by Carl Bloomfield, AAI, Vice President
Anyone who has ever engaged in a contract has heard of Additional Insured coverage and has been required to provide it to a third party. However, even though it is essentially a 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, unlike indemnification which is included in the standard, unendorsed General Liability policy and many other policies. In order to obtain Additional Insured coverage it must be specifically endorsed onto the policy, and this is where the trouble arises.
You may recall from Part II of this series, which dealt with Indemnification, that coverage can be afforded to a third party on three different levels – Broad, Intermediate and Limited. Additional Insured coverage is also provided on three different levels with sole negligence coverage for the Additional Insured being analogous to Broad Form Indemnity. You can refer back to Part II of the series for a detailed description of the different levels of coverage.
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 one endorsement provides Additional Insured coverage for both ongoing and completed operations for any liability arising out of the insured’s work. The endorsement also provides coverage for the sole negligence of the Additional Insured.
A Significant Coverage Gap
Fast forward to today and 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. Most notably was the change from the “10 01” edition to the “07 04” edition which eliminated coverage for the sole negligence of the Additional Insured. So if your company’s General Liability policy contains the latest edition of the Owners, Lessees or Contractors Additional Insured endorsement, you don’t have coverage for the sole negligence of the Additional Insured which is allowed in states like New Jersey, even though Broad Form Indemnity is not allowed. This can be a significant gap in coverage.
Before going into the specific endorsements every contractor needs, here are three examples of endorsements that are available: Additional Insured – Users of Golfmobiles; Additional Insured – Club Members; and Additional Insured – Users of Teams, Draft or Saddle Animals. The fact that these endorsements exist demonstrate how specific this coverage is.
8 Must-Have Endorsements
Today, 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. It should be noted that later versions of this same endorsement do not provide sole negligence coverage and this endorsement does not provide 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. Like the endorsement for On-going Operations, this version does provide coverage for the sole negligence of the Additional Insured. The later versions of this same endorsement do not provide sole negligence coverage and this endorsement does not provide 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, such as an AIA contract 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)
Although not an Additional Insured endorsement, this endorsement makes sure that the Additional Insured coverage provided by your policy is applied in the correct manner. When you provide Additional Insured coverage to a third party, they expect that your insurance policy will pay before their own. That is the whole reason they ask to be named as an Additional Insured. This endorsement ensures that your policy is primary and won’t require a contribution from the Additional Insured’s policy.
In addition to these eight endorsements, contractors that lease an office or land, perhaps for an equipment yard or satellite office, 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 which outline who is granted Additional Insured coverage should be completed with what we call “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.” If your company is involved in other operations, such as selling a product through vendors, 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. The most common shortcoming is the lack of coverage for sole negligence. This coverage is especially important in the situation where one of your injured employees sues the owner of the job whom you have contractually agreed to provide Additional Insured coverage. 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. New Jersey is a state that is a prime example of this because Broad Form Indemnification is not allowed, but picking up the sole negligence of the Additional Insured is permitted.
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. Having to schedule individual Additional Insureds is an administrative burden, increases the likelihood of an entity not being added, which will lead to an uncovered loss, and provides the opportunity to the insurance company to charge you an additional premium every time a new Additional Insured is scheduled on the policy.
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.
Carl M. Bloomfield,
AAI, Managing Director, Enterprise Risk and Advisory Services