By: Michael Herlihy, ARM, CRIS – Ames & Gough
As discussed in the April, May and June editions of Construction Risk.com Reporter, the New York Supreme Court ruling in Gilbane Building Co./TDS Construction Corp. vs. St. Paul Fire and Marine Insurance/Liberty Insurance points out the need for design and construction professionals to involve their insurance brokers when agreeing to additional insured as well as other requirements in construction contract insurance clauses. Failure to do so might put the designer or contractor at risk of being in breach of the contract.
Additional insured endorsements may be one of the most litigated endorsements in commercial general liability insurance policies. Over the years, insurers have regularly changed the additional insured endorsement wording, making them more restrictive, in response to court rulings which interpreted the original endorsements as providing coverage broader than what insurers may have intended. However, by changing the endorsement wording, some of the restrictive language in use by insurers today is not sufficient enough to allow designers and contractors to meet contractual additional insured requirements.
In the Gilbane case, a contractor hired for a project by the State University of New York was required by contract to name the construction manager as an additional insured under the contractor’s insurance policies. The endorsement wording used by the insurer for this contractor limited the additional insured status to “any person or organization with whom you have agreed to add as Additional Insured by a written contract…” Since the construction manager, Gilbane/TDS was not a signatory to the contract, there was no written agreement between the contractor and Gilbane/TDS. When Gilbane/TDS sought coverage as an additional insured under the contractor’s CGL policy for a claim made against it arising from the contractor’s services, the CGL insurer denied coverage based upon the restriction in the endorsement that there needed to be a written contract between the named insured and additional insured. When challenged in court, the NY Supreme Court ruled in favor of the CGL insurer’s interpretation. This problem could have been avoided if the contractor was aware of the limitations of the endorsement on their policy and had requested an endorsement from its CGL insurer specifically naming Gilbane/TDS as an additional insured.
The standard Insurance Service Office (ISO) blanket additional insured endorsements in use today tend to limit who is an additional insured 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…” (See ISO CG 2033 04/13).
Recognizing that these standard additional insured endorsements are not sufficient to meet additional insured requirements frequently found in today’s construction agreements, many of the CGL insurers who specialize in coverage for design professionals as well as contractors have developed their own endorsements that don’t limit the additional insured status to only those parties with whom the named insured has a written contract or for whom the named insured may be performing operations.
One such example reads: “Who is an Insured: Any person or organization that you (the named insured) agree in a written contract requiring insurance to include as an additional insured…” In this endorsement there is no limitation that the named insured must be performing operations for the additional insured nor is there a requirement that the named insured and additional insured must have a written agreement between them. Other insurers regularly use additional insured endorsements intended to schedule specific entities as additional insured, but in the schedule they describe the additional insured as “any person or organization whom you become obligated to include as an additional insured as a result of any contract or agreement you have entered into.” Again, using this approach, there is no limitation that the named insured must be performing operations for the additional insured or that the named insured and additional insured have a written agreement between them.
Frequently construction contracts may also require specific edition dates of the ISO additional insured endorsements be used; such as ISO CG 2010 11/1985 edition or ISO CG 2033 07/2004 edition. At least two major CGL insurers for design professionals and contractors now have blanket additional insured endorsements that automatically provide coverage as broad as the specific edition dates being required by such contracts, so long as the edition dates are on or after 1985.
It is important that designers and contractors check with their insurance brokers to find out what blanket additional insured endorsements are on their commercial general liability policies. If the designer’s or contractor’s CGL insurer is using the more restrictive wording that does not necessarily mean that the insurer will be unwilling to add other parties to the policy as additional insured. It may be that the insurer requires additional information on all other parties to assess what risk, if any, there may be to adding the party using a specific additional insured endorsement. Depending upon the additional insured party’s role on the project, there may be an additional cost to add that party as an additional insured.
Regardless, designers and contractors need to seek the expert advice of their insurance brokers on all contracts to ensure that they can meet contractual insurance requirements.
About the author: Michael Herlihy is Executive Vice President & Partner with Ames & Gough, Inc.; Specialty Insurance Brokerage & Risk Management Consulting.
859 Willard Street, Suite 320
Quincy, MA. 02169
This article is published in ConstructionRisk.com Report, Vol. 19, No. 7 (July 2017).
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