Additional Insured Tips for Connecticut Subcontractors
Posted by Dan Phelan on Mon, Jan 03, 2011 @ 07:21 AM
FYI:
You don't have to give additional insured (AI) status to every General Contractor or Owner you are working for.
In the last few years, it has become commonplace for many subcontractors to be required to afford additional insured status to the upstream parties they are contracting with. Many do this without even having it in the insurance requirements in the contract they signed! When you give another party additional insured status on your policy, you are giving them access to your insurance limits on your General Liability, Business Auto, and Umbrella policies. In our humble opinion, it's not a prudent risk managment strategy to unnecessarily give other parties access to your insurance policy if you don't have to, yet time and time again we see it happening. You only have so many insurance dollars to pay a claim each year, don't let the claims of others erode your limits to the point where you will not have coverage for a serious claim!
Let's address this issue from another angle. Not all additional insured endorsements afford the same provisions to the upstream party requiring it, and depending on which insurance carrier you have the bulk of your coverage with, will determine which type of additional insured endorsement you have on your policies. Some endorsements will expose your limits more significantly than others, especially as it pertains to completed operations. If you are working for a savvy upstream party, they are probably going to ask you for completed operations coverage, since it keeps them covered for your mistakes even after you've been paid and have left the job. Some older versions of the standard commercial general liability additional insured endorsement provide this coverage through somewhat sloppy wording and some newer versions completely exclude it.
So what happens if you signed a contract and named another party as an AI, but don't actually have completed operations coverage on your additional insured endorsement and there is a claim that your company is named as a part of a year after you were off the job? First off, you are in breach of contract because you signed off on a coverage you didn't actually have. Secondly, your insurance carrier has no obligation to pay a claim that your policy was not built to respond to. This doesn't mean that you are off the hook and free to bid your next project. This means that your construction company is on the hook for whatever portion of that claim has been apportioned to you. This also means you'll be needing an expensive lawyer and will be getting your company checkbook out to clear this up.
How to fix this and make sure you're in compliance with all the contracts you're signing? Find an insurance broker that understands the complexities of construction insurance, knows how to read a construction contract, and can advise you on what type of additional insured endorsement is best for your company. To reiterate, just because you named another party as AI on your certificate of insurance, does not mean that you are in compliance with the contract you signed.
Things to check on your policy ASAP:
- The additional insured endorsement on your policy grants "blanked additional insured status when required by written contract"
- If the contracts you sign are requiring "completed operations", make sure your endorsement has this provision built into it
- If a contract mentions a specific AI endorsement, double check with your broker that your endorsement carries at least the equivalent amount of coverage as the one in the contract.