Construction projects involve contracts that typically contain a page or more of detailed insurance requirements, coverages and minimum dollar amounts of coverages. It is important for contractors to have their agents or brokers review these coverage requirements to ensure that the current insurance program complies with every aspect as outlined in the agreement. It’s also critical to review the “additional insureds” provision in a contract, which often can be overlooked when negotiating a project’s scope, scheduling, and budget. Many legal problems that typically occur during and after a construction project are impacted by a one or two-sentence clause that, if not reviewed, could be detrimental for a contractor. In fact, additional insured coverage is one of the most complex issues in construction risk and insurance. The scope of additional insured coverage provided can be influenced by so many factors, including policy language, contract language, public policy, and state laws.
Additional insured status is only obtained through an actual endorsement, issued by the insurance company, to the primary named insured’s policy, and the scope of the additional insured’s coverage is determined by the endorsement itself. Contractors need to understand that additional insured status cannot be granted with a certificate of insurance – whether they are being asked to include an additional insured on their policy or requesting to be named as an additional insured on a subcontractor’s policy. A certificate’s purpose is to verify that the endorsement has been added.
When additional insured status is properly obtained, the party who is the additional insured becomes the beneficiary of multiple important rights. For example, the additional insured has the right to file a claim directly against the primary named insured’s insurance carrier. The benefits of this right include the right to a legal defense against third-party claims, or coverage for damage caused, or both. Also, the additional insured may be able to keep much or all of the loss off of its own loss history and thereby protect itself from future premium increases.
A general contractor or developer may want to consider being named as an additional insured on all of his subcontractors’ Commercial General Liability (CGL) insurance policies, at coverage limits that a broker deems sufficient. Additionally, if a contractor receives a request to name someone else as an additional insured on one of his policies, it is important to check with the insurance broker.
RPS’s construction practice helps its agency and broker partners to meet the demands of the construction industry with end-to-end cost-effective insurance solutions and loss analysis designed to improve an operation’s risk profile.