What is an additional insured endorsement? 

To start, an endorsement is an addendum added to an insurance policy that modifies the coverage.  Endorsements may broaden or restrict the coverage provided by an insurance policy.  One example of a policy addendum that broadens the ‘Who Is An Insured’ is an additional insured endorsement. An additional insured is typically someone who is doing business with the named insured. The intent of an additional insured endorsement is to change the ‘Who Is An Insured’ section of an insurance policy to extend coverage to the additional insured for the negligent acts or omissions of the vendor or those acting on the vendor’s behalf. 

For example On a subcontractor’s commercial general liability (CGL) insurance policy, the subcontractor is the “named insured.” As the named insured, they can name a general contractor that they are working for (and any other required entities) as additional insured on their policy by way of an endorsement. This allows the general contractor to look to the subcontractor’s insurance policy if they are named in a suit related to work the subcontractor performed. An additional insured has many of the same responsibilities as the named insured, but the former does not pay premiums, receive notices of cancellation, or negotiate the terms of the policy.

Why do entities seek to become or name an additional insured?

Claiming additional insured status yields a number of benefits and protections to an organization. Below are some of the most common:  

• Additional insured status seeks to place the financial responsibility of a claim onto the policy of the party most likely to cause the claim.
• Additional insured status reduces the impact on the loss history of the additional insured. In other words, if a loss does occur due to the negligence of another party (vendor), the additional insured can avoid asserting the claim under its own policy, thus keeping the loss history lower, particularly if it is not the party directly responsible for the claim.
• By naming a person or organization as additionally insured on your policy, a named insured is making sure those appropriate entities are going to be held responsible if a risk event were to occur.

IMPORTANT: 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 always contact your insurance advisor or your legal counsel.

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 the 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.  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.

When to add an additional insured to a policy

New clients or partners may ask to be included as additional insureds in your insurance policy before they will sign a contract. For the most part, clients and partners will let you know when they require additional insured status in order to work with you.  Though you could theoretically name an additional insured for whatever reason you want, these two scenarios are most common:

• You’re a contractor /subcontractor / business owner, and your client asks to be named as an additional insured on your policy.
• You hire a contractor/subcontractor, and you ask to be named as an additional insured on his policy.

You may ask to be named as an additional insured to provide your business with more liability coverage. For example, say you use a contractor on a project who causes an accident that leads to you being sued. If you’re an additional insured on the contractor’s policy, you can make a claim to pay for the damages and legal fees, rather than relying on your own insurance. Most companies include language in their contracts for contractors to indemnify, or pay for, any liability lawsuits that stem from their work. Companies want assurance that contractors have the means to compensate them in a worst-case scenario, which is why they often ask for additional insured status, too.

How to add an additional insured to an insurance policy

To add an additional insured to an insurance policy, consult with your insurance agent and, review the policy, identify whether an additional insured can be added, and assess the level of coverage the additional insured is requesting. You’ll typically need to fill out an additional insured endorsement form. There are a large number of forms available, so make sure to ask your agent for assistance. Your agent will let you know what limitations apply for the additional insured and can answer any other questions about the policy. If the additional insured is covered for the life of the policy, you may want to just check-in and make sure nothing has changed when it’s time to renew the policy or make other changes. Lastly, when it comes to subcontractors, you can add them as additional insureds, but you may also want to require them to carry their own insurance. Each policy is different, so the extent of protection an additional insured receives is variable.

Additional Insured Endorsements

There are many types of additional insured endorsements available in the insurance market. However, this article will focus on four common ISO additional insured endorsements related to commercial general liability policies purchased by contractors. While the endorsements discussed are commonly found in the market, insurance companies may prefer to offer their own version of these endorsements. The additional insured endorsements that will be discussed are:

1. Additional Insured – Owners, Lessees or Contractors – Scheduled Person or Organization (CG2010 4/13) Normally Included in most policies and are provided for Free.  
2. Additional Insured – Owners, Lessees or Contractors – Completed Operations (CG2037 4/13) Additional Fees Typically Apply
3. Additional Insured – Owners, Lessees or Contractors – Automatic Status When Required in Construction Agreement With You (CG2033 4/13) Additional Fees Typically Apply
4. Additional Insured – Owners, Lessees or Contractors – Automatic Status For Other Parties When Required in Written Construction Agreement (CG2038 4/13) Additional Fees Typically Apply

The first two ISO endorsements require specific information regarding the additional insured and the project. The third and fourth ISO endorsements are “blanket” additional insured endorsements and do not require specific information concerning the additional insured or project information be shown on the endorsements. Instead, they require a written contract to be in force which requires the additional insured status. We will reference the endorsement form numbers in this article.

