. Make sure your insurance policies are designed and will meet the promises you have made, or you will not be in business long should you have an accident .