Many people think insurance to be overly complex and confusing and it certainly can be, especially when trying to comply with contract requirements. Many contracts require subcontractors name a General Contractor or Project Owner as an Additional Insured (AI) on their general liability insurance policy and therein lies a potential coverage gap.
The overall intent of Additional Insured (AI) endorsements is to amend the “Who is an Insured” section to extend limited coverage to a second party for the negligent acts or omissions of the first party. In other words, protection under an AI endorsement is extended to a General Contractor or Owner to cover their vicarious liability in hiring a subcontractor.
Historically, every entity requesting AI status was individually added to ensure coverage. So, in seeking efficiency, insurance carriers began to offer Blanket Additional Insured endorsements decades ago. On the surface this seemed to solve the issue by only having one endorsement covering any and all AIs without having to name everyone individually.
The industry standard blanket insured endorsement (CG 2010 1185) is still often requested in contracts today as it provides the broadest wording. However, this endorsement is not widely available. It has been replaced by more recent versions that drastically amended the original coverage verbiage due to legal challenges. Depending on what version is included in the policy, limited or no coverage may be available at the time of loss. So how can you protect yourself?
Many of the newer AI endorsements only cover ongoing operations (i.e. while work is being performed) and AI status would drop after the subcontractor completed the work. Thus, individual endorsements covering completed operations were still needed as many claims occur after the work is finished and naturally the General Contractor or Project Owner wanted the subcontractor’s insurance to pay for any defense and/or damages.
But there was still a problem that boils down to the contractual relationship within a written contract or agreement. Specifically, to be covered by existing AI endorsements, a direct contractual relationship must be in place (i.e. Sub to GC). But what about any upstream entities who also want to be protected?
Two newer endorsements, released in late 2019 and adopted by many carriers throughout 2020, were introduced to solve this potential coverage gap and extend completed operations coverage for both direct and indirect contractual relationships.
- CG 20 39 12 19 is designed to provide AI status due to situations where there is a direct contractual relationship (i.e. Sub to GC).
- CG 20 40 12 19 is designed to cover other upstream entities who have requested coverage but may not have a direct contractual relationship with that particular subcontractor. This would apply to project owners, real estate owners / managers, lessors, etc. who still need and want AI
Engaging a knowledgeable broker who asks the right questions will ensure that you have the correct coverage needed. Ask your Sentinel Risk Advisors professional today for more information.