CG2010 4/13

This endorsement has changed significantly since the 1980s, and not for the better. The CG2010 additional insured endorsement has the following important characteristics:

1. The additional insured (e.g. project owner, general contractor) is not insured for their own sole negligence. The insured/contractor must be liable in whole or in part for a loss before the additional insured can seek coverage under this endorsement.
2. Coverage for the additional insured is for ongoing operations ONLY. In other words, when the contractor’s work is completed on the project, this additional insured endorsement terminates. Any future alleged claims by the additional insured under this endorsement must have resulted from an occurrence when the project was “ongoing” by the insured/contractor.
3. The project must be stated on the endorsement.
4. Coverage under the endorsement is only permitted to the extent that it is allowed by law (which can vary by state).
5. The endorsement does not require that a written contract be in effect which requires this additional insured status.
6. However, if there is a contract in existence, then coverage provided by this endorsement will not be broader than what is required by the contract. Additionally, the endorsement will pay the lesser of the amount required in the contract OR the policy limit.

While the coverage can be quite broad and beneficial to the additional insured, the endorsement is riddled with conditions, limitations and additional exclusions. A savvy project owner or general contractor may attempt to counter these conditions and limitations by telling the contractor the conditions and limitations are not permitted. However, it is unlikely that most of the insurance companies would (or could) change the endorsement. Therefore, all the project owner or general contractor accomplish is to potentially place the contractor in a breach of contract situation because the contractor cannot comply with the demand.

CG2037 4/13

This endorsement contains the same limitations and conditions as the CG2010 EXCEPT that this endorsement insures the additional insured for completed operations of the contractor and not ongoing operations. This endorsement supplements the CG2010.

Therefore, if an additional insured requires additional insured status for the project, the contractor will need BOTH the CG2010 and the CG2037 endorsements in order to comply.

For example, ABC University is accepting bids from contractors to build a new student center. ABC University requests additional insured status on the commercial general liability policy from each contractor on the project which will insure ABC University during the construction phase and after the construction phase is completed. In this situation, the CG2010 (or its equivalent) would be required to insure for ongoing operations PLUS the CG2037 (or its equivalent) would be required to insure for completed operations once the work was completed. Additional Fees Typically Apply

CG2033 4/13

This additional insured endorsement is a blanket additional insured endorsement and has the following limitations and conditions:

1. The additional insured (e.g. project owner, general contractor) is not insured for their sole negligence. The insured/contractor must be liable in whole or in part for a loss before the additional insured can seek coverage under this endorsement.
2. Coverage for the additional insured is for ongoing operations ONLY. In other words, when the insured/contractor’s work is completed on the project, this additional insured endorsement terminates. Any future alleged claims by the additional insured must have resulted from an occurrence when the project was “ongoing” by the insured/contractor.
3. There is automatic additional insured status provided to a party when a written contract requires the additional insured status. The party receiving additional insured status is the named party that contracts with the contractor.
4. Coverage under the endorsement is only permitted to the extent that it is allowed by law (which can vary by state).
5. Coverage provided by this endorsement will not be broader than what is required by the contract. Additionally, the endorsement will pay the lesser of the amount required in the contract OR the policy limit.

While this endorsement provides automatic coverage to additional insureds, there are still numerous conditions, limitations and exclusions. Additionally, since completed operations are not included in this endorsement, a second endorsement is needed to provide coverage for completed operations for the additional insured. Additional Fees Typically Apply

CG2038 4/13

This endorsement is very similar to CG2033. The primary difference between these two endorsements is that CG2038 applies to a party or parties requiring additional insured status within a construction agreement that are not the actual contracting party with the contractor. In other words, the parties are referred to – but not specifically named – in the construction contract. These “silent” parties are referred to as “upstream parties.” As with the CG2033, additional insured coverage for these upstream parties is for ongoing operations only. Therefore, a second endorsement should be included that provides coverage for completed operations if required by the contract. Additional Fees Typically Apply

Conclusion

Additional insured endorsements, whether they are issued by ISO or by insurance companies using their own equivalent endorsements, are not as broad as they were years ago. These endorsements include limitations, conditions and additional exclusions that did not exist in the past. Project owners may request broader coverage in their construction contracts than additional insured endorsements can currently provide. Therefore, it is not always possible for the contractor to obtain the requested insurance protection, causing frustration to both parties. It is important for all contracting parties to understand the additional insured endorsements that are available in the market and appropriately manage their expectations.

If you would like to speak with a California Construction Law Attorney and review your options, just let us know and we can put you in touch with a legal resource that can help. Call or email Kevin at: 530.320.3617 or [email protected]