NAMING OTHER PARTIES AS ADDITIONAL INSUREDS INTRODUCTION Roofing contractors typically are required to name owners, general contractors, property managers, architects and others as additional insureds on insurance policies. Properly limited, an additional insured requirement is a standard part of construction contracting that protects other parties from the consequences of your negligence. Broadly drafted, an additional insured endorsement can overcome a narrow indemnification clause and expose you and your carrier to extensive liability, including potential liability for the negligent acts or omissions of others, provided only that the claim has some connection with your work. WHAT IS THE EFFECT OF NAMING SOMEONE AS AN ADDITIONAL INSURED? When you name someone as an additional insured on your insurance policy, you are entitling that person to the insurance coverage benefits you purchased to protect yourself. You are, in effect, buying insurance coverage for someone else. Additional insured status commonly is used in conjunction with an indemnification agreement between the named insured (you) and the party requesting additional insured status (the owner, general contractor, etc.). Indemnification is the assumption of responsibility and liability that would otherwise belong to someone else. Additional insured status takes that one step further, providing insurance coverage to cover the assumption of responsibility and liability that would otherwise belong to someone else. When you make someone else an additional insured on your policy, you increase the risks borne by your carrier because it -1-
ADDITIONAL INSUREDS/2 now is providing coverage for others. MY CONTRACT REQUIRES ME TO NAME THE OWNER AND GENERAL CONTRACTORS AS ADDITIONAL INSUREDS, SO WHAT DO I DO? You should be familiar with your insurance policies and what, if anything, must be done in order to ensure the required parties are named as additional insureds. Many commercial general liability policies include a blanket or automatic additional insured endorsement, which automatically grants insured status to a person or entity that you are required by contract to name as an insured. Some blanket endorsements only apply to specific types of contracts or entities. It is recommended you consult with your agent or broker to understand the required procedures on your policy. Some contracts go beyond simply requiring certain parties be named as additional insureds and specify which version of the endorsement must be used. You should be wary of contracts identifying by number the specific endorsement you must provide. Of particular concern is the 20 10 11 85 endorsement. This endorsement, issued in November 1985, does not require any fault or negligence by the named insured in order for the additional insureds to be entitled to coverage and instead requires only that the claim against the additional insured arise out of named insured s work. It applies even if the claim is because of the additional insured s fault. The 20 10 10 93 endorsement, issued in October 1993, is equally broad in that it applies to claims arising out of the named insured s work regardless of cause but is limited to ongoing operations, whereas the 20 10 11 85 endorsement applies to ongoing operations and completed operations. The arise out of language was dropped by the International Organization for Standardization in 2004 and replaced with more limited language so liability due solely to the fault -2-
ADDITIONAL INSUREDS/3 of the additional insured would not be covered. The 20 10 11 85 and 20 10 10 93 forms are not available from some carriers and may not be approved by the insurance commissioner in your state, thus any reference to 20 10 11 85 or 20 10 10 93 should be deleted. Your insurance broker should be able to work with the owner or general contractor to reach agreement as to a substitute form. In addition, a roofing contractor should seek to limit the scope of the additional insured requirement, just as the scope of indemnity should be limited, by adding language providing the additional insured requirement only applies to the extent that a claim is as a result of the negligence of the roofing contractor or persons or entities for whose acts or omissions the roofing contractor is responsible. RISKS OF A BROAD ADDITIONAL INSURED REQUIREMENT If a claim against the additional insured is paid, the policy limits available to you are reduced. In addition, claims against an additional insured may lead to an increase in your premiums or adversely affect your ability to obtain insurance. The broader the additional insured requirement, the more likely it is that a claim will be covered. When a roofing contractor is required to name other parties as additional insureds and the applicable additional insured endorsement is not limited to claims against the additional insureds that are because of the negligence of the primary insured, the roofing contractor may have, in effect, contractually agreed to provide insurance to cover claims caused by the negligence of the additional insureds. A roofing contractor who carefully limits the scope of an indemnity obligation or works in a state that prohibits broad indemnification clauses may still find that he or she has inadvertently accepted liability for the acts of others as a result of insurance provisions in the contract. Narrow form indemnification clauses and anti-indemnity statutes typically do not affect a contractual -3-
ADDITIONAL INSUREDS/4 provision dealing with insurance that would require the roofing contractor to provide insurance for any claims that may arise from the contract, even if those claims are as a result of the indemnitee s fault. Very few states have addressed this additional insured loophole that requires a contractor to provide insurance coverage against claims as a result of the negligence of others when indemnity against those claims is barred as a matter of public policy. I DIDN T GET THE ADDITIONAL INSURED ENDORSEMENT. WHAT S MY EXPOSURE? Failure to obtain the required insurance may be a breach of contract, which would entitle the other party to be put in the position they would have been in had you not breached the contract. In this context, what the other party has lost is an insurance company that will hire and pay for an attorney and pay any judgment for a covered claim. If the job still is ongoing but no claim has been filed, the contract may reserve to the general contractor or owner the right to suspend your work until and unless the proper insurance is acquired and terminate you if you do not acquire it. If a claim has been filed and the insurance company will not defend a party that should have been covered by your policy, you will be required to retain an attorney to defend the claim at your cost and pay any judgment that would have been covered by insurance so the other party is not prejudiced by your failure to obtain the proper insurance. CONCLUSION Roofing contractors should seek to limit the potential effect of naming others as additional insureds by ensuring the application of additional insured status is limited and does not extend to claims caused by others negligence and by checking the actual additional insured form used by -4-
ADDITIONAL INSUREDS/5 your carrier. Be sure to carefully review any contract clause pertaining to insurance and edit as necessary to ensure you can comply with the requirements. ### -5-