In the construction setting, it is common for owners to require contractors to purchase insurance that names the owner as an “additional insured” under the contractor's Commercial General Liability policy. It is likewise common for contractors to require their subcontractors to do the same thing. In either case, an endorsement to the insurance policy naming the party as an “additional insured” will dictate the type of loss for which the “additional insured” is covered, typically limited to claims arising out of ongoing work (but not completed work) performed for the additional insured by the primary insured.
The advantage of being an “additional insured” under someone else's CGL policy is twofold. First, it can avoid the need for the additional insured party to purchase its own CGL policy for protection against the covered losses – because an additional insured is, in the eyes of the law, a party to the insurance policy entitled to the same defense and indemnity as the primary insured (unless an endorsement limits its scope). Second, even if it has its own CGL policy, a covered loss will not be on the additional insured's “loss history” so as to increase its premiums on its own CGL policy in the future – unless the additional insured coverage is expressly designated as “excess” or secondary to the additional insured's own CGL policy coverage.
The express terms of the “additional insured” endorsements matter greatly, yet I am constantly amazed at how infrequently the entity named as an additional insured bothers to inquire about them, contenting itself with a Certificate of Insurance listing the entity as an additional insured. Does the endorsement provide additional insured coverage only as “excess” coverage over the additional insured's own CGL coverage? Is it limited to claims arising out of ongoing work, or does it embrace “completed operations” as well? Is it limited to instances where there is a direct written contract between named insured and additional insured?
This last question comes into play when a general contractor requires subcontractors to carry CGL policies naming not only the GC but the owner as additional insureds. Two common endorsement forms, the 2013 versions of forms CG 20 33 and the CG 20 38, differ in their treatment of the issue. The CG 20 33 provides additional insured status for “any person or organization for whom you 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,” whereas the CG 20 38 also extends coverage to “any other person or organization you are required to add as an additional insured under the contract or agreement.” Whether the CG 20 33 requires that “you and such person or organization have agreed in writing” with each other is an open question on which courts do not all agree. Compare Pro Con, Inc. v. Interstate Fire & Cas. Co., 794 F.Supp.2d 242 (D.Me. 2011) (direct contract not required) with Westfield Ins. Co. v. FCL Builders, Inc., 407 Ill.App.3d 730, 948 N.E.2d 115 (Ill.App. 2011) (direct contract required). Our Supreme Court has yet to rule on the question.
Insurers often argue that additional insureds are entitled to coverage only for claims of vicarious or derivative liability on the part of the additional insured, and not for negligence by the additional insured. Where there is no express mention of vicarious liability in the endorsement, these arguments have not fared well in the courts. See, e.g., Capital City Real Estate, LLC v. Certain Underwriters at Lloyd's London, 788 F.3d 375, 380-81 (4th Cir. 2015). Once again, our Supreme Court has yet to rule on the issue.
Such open questions are potential traps for the unwary. If you intend to be an additional insured on another's policy, most of the land mines can be sidestepped by taking some time to examine the endorsement in the named insured's policy to ascertain the coverage it affords you. The wisest course is to prescribe what it must say, requiring the named insured to pick the broadest form available.
The advantage of being an “additional insured” under someone else's CGL policy is twofold. First, it can avoid the need for the additional insured party to purchase its own CGL policy for protection against the covered losses – because an additional insured is, in the eyes of the law, a party to the insurance policy entitled to the same defense and indemnity as the primary insured (unless an endorsement limits its scope). Second, even if it has its own CGL policy, a covered loss will not be on the additional insured's “loss history” so as to increase its premiums on its own CGL policy in the future – unless the additional insured coverage is expressly designated as “excess” or secondary to the additional insured's own CGL policy coverage.
The express terms of the “additional insured” endorsements matter greatly, yet I am constantly amazed at how infrequently the entity named as an additional insured bothers to inquire about them, contenting itself with a Certificate of Insurance listing the entity as an additional insured. Does the endorsement provide additional insured coverage only as “excess” coverage over the additional insured's own CGL coverage? Is it limited to claims arising out of ongoing work, or does it embrace “completed operations” as well? Is it limited to instances where there is a direct written contract between named insured and additional insured?
This last question comes into play when a general contractor requires subcontractors to carry CGL policies naming not only the GC but the owner as additional insureds. Two common endorsement forms, the 2013 versions of forms CG 20 33 and the CG 20 38, differ in their treatment of the issue. The CG 20 33 provides additional insured status for “any person or organization for whom you 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,” whereas the CG 20 38 also extends coverage to “any other person or organization you are required to add as an additional insured under the contract or agreement.” Whether the CG 20 33 requires that “you and such person or organization have agreed in writing” with each other is an open question on which courts do not all agree. Compare Pro Con, Inc. v. Interstate Fire & Cas. Co., 794 F.Supp.2d 242 (D.Me. 2011) (direct contract not required) with Westfield Ins. Co. v. FCL Builders, Inc., 407 Ill.App.3d 730, 948 N.E.2d 115 (Ill.App. 2011) (direct contract required). Our Supreme Court has yet to rule on the question.
Insurers often argue that additional insureds are entitled to coverage only for claims of vicarious or derivative liability on the part of the additional insured, and not for negligence by the additional insured. Where there is no express mention of vicarious liability in the endorsement, these arguments have not fared well in the courts. See, e.g., Capital City Real Estate, LLC v. Certain Underwriters at Lloyd's London, 788 F.3d 375, 380-81 (4th Cir. 2015). Once again, our Supreme Court has yet to rule on the issue.
Such open questions are potential traps for the unwary. If you intend to be an additional insured on another's policy, most of the land mines can be sidestepped by taking some time to examine the endorsement in the named insured's policy to ascertain the coverage it affords you. The wisest course is to prescribe what it must say, requiring the named insured to pick the broadest form available.
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