Gary Barrera | California Construction Law Blog | August 28, 2017
A well-drafted insurance clause is an integral part of a construction contract because it sets forth a subcontractor’s obligations to add the general contractor to its policies of insurance as an additional insured and identifies the manner by which the general contractor will qualify as an additional insured. In a typical construction contract, the general contractor will be an additional insured via a scheduled endorsement or a blanket endorsement.
Scheduled Endorsements
A scheduled endorsement contains a “schedule” in which the person or organization that is named in the schedule is added to the policy as an additional insured. The following scheduled endorsements are commonly used in construction contracts.
The CG 20 10 11 85 endorsement, entitled “Additional Insured-Owners, Lessees or Contractors (Form B),” provides coverage to the person or organization named in the endorsement for liability arising out of “your [the named insured’s] work.” The phrase “your work” includes the named insured’s ongoing and completed operations.
The CG 20 10 11 85 is generally no longer available, even though most construction contracts continue to require subcontractors to name the general contractor as an additional insured under this endorsement. After 1985, the Insurance Service Office (“ISO”) modified the CG 20 10 form to limit coverage to liability arising out of the named insured’s ongoing operations. The CG 20 10 10 01 endorsement, entitled “Additional Insured- Owners, Lessees or Contractors-Scheduled Person or Organization,” provides coverage to the person or organization named in the endorsement for liability arising out of the named insured’s ongoing operations.
Alternatively, the general contractor can be named as an additional insured for completed operations via a CG 20 37 07 04 endorsement. The CG 20 37 04, entitled “Additional Insured-Owners, Lessees or Contractors-Completed Operations,” provides additional insured coverage to the person or organization named in the endorsement for liability arising out of the named insured’s “work” that is included in the “products-completed operations hazard.” In other words, the endorsement provides coverage for bodily injury or property damage that occurs after the named insured’s work is completed. However, the CG 20 37 07 04 is difficult to obtain, as most insurers have opted not to provide such coverage.
In response to the absence of completed operations coverage in the CG 20 10, the ISO created the CG 20 37 10 01 endorsement, entitled “Additional Insured-Owners, Lessees or Contractors-Completed Operations.” The CG 20 37 10 01 endorsement provides coverage to the person or organization named in the endorsement for liability arising out of the named insured’s completed operations, but does not provide coverage for ongoing operations. Therefore, requiring the subcontractor to name the general contractor as an additional insured using a combination of the CG 20 10 10 01 and CG 20 37 10 01 endorsements , in lieu of a CG 20 10 11 85 endorsement, is proper in order to ensure that the general contractor is an additional insured for both ongoing and completed operations.
Blanket Endorsements
As illustrated above, in order for the general contractor to qualify as an additional insured via a scheduled endorsement, the general contractor must be named as an additional insured on the endorsement. Due to administrative errors, it is not uncommon for a general contractor not to be named as an additional insured on a scheduled endorsement. However, despite this omission, the general contractor may still qualify as an additional insured via a blanket endorsement.
A typical blanket endorsement states that additional insured status is automatically provided when the named insured has agreed in a written contract to add a person or organization to its policies of insurance as an additional insured. Thus, a blanket endorsement does not require the intended additional insured to be named on the endorsement in order for coverage to apply.
There are two blanket endorsements that are commonly used in the construction industry. The CG 20 33 07 04 endorsement, entitled “Additional Insured-Owners, Lessees or Contractors-Automatic Status When Required in Construction Agreement With You,” provides coverage to “any person or organization for whom you [the named insured] are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy” for liability arising out of the named insured’s ongoing operations. The endorsement also states that a person’s or organization’s status as an additional insured ends when the named insured’s operations for the additional insured are completed.
The CG 20 38 04 13 endorsement, entitled “Additional Insured-Owners, Lessees or Contractors-Automatic Status For Other Parties When Required In Written Construction Agreement” is similar to the CG 20 33 07 04 in that it provides coverage for liability arising out of the named insured’s ongoing operations. However, the primary distinction between the endorsements is that the CG 20 38 04 13 provides coverage for upstream parties (i.e. persons or organizations above the level where an entity is contracting) if the contract requires the subcontractor to procure additional insured coverage for such entities. The CG 20 38 04 13 provides coverage to “any person or organization for whom you [the named insured] are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy” and “any other person or organization you are required to add as an additional insured under the contract or agreement.”
There are two drawbacks to blanket endorsements. Blanket endorsements providing coverage for completed operations are rare, as evidenced by the above endorsements. In response, the subcontractor could attempt to procure a manuscript blanket endorsement (i.e., a non-ISO form endorsement) that provides coverage for completed operations, though industry trends suggest that insurers are reluctant to issue such endorsements. Therefore, if the general contractor wants to have coverage for completed operations, it should confirm that it has been named as an additional insured on a scheduled endorsement providing completed operations coverage.
Blanket endorsement are also problematic because if the named insured’s policy is cancelled, a person or organization that is an additional insured via a blanket endorsement may not receive a notice of cancellation from the insurer. California Insurance Code section 677.2 requires an insurer to provide a notice of cancellation to a named insured. In Kotlar v. Hartford Fire Ins Co., 83 Cal.App.4th 1116 (2000), the California Court of Appeal held that Section 677.2 applies to both named insureds and any persons or entities named as additional insureds on an endorsement. Since blanket endorsements do not require the person or organization to be named as an additional insured, Section 677.2 does not apply to blanket endorsements. In order to remedy this deficiency, the contract could require the subcontractor to provide the general contractor with written notification that the policy is cancelled within a specific time frame following cancellation of the policy. Ultimately, if the general contractor wants to ensure that it receives the statutory notice of cancellation, it should require the subcontractor to name it as an additional insured on a scheduled endorsement.