by Steven D. Davis
November 2, 2011

Discover how the "additional insured" clause puts contractors at increased risk, and learn about commonly used endorsements.

One of the most commonly found clauses in any construction contract is the requirement of one party to name another party as an additional insured. It is found in The American Institute of Architects (AIA) documents, the Consensus DOCS and was inserted in almost all manuscript agreements I have reviewed in the past 30 years. In summary, it was clearly understood that it was to a party's advantage to be named as an additional insured to another's general liability policy.

The endorsement typically utilized to accommodate this contractual obligation was a standard form for the construction industry. Years ago, a certain balance in the "insurance world order" existed. The endorsement used for many years was the CG 2010 1185. General contractors needed it for project owners, and subcontractors were required to supply the same to general contractors. When a certificate was received by the general contractor, the provisions and its benefits were clear. The endorsement had decades of litigation and case law upholding it, so for the most part, few surprises occurred.

In 2004, the Insurance Services Office (ISO) announced changes to the additional insured endorsement language. The reason cited by the ISO was that its intent was never to pay claims under the CG 2010 1185 for the additional insured's sole negligence. While most indemnity agreements were of intermediate form, on the surface this did not seem to be an alarming change.

The effect of this modification today, however, has had unintended consequences to many contractors.

Currently, there are dozens of insurer proprietary endorsements whereby the intent is to restrict coverage significantly beyond the "sole negligence" issue. Many insurer endorsements may be several pages in length and restrict coverage in ways not expected by contractors. (Review the chart "Commonly Used Endorsements" for information on proprietary endorsements.)

Certificate of Insurance vs. Additional Insured

It is important to understand that although a certificate of insurance (often an "ACORD" form) may identify a particular party as a certificate holder, a certificate holder is not the same thing as being named an additional insured. Moreover, the certificate of insurance is generally issued only as a matter of information and confers no actual rights upon the certificate holder.

Certificates provide evidence that certain insurance policies are in place on the date the certificate is issued, and that these policies have the limits and policy periods shown. However, certificates do not guarantee that limits will not be exhausted by other claims to which that insurance may also apply, that endorsements will be attached to the policy as required or that policy coverage has been changed with restrictive endorsements. The language on the commonly used ACORD certificate clearly indicates that, "This certificate is issued as a matter of information only and confers no rights upon the certificate holder. This certificate does not amend, extend or alter the coverage afforded by the policies below."

Furthermore, the certificate clearly states that if the certificate holder is an additional insured, the policy must still be endorsed accordingly.

"Must be endorsed" means that unless there is an endorsement attached to the certificate received, the additional insured will not know what coverage is actually provided, regardless of the contractual obligations.

A contractor seeking additional insured status from a subcontractor should not have to go to such great lengths to determine whether or not the additional insured endorsement complies with the subcontract agreement. But many contract administrators are going to those extremes.

Insured vs. Named Insured

There is a difference between being an "insured" and being a "named insured." Unless specifically designated as such, an "additional insured" does not have named insured status. A primary distinction between the two is the application of endorsements that apply solely to the named insured. While an additional insured (general contractor) enjoys the benefit of insurance protection from another policy (subcontractor), he may lose control of the defense of the claim. Insurers are usually provided with the exclusive right to control the defense of claims that they cover.

Verify Coverage

It is important to verify that the coverage provided to an additional insured is primary and non-contributory. This is fairly standard in most contracts. Tenders of defense and indemnity for and from additional insureds must be addressed in a timely manner to avoid late notice and other possible coverage issues. Minimal limits and/or erosion of limits of the subcontractor can leave the additional insured (owner or general contractor) with inadequate protection. A trade contractor may have a million dollars in primary coverage and two million dollars in umbrella coverage, which may be adequate to protect that contractor in its own business. However, when that trade contractor is performing subcontract work at different sites and for different owners/general contractors, and each one of those entities is given additional insured status to comply with contract requirements, those minimal insurance limits may not provide sufficient protection.

Commonly Used Endorsements

CG 2010 (11/85) Additional Insured - Owners, Lessees or Contractors (Form B)
This includes as an insured any person or organization shown in the endorsement (or policy declarations), but with respect only to liability arising out of "your work" for the additional insured. Is subject to all the exclusions of the CGL coverage form and does not contain any additional exclusions.

CG 2010 (10/93) Additional Insured - Owners, Lessees or Contractors (Form B)
This version of the additional insured endorsement replaces the term "your work" with the phrase "your ongoing operations performed for that insured." The revised endorsement has also dropped the words "by or for you" following the word "insured."

CG 2010 (10/01) Additional Insured - Owners, Lessees or Contractors - Scheduled Person or Organization
This version of the endorsement is used to further clarify the exclusion of completed operations.

CG 2033 (10/01) Additional Insured - Owners, Lessees or Contractors - Automatic Status When Required in Construction Agreement With You
This endorsement fulfills the obligation when the named insured agrees in a