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The April 2017 issue of ConstructionRisk.com Report included an article about a case in which the court held that a CGL insurance carrier of a construction contractor was not obligated to defend the project owner’s construction manager as an “additional insured” because there was no privity of contract between the contractor and the CM. The contractor had been required by its contract with the project owner to make the CM an additional insured, and the contract even included a sample certificate of insurance with the CM listed as an additional insured. The issue was, however, that the CGL insurance policy stated that an additional insured would be an entity with whom the contractor agreed in writing to make an additional insured. The policy would not extend additional insured status to an entity for whom the contractor agreed to make an additional insured where it is not also in privity of contract with that entity. This is a real problem because it is quite common that a contractor or a subcontractor is required by their client, such as the project owner, to name someone such as engineer, with whom they have not privity of contract, as an additional insured under their CGL policy. The court held that this did not obligate the CGL carrier in Gilbane Bldg. Co./TDS Construction Corp. v. St. Paul Fire and Marine Insurance and Liberty Insurance, 38 N.Y.S. 3d, 143 A.D.3d 146 (2016) to honor the contractor’s obligation.

Upon reading the newsletter, John Feeney, IOA Insurance Services, Pleasanton, CA, sent me an email attaching what he calls an apparently underutilized endorsement that seeks to remedy the problem created in situations such as the Gilbane case. It is titled, “Additional Insured – Engineers, Architects or Surveyors Not Engaged by the Named Insured endorsement CG 2032 04 13.”

It is specifically intended to create additional insured status for engineers, architects and surveyors that are not in privity of contract with the named insured, but only covers liability arising out of “ongoing operations.” It does not cover liability from completed operations. When using this endorsement, John advises that something such as the following clause should be included in the contract between the project owner and its contractor to require naming additional insureds using the CG 2031 04 13 form:

“Additional Insured Requirement. CLIENT agrees to require its contractors and sub-contractors to include DESIGN PROFESSIONAL as additional insured on commercial general liability policy(ies) inclusive of operations, completed operations, and products liability coverage provisions.  Such additional insured coverage shall be provided by Additional Insured – Engineers, Architects or Surveyors Not Engaged by the Named Insured endorsement CG 2032 04 13, or other comparable endorsement.”

Comment: In reviewing different additional insured endorsements being used in the market, it can be perplexing to understand whether an entity not in privity with the named insured can actually be provided the additional insured coverage that many contracts seem to demand. I invite CGL insurance brokers to submit comments on this issue.

 

About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 19, No. 5 (May 2017).

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