Owners as Additional Insured in Construction Contracts

Anastas Shkurti | Robbins DiMonte Ltd

An owner who embarks on a construction project should always request additional insured status on the general contractor’s and subcontractors’ commercial general liability (CGL) policies. It is not enough for the owner to verify that the contractor is licensed and has insurance. As an additional insured (or AI), the owner would be listed in the schedule of an AI endorsement to be included as an “insured” under the prime policy. Such endorsement is an amendment to the insurance policy to which it is attached. The owner’s goal is to be covered by the liability policy of the other party independently of the indemnity provisions of the construction contract.

Being an AI has several advantages. This status provides a ‘backup strategy’ or ‘safety net’ to the owner to the extent of the risks covered in the CGL. This becomes important if the indemnification provisions of the the main contract are held unenforceable.

The Owner also has direct policy rights to defense within the CGL without having to depend upon indemnities and contractual liability.

The owner may also be entitled to the excess liability or umbrella coverage of the general contractor because such policies frequently cover all insureds also covered under the primary liability policy. The owner must ask for a copy of the AI endorsement for review and approval. There are numerous different forms of AI endorsements widely used by insurance providers. These endorsements, in addition to granting coverage also restricts the coverage. Common coverage limitations are: (a) exclusions of property damage or bodily injury resulting from the sole negligence of the owner; (b) erosion of limits, such as when the general aggregate limit of a CGL policy may be exhausted if a loss is paid on an AI claim; (c) restrictions of coverage to the scope required by the construction contract; and (d) restriction of coverage to the lesser of the amount of insurance required under the contract or the applicable limits of the policy. As a result, the owner should negotiate with the contractor to match AI coverage to indemnification obligation of the construction contract. Also, these endorsements do not typically include the owner’s employees, agents, directors, or officers, even though the construction contract may ask for such indemnity.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

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