Kevin Connolly is an attorney of counsel at Zetlin & De Chiara, a law firm in New York that serves the design, construction, and real estate industries.

So You Say You’re an Additional Insured?

Contractors and subcontractors who try to take the easy route to add names to insurance policies may find it doesn’t pay off when they try to collect on claims.

by Kevin Connolly

Most participants in the construction industry recognize the importance of insurance, but they also feel the pinch of rising insurance costs. Many of them seek to enhance their insurance coverage without incurring additional expenses.

One common way is to request to be named as an additional insured party on other participants’ policies. Yet when the time comes to present a claim for coverage, these additional insured parties encounter a bevy of avoidance tactics from insurers, such as demands that the claimant prove its insured status.

A frequently encountered response to that demand is to point to the insurance certificate to show a party’s status as an additional insured. However, if you examine the upper right-hand corner of the standard insurance certificate, you will find this legend:

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.

If that’s not bad enough, the legend on the back typically has a header that reads “Important” followed by this language:

If the certificate holder is an additional insured, the policy(ies) must be endorsed. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s).

If the party goes looking for that endorsement, however, it may realize there is none, because the naming of an additional insured sometimes takes place “automatically” under standard clauses of a signed project contract. That is supposedly the intent of standard endorsement CG 20 33 07 04, which extends the definition of “Who Is An Insured” under commercial general liability coverage to any person or organization that has an additional insured clause in its written contract.

This approach is very convenient for the contractor or whoever else is required to name another party as an additional insured. It also is a boon to the brokers and producers who do not have to go through the rigmarole of changing the policy to name the additional insureds in specific endorsements for every project.

However, problems await in the hoops that a putative additional insured must jump through in order to establish that it actually and truly is an additional insured. These hoops include being able to specifically point to the CG 20 33 07 04 endorsement, produce the written contract, show that the contract requires that the additional insured party be added to the policy, and prove that the agreement was effective before the loss occurred.

It does not require much imagination to recognize that an insurance adjuster can and will seize upon this as supporting a need to investigate before affording a defense or indemnity to the additional insured party.

The antidote to avoid this runaround is for the party to reject the automatic coverage that the CG 20 33 endorsement offers, and instead to insist upon being “scheduled” as an additional insured. An example is the CG 20 10 07 04 endorsement, which applies to the same commercial general liability coverage policy and which specifically schedules the individual or organization to be covered under the policy at the location of the “covered operations.” This step also requires amending the “Section II – Who is an Insured” language to include the new name.

Even with that fix, other surprises lurk in the additional insured arena. Parties who are named as additional insureds should be aware that these endorsements – 20-10, 20-33, and a host of others – provide no coverage for events that take place after substantial completion of the work. They exclude “completed operations” risk from coverage.

However, there is a simple and ready antidote: there is an additional insured endorsement that applies specifically to completed operations. The CG 20 37 endorsement provides no coverage for events that occur during the “ongoing operations” part of the project. It provides coverage only for the completed operations – the exposure that is excluded from the endorsements discussed earlier.

Judicious, pro-active use of the correct endorsement can make life simpler and easier when asserting insured claims. The key to the process is to address the coverage issues before a loss occurs.