{"id":896527,"date":"2019-10-02T13:51:53","date_gmt":"2019-10-02T19:51:53","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=896527"},"modified":"2019-10-02T13:51:58","modified_gmt":"2019-10-02T19:51:58","slug":"additional-insured-coverage-fundamentals-misconceptions","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/additional-insured-coverage-fundamentals-misconceptions\/","title":{"rendered":"Additional Insurance Coverage: Fundamentals and Misconceptions"},"content":{"rendered":"\n

R. Thomas Dunn | Pierce Atwood<\/a> | September 26, 2019<\/p>\n\n\n\n

Additional insured (\u201cAI\u201d) requirements for commercial general liability (CGL) policies are very common in construction contracts. An Owner routinely requires its general contractor (\u201cGC\u201d) to provide AI coverage for itself, its affiliates, and sometimes a handful of other entities (lender, architect, etc.). In turn, the GC mandates its subcontractors to provide AI coverage for the GC, the Owner, and a cast of other characters. While frequently used, for good reason, this risk transfer tool is often misunderstood. In this post, I will explain the purpose of AI coverage, identify what it does and does not cover, and provide answers to a few misconceptions about additional insured coverage.<\/p>\n\n\n\n

The Purpose of Additional Insured Coverage<\/strong><\/p>\n\n\n\n

The design of AI coverage is to trigger the insurance procured by lower-tier contractors. The Owner, GC, and subcontractors all have CGL insurance, but the goal of additional insured coverage is to make sure that someone else\u2019s insurer will be on the hook to provide defense and indemnity should a covered claim arise. The goal is to insulate the insurers of upper tier entities (as well as the insured Owners\/GCs) from defending or paying claims because the lower-tier\u2019s insurer will provide such defense and indemnity. While the Owner\/GC may have coverage already, they will not be impacted by claimed losses in their insurance program if such loses are covered by another carrier.<\/p>\n\n\n\n

Additional Insurance coverage provides an additional form of security<\/em><\/strong> for contractual indemnity provisions. In most construction contracts, a lower-tier contractor promises the upper-tier entity that it will pay for injury to person\/property caused by the lower-tier contractor\u2019s negligence. Indemnity means pay money. The promise to indemnify another is only as good as what backs up that promise. While a lower-tier\u2019s CGL policy should provide coverage for assumed contractual liability, the advantage of AI coverage is that the upper-tier can go directly to the lower-tier\u2019s insurer for coverage. A lawsuit against the lower-tier contractor is not required to trigger the coverage. Contractual indemnity and AI coverage are separate and distinct risk transfer mechanisms, but they work in tandem with each other. A reasonable level of redundancy is a positive attribute when it comes to planning to mitigate and transfer risk.<\/p>\n\n\n\n

What Does Additional Insurance Cover?<\/strong><\/p>\n\n\n\n

AI coverage will not<\/strong> cover an Owner\/GC if there is no relationship to the subcontractor\u2019s work. If there is no such \u201cnexus\u201d between the subcontractor\u2019s work and the claimed loss, then the Owner\/GC cannot utilize the additional insured coverage. Clearly, there is no liability where the additional insured is 100% responsible for the loss. The \u201cnexus\u201d required between the loss and the subcontractor\u2019s work varies based upon the language used in the additional insured endorsement and decisional law in the relevant jurisdiction. For example, earlier this year the Rhode Island Supreme Court held that a subcontractor\u2019s insurer who had issued AI coverage for the general contractor did not owe additional insured coverage resulting from an injury to subcontractor\u2019s employee because employee did not allege fault or negligence of the subcontractor. Bacon Constr. Co. v. Arbella Prot. Ins. Co.<\/em><\/a> In Bacon<\/em>, the Court interpreted the AI endorsement discussed in the next paragraph (ISO CG 20 3) and concluded that some negligence of the subcontractor needed to be alleged. Where the language of the AI endorsement is broader, such as coverage to an additional insured for \u201cliability arising out of\u201d the operations, the outcome is often different as seen in the 11th<\/sup> Circuit case of Zurich Am. Ins. Co. v. Southern-Owners Ins. Co.<\/em><\/a> also decided earlier this year.<\/p>\n\n\n\n

AI coverage for CGL policies are mostly written on standard forms written by the Insurance Services Office, Inc. (\u201cISO\u201d). In many standard contracts, you will see a specific ISO form number identified. A commonly used form is ISO CG 20 33 07 04. In this form number, the last four digits \u201c07 04\u201d are the month (07) and year (04) the form was adopted by ISO. This form amends the CGL policy defining who is an Insured \u201cto include as an additional insured any person or organization for whom you [the Named Insured] are performing operations<\/em><\/strong> when you and such person or organization have agreed in writing in a contract or agreement <\/em><\/strong>that such person or organization be added as an additional insured on your policy.\u201d ISO 20 33 07 04 (emphasis added). The additional insured is then covered for \u201c\u2018bodily injury\u2019, \u2018property damage\u2019 or \u2018personal and advertising injury\u2019 caused, in whole or in part<\/em><\/strong>, by [1] [the Named Insured]\u2019s acts or omissions; or [2] The acts or omissions of those acting on your behalf; in the performance of your ongoing operations for the additional insured.\u201d ISO 20 33 07 04 (emphasis added). A few issues to be aware of with this standard AI form:<\/p>\n\n\n\n