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What Is the Role of an “Additional Insured” in the Construction Industry?
Posted in Contracts, Insurance

Contractors are often asked to sign contracts that contain a page or more of detailed insurance requirements, coverages and minimum dollar amounts of coverages.  Before signing, you should carefully review the insurance requirements of any contract to ensure that your current insurance complies in every respect with the requirements of the contract, including types of coverages and monetary limits.  If in doubt, you should contact your insurance consultant, who should be glad to assist in this process.

Frequently, owners will ask to be named as an “additional insured” on a general contractor’s commercial general liability (CGL) policy.  And general contractors will often require subcontractors to name the GC as an additional insured on the subcontractor’s general liability, auto, and umbrella policies.  So, what exactly is an “additional insured”?  An additional insured is nothing more and nothing less than a party, other than the primary insured, who is covered on the primary insured’s insurance policy.  How does someone become an additional insured on someone else’s policy?  The answer is that additional insured status is only obtained through an actual endorsement, issued by the insurance company, to the primary named insured’s policy, and the scope of the additional insured’s coverage is determined solely by the four corners of the endorsement itself.  Importantly, additional insured status cannot be granted with a certificate of insurance, although certificates are often delivered as “proof” (albeit false proof) of the additional insured status.

Once additional insured status is properly obtained, the party who is the additional insured becomes the beneficiary of multiple important rights.  For instance, an additional insured has the right to file a claim directly against the primary named insured’s insurance carrier.  The benefits of this right include the right to a legal defense against third-party claims, or coverage for damage caused, or both.  Also, the additional insured may be able to keep much or all of the loss off of its own loss history and thereby protect itself from future premium increases.

Should you receive a request to name someone else as an additional insured on one of your policies, it is important that you check with your insurance consultant to see if this is possible.  Design professionals should note that that it is generally not possible for an architect or engineer to name another, unlicensed party as an additional insured on a professional liability policy (also known as an errors and omissions, E&O, or a malpractice policy).

Additional insured status serves an important role in the construction industry but care must be exercised to ensure that the status of additional insured is properly granted.

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