This is the third post in a three-part series about contractual risk transfer. The general overview of contractual risk transfer provided a general overview of contractual risk transfer and types of indemnification dealt solely with the topic of indemnification. This article will focus solely on Additional Insured Endorsements coverage.
Even though it is essentially an insurance requirement in every contract you will sign in the construction industry, Additional Insured coverage is not a standard coverage in the majority of insurance policies. In order to obtain Additional Insured coverage it must be specifically endorsed onto the policy, and this is where the trouble arises.
25 to 30 years ago, adding Additional Insured coverage was a simple task. There was essentially one endorsement that contemplated all the various facets of the coverage. This endorsement, CG 20 10 11 85 is referred to as the Holy Grail, and it is still referenced in many contracts that you will be asked to sign. The “11 85” indicates that this is the November 1985 version of the endorsement. This provides Additional Insured coverage for both ongoing and completed operations for any injury or damage liability arising out of the insured’s work and coverage for the sole negligence of the Additional Insured.
A Significant Coverage Gap
Today, there are more than 36 different ISO Additional Insured endorsements from the Insurance Services Office (ISO), plus all the custom manuscript endorsements that various carriers utilize. In addition, each of these endorsements has various edition dates. The coverage granted by each new edition is different and most often more restrictive than the edition before it.
8 Must-Have Endorsements
To match what CG 20 10 11 85 used to provide in coverage, you need to add the following eight endorsements to your policy:
Additional Insured – Owners, Lessees or Contractors (CG 20 10 10 01)
This endorsement provides coverage for entities for whom the Named Insured is performing “On-going Operations” only. It does provide coverage for the sole negligence of the Additional Insured or any coverage for “Completed Operations.”
Additional Insured – Owners, Lessees or Contractors Completed Operations (CG 20 37 10 01)
This endorsement provides coverage for entities for whom the Named Insured has “Completed Operations” only, not for the sole negligence of the Additional Insured. Later versions do not provide sole negligence coverage or any coverage for “On-going Operations.”
Additional Insured – Engineers, Architects or Surveyors Not Engaged by the Named Insured (CG 20 32 07 98)
Many times the contracts you sign will require you to name the Architect or Engineer as an Additional Insured even though you did not hire them. Again, the “07 98” version does provide sole negligence coverage whereas the new edition (“04 13”) does not provide it.
Additional Insured – Engineers, Architects or Surveyors (CG 20 31 07 98)
If you do hire the architect or engineer directly, you will need to use this endorsement to provide the required Additional Insured coverage.
Additional Insured – Lessor of Leased Equipment (CG 20 28 04 13)
Whenever you lease equipment, either a short-term or long-term lease, you will likely be required to name the Leasing Company (i.e., Lessor) as an Additional Insured. All editions of this endorsement do not provide sole negligence coverage.
Additional Insured – State or Governmental Agency or Subdivision or Political Subdivision Permits or Authorizations (CG 20 12 05 09)
This endorsement applies to your operations performed by you or on your behalf for which the state or subdivision has issued a permit.
Additional Insured – Designated Person or Organization (CG 20 26 11 85)
This endorsement provides coverage for entities for whom you are not performing any work such as a bank or governmental entity. This version does include sole negligence coverage.
Primary & Noncontributory – Other Insurance Condition (CG 20 01 04 13)
This endorsement makes sure that the Additional Insured coverage provided by your policy is applied in the correct manner.
In addition to these eight endorsements, contractors that lease an office or land need to include two more endorsements on their policies:
- CG 20 11 04 13 (Leasing of Premises)
- CG 20 24 04 13 (Leasing of Land)
To structure Additional Insured coverage correctly you need to include all of these endorsements and specific editions or an insurance company manuscript endorsement that is equivalent. To complete the process, the schedules on these endorsements should be completed with “Blanket Wording” such as “any organization or person as required by a written contract or agreement, but only to the extent such coverage is required.” Depending on your operations, you may need additional endorsements to adequately cover your exposure.
Beware of Shortcomings:
There are many different Additional Insured endorsements in use today and most include some sort of shortcoming, such as the lack of coverage for sole negligence. Many contractors and brokers make the mistake of assuming that requiring a party to pick-up another party’s sole negligence through Additional Insured coverage is prohibited because that state’s Anti-Indemnity Statute prohibits that practice. Indemnification and Additional Insured coverage are two separate doors with separate rules.
Other shortcomings include endorsements that contain a direct contract requirement in order to obtain coverage and endorsements that are not on a blanket basis and require every Additional Insured to be scheduled.
The topic of contractual risk transfer and how to properly structure your insurance program to meet the contractual requirements placed on your business is very difficult and complex. As contract requirements continue to change and losses continue to mount, it is only going to continue to get more difficult to do correctly.
Philadelphia, PA, 19102
