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A common requirement you’ll find in a construction contract is for any hired contractor to provide additional insured status to parties within the contract. The purpose of this requirement is to protect an Owner, General Contractor and/or another Trade Contractor from potential claims that may arise from work the hired contractor is performing. By having the Owner and General Contractor listed as additional insureds on the hired contractor’s policy, this transfers the potential risk for work done back to the hired contractor.
Typically, you will find that the General Contractor (GC) will require their trade contractors to provide them with a certificate of insurance (COI) with certain language that will meet the requirements within the contract. However, while a COI is an industry standard document that outlines the coverages and limits a contractor has, the policy itself is the proof that General Contractors need to ensure that proper additional insured status is in place.
Proper additional insured endorsements are vital for risk transfer
The most common requested endorsements are for General Liability Coverage. Usually, the parties within the contract want the additional insured status for both Premises/Ongoing Operations as well as Products/Completed Operations. Premises/Ongoing Operations provide additional insured coverage while the project is ongoing. Conversely, Products/Competed Operations provides additional insured coverage when the project is complete.
The most common endorsements that are acceptable for construction contracts are the following:
- CG 20 10 04 13 – For Premises/Ongoing operations
- CG 20 37 04 13 – For Products/ Completed operations
Schedules are the last critical part of endorsements.
Some endorsements do not have the option of scheduling additional insureds, while others (such as the examples above) do. When there is a schedule available on an additional insured endorsement, it is best to use blanket wording such as “As required by contract” or equivalent wording.
With this verbiage, you can rest assured that all parties that require to be named as additional insureds by your construction contract will be additional insureds. As such, you will not have any breach of contract claims pertaining to this.
Problems may arise during additional insured endorsement submission
There are some common problems that can make an additional insured endorsement unacceptable when submitted to an Owner, GC, and/or another Trade Contractor. One of the most common issues is privity. Privity is defined as a relation between two parties that is recognized by law. In a construction contract, this typically means either:
- The Owner and the General Contractor
- The General Contractor and a Trade Contractor
- Trade Contractor with another Trade Contractor
Additional insured endorsements will commonly grant additional insured status to any party the contractor is directly contracted with. The issue that arises is that while the General Contractor has coverage as an additional insured, other parties contained within the contract will not have additional insured coverage since these parties do not have a direct contract with the contractor. This leaves gaps in coverage for parties involved and can lead to claims of breach of contract if not addressed.
If you’re unsure if your insurance policies have the proper additional insured endorsements and your company is properly protected in case there is an accident, reach out to us for a free Risk Consultation!