General contractors (GCs) typically require subcontractors to procure a commercial general liability (CGL) policy and to name the GC as an “additional insured” under the policy. This practice is intended to protect the GC against liability in connection with the subcontractor’s activities.

If you’re a general contractor, don’t assume that an additional insured endorsement provides the protection you seek. Rather than relying on a certificate of insurance, request a certified copy of the policy and review the actual language of the endorsement. Often, the coverage extended to additional insureds is narrower than that provided to the subcontractor.

Watch out for blanket endorsements

A blanket endorsement automatically confers additional insured status on a GC if the subcontractor is contractually obligated to name the GC as an additional insured. Be sure the construction contract clearly spells out a subcontractor’s obligation to list you as an additional insured. Otherwise, you may not be covered.

Watch out for exclusions

It’s not unusual for an additional insured endorsement to contain exclusions or other restrictions that limit the insurer’s liability to the GC. For example, many policies exclude additional insured coverage for claims arising after the subcontractor’s work is completed. In a recent federal court case, a GC learned this lesson the hard way.

The case of Carl E. Woodward, L.L.C. v. Acceptance Indemnity Insurance Co. involved  construction defect claims that arose more than a year after construction was complete. The defects were caused by a concrete subcontractor’s failure to build foundation piers and other structural components in conformance with the plans and specifications. Although the defects were the subcontractor’s fault, the Fifth U.S. Circuit Court of Appeals held that the subcontractor’s CGL insurer had no duty to defend or indemnify the GC pursuant to the policy’s additional insured endorsement.

The endorsement provided that the GC was included as an insured under the policy “only with respect to liability arising out of [the subcontractor’s] ongoing operations performed for that insured.” It also specifically excluded coverage for property damage occurring after the subcontractor’s covered operations had been completed. The court found that the claims in this case arose out of the subcontractor’s completed operations and, therefore, weren’t covered by the additional insured endorsement.

Read the policy

To avoid unpleasant surprises, make sure you understand the level of protection provided by an additional insured endorsement before you sign the contract. Consider asking your subcontractors to provide you with coverage that extends to claims arising from completed operations.

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