For some time now, roofing contractors have been contractually required to name other parties as additional insureds. For new construction projects, roofing contractors typically are required to name general contractors, owners and architects, as well as their officers, agents and representatives, as additional insureds on commercial general liability (CGL) insurance policies. Similarly, owners and property managers often require they be named as additional insureds in roof system replacement and repair contracts. However, you need to be aware of how naming additional insureds can affect you.
Naming others
There is a huge difference between naming someone an additional insured and providing a certificate of insurance or maintaining contractual liability insurance coverage. Providing a general contractor or owner with a certificate of insurance and naming either as a certificate holder is intended to show you have the described insurance in place. (Most CGL insurance policies include often overlooked contractual liability insurance coverage, which provides insurance coverage when you contractually agree to accept responsibility for tort liability [liability imposed by law in the absence of a contract or agreement] to pay for bodily injury or property damage to a third person or organization resulting from your acts.)
But when you name someone an additional insured, you entitle that person to the benefits of the insurance coverage you purchased to protect yourself, thereby increasing the risks borne by your insurance carrier. If a claim against an additional insured is paid, the policy limits available to you are reduced. Also, claims against the additional insured may lead to premium increases and adversely affect your ability to obtain insurance.
Becoming familiar with terms when discussing insurance and indemnification can help you understand and manage your liability. A "named insured" is the purchaser of the insurance policy and principal person for whom the policy was obtained. An "additional insured" is designated by contract to have benefit of the insurance coverage purchased by the named insured. An "indemnitor" has the obligation to provide indemnity. And an "indemnitee" is the beneficiary of the indemnification obligation (the party being indemnified).
Contract provisions
You always should seek to limit your indemnification obligation to claims, damages, losses or expenses caused by you or someone for whose acts you are liable. This principle is included in The American Institute of Architects' (AIA's) standard construction contract forms. (See Article 3.18.1 in AIA Document A201-1997, General Conditions for the Contract for Construction; Article 4.6.1 in AIA Document A401-1997, Standard Form of Agreement between Contractor and Subcontractor; and Article 8.13 in AIA Document A107-1997, Abbreviated Standard Form of Agreement Between Owner and Contractor.)
But even if you carefully have limited your contractual indemnification obligation, you may negate its benefits by not paying enough attention to the additional insured issue. Current AIA standard construction contract documents do not include additional insured provisions, but the newest AIA documents, to be released later this year, are expected to include provisions requiring that other parties are provided additional insured status.
If you are required to name other parties as additional insureds, there are two steps to take to limit your insurance carrier's liability. First, limit the scope of the additional insured requirement in your contract to the extent that claims will be a result of your negligence just as you should seek to limit your indemnification obligation. You also can clarify that a claim caused by an additional insured should be covered by the additional insured's liability insurance carrier and not yours.
For example, contract language can be as follows: "Naming General Contractor and Owner as additional insureds on Roofing Contractor's liability insurance policy and making that coverage primary is intended to apply only to the extent that a negligent act or omission by the Roofing Contractor causes a claim to be asserted or a loss to be sustained by the General Contractor or Owner. This additional insured endorsement is not intended and shall not be construed to cause the Roofing Contractor's insurer to be liable either to defend or to indemnify the General Contractor or Owner for claims against or losses sustained by General Contractor or Owner that are not due to the fault of the Roofing Contractor."
Next, coordinate with your insurance broker and carrier so your additional insured coverage mirrors your contractual obligation. The obligation of your insurance carrier to an additional insured and the corollary rights of the additional insured are governed by the additional insured endorsement to your CGL insurance policy. The text of the additional insured endorsement is critical.
Your insurance carrier will have a specific additional insured endorsement form. The form may be developed by the Insurance Services Office (ISO), an insurance industry trade organization, or by your carrier and often is referred to as a "nonstandard" endorsement. In recent years, more carriers have developed nonstandard endorsements to exert greater control over coverage afforded to additional insureds.
Most CGL insurance policies purchased by construction contractors include a blanket additional insured endorsement. The blanket endorsement provides that whenever you are required by contract to name an additional insured, the party in question will be afforded additional insured status in accordance with the endorsement's terms.
You should review the additional insured endorsement form your carrier uses; there are two principal issues pertaining to the scope of additional insured liability that should be evaluated:
Differences in coverage
Additional insured endorsement forms differ significantly regarding the two issues mentioned. In addition to the nonstandard forms developed by individual carriers, ISO promulgated several additional insured endorsement forms between November 1985 and July 2004. The principal differences among these forms concern whether coverage applies to claims attributable to the negligence of the additional insured and whether coverage applies to completed operations.
Occasionally, you will see a provision in the insurance section of a construction contract drafted by a general contractor requiring that form CG 20 10 11 85 be used or additional insured coverage be equivalent to that provided in form CG 20 10 11 85. The first two letters indicate the line of insurance; the first four numbers are the form number; and the last four numbers indicate the edition date. In this case, CG refers to commercial general liability; 20 10 refers to the Additional Insured—Owners, Lessees or Contractors form; and 11 85 indicates the November 1985 edition of this form.
Some general contractors seek to require subcontractors and their insurers to use CG 20 10 11 85 because this additional insured endorsement form provides the broadest coverage to additional insureds. The text of CG 20 10 11 85 is brief, but its effects are enormous.
It states: "Who is insured is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of 'your work' for that insured by or for you."
The "arising out of" language makes the named insured's insurance carrier potentially liable for claims that are entirely the fault of the additional insured. If a claim against an additional insured arises out of the work of the named insured, the additional insured has CGL insurance coverage under the named insured's policy. Because there is no qualifying language, courts have interpreted CG 20 10 11 85 to apply to claims that solely are the result of the additional insured's negligence.
When CG 20 10 11 85 or equivalent coverage is in effect, your liability insurance carrier would be liable even if a claim is not your fault. Because of the breadth of the additional insured endorsement, a limited indemnification provision in a construction contract is all but negated by the additional insured provision when this form is used.
CG 20 10 11 85 applies to claims arising during construction and after construction has been completed. Although CG 20 10 11 85 widely has been used in the past, most insurance carriers will not use this form willingly because the coverage is so broad.
CG 20 10 10 93, issued by ISO in October 1993, is as broad as CG 20 10 11 85 in that it continues to use the "arising out of" language but is limited to liability claims arising out of the named insured's ongoing operations performed for the additional insured and does not apply to completed operations.
CG 20 10 03 97, issued by ISO in March 1997, is a blanket additional insured endorsement that applies to any person whom or organization that the named insured is required to make an additional insured. It contains specific language stating additional insured status ends at the time the named insured's operations for the additional insured are complete, but this form continues to use the "arising out of" language. Therefore, coverage for the additional insured would apply to claims that arose out of the named insured's ongoing operations rather than being triggered by the named insured's fault or negligence.
In 2004, ISO dropped the "arising out of" language and limited the scope of additional insured coverage so liability caused solely by the additional insured would not be covered by the named insured's policy. CG 20 10 07 04 covers additional insureds for liability for claims caused, in whole and in part, by the named insured's acts or omissions or the acts or omissions of those acting on the named insured's behalf.
This endorsement's intention is to provide coverage to the additional insured only when the named insured is at least partially at fault for the claim and for claims that arose during ongoing operations. If a claim or loss solely is the fault of the additional insured or occurs after completion, the intent is the additional insured is not afforded coverage by the named insured's policy. The additional insured coverage does not extend to completed operations. Even this form provides broader coverage to the additional insured than if the insurance coverage were limited to the extent liability was the named insured's fault.
CG 20 37 07 04, also issued in July 2004, is similar to CG 20 10 07 04 in that it is limited to claims caused by the acts or omissions of the named insured but includes completed operations.
CNA Insurance uses two blanket additional insured forms, G-17957-G (Ed. 01/01) and G-140331-A (Ed