Contractual risk transfer is one of the most confusing and misunderstood concepts in insurance and risk management, but it is also one of the most important elements of a sound risk management program. This is why we’ve written about the topic at length to offer more clarification.
Even though every construction contract requires additional insured coverage many issued policies have additional insured endorsements that do not meet the contractual requirements. If you need further clarification on what Additional Insured coverage is, you can read more via this blog post.
In order to obtain Additional Insured coverage, it must be specifically endorsed onto the standard Insurance Service Office (ISO) General Liability Policy. If you provide a third party Additional Insured status, you are effectively giving that party direct access to your insurance policies, barring any limitations.
Unfortunately, adding another party as an Additional Insured is complicated. There are literally hundreds of Additional Insured endorsements, each with their own use, and problems or shortcomings. In fact, ISO will be releasing new editions of the CG 2010 and CG 2037 Additional Insured Endorsements, effective December 2019. The changes are minimal, but interesting.
The December 2019 versions of the Additional Insured Endorsements delete the phrase “shown in the Declarations” from the April 2013 versions of the endorsements. This phrase is connected to lead-in wording that states:
“The most we will pay on behalf of the additional insured is the amount of insurance:
- Required by the contract or agreement; or
- Available under the applicable Limits of Insurance shown in the Declarations.”
Although it is a small change, it has major significance as it relates to the literal reading of the Per Project General Aggregate Limit endorsement. Since that limit is shown on the endorsement and not the Declarations, this could mean that Additional Insured granted coverage from the April 2013 version of these endorsements does not provide Per Project or Per Location Limits.
Considering ISO’s new versions of CG 2010 and CG 2037, we recommend that contractors work closely with their insurance brokers to determine the impact of this change on their current and future additional insured coverage.
