Construction Contracts
The Ongoing Additional Insured Debate

“Additional Insured” endorsements continue to be one of the hottest topics in construction risk management. And you as a contractor or subcontractor should ultimately be aware of what they are and what they mean to you. These documents have the effect of adding the party requiring the endorsement to the second party's commercial general liability (CGL) insurance policy, and, in some cases, providing the first party coverage for the second party’s sole negligence.

The Insurance Services Office (ISO) is a group that the insurance industry founded and continues to fund for the purpose of developing standard forms of insurance, and, today, many insurance carriers use these forms and are influenced by their terms and conditions.

Most discussions regarding the standard form additional insured endorsement begin with the version that ISO adopted in 1985. That version was very broad and granted the additional insured coverage for both property damage resulting from construction defects and third-party-over actions. The later versions of the form, however, began to narrow the coverage afforded. In an effort to cut off coverage for completed operations, and, in turn, construction defects, ISO revised the form in 1997 and again in 2001. The 1997 version limits coverage to “ongoing operations”, and the 2001 version further provides that it “does not apply” to events that occur after the named insured has completed its work, or the relevant portion of the project has been put to its intended use.

In 2004, in an effort to limit coverage for third-party-over actions, ISO took it a step further. It revised the standard form to provide the additional insured coverage “only with respect to” property damage or personal injury that the named insured had some negligence in causing. In other words, the 2004 version of the form eliminated coverage for the additional insured’s “sole negligence”, and it continues to provide coverage only if the additional insured contributes to the damage or injury in some way.

The practical effects of these changes are very difficult to assess. While the revisions to the form influence insurance carriers, some continue to offer the older versions of the form, or their own version of it. Today, we continue to see owners and, on occasion, some larger general contractors demand the 1985 version in their contractual requirements. However, many states have passed anti-indemnity legislation, essentially outlawing the transfer of sole negligence and many carriers will not offer a form that is this broad.

The Construction Risk Services team of professionals at Commercial Insurance Group understands the contractual liability and indemnification issues associated with construction contracting and we provide contract review services for issues such as the one above. Our primary focus is to advise on effective contract management methods and to assist in the mitigation of contractual liability exposures. We provide sound advice on the use of standard form contracts, contract terms & conditions, insurance requirements and indemnification provisions that coincide with each client’s construction operations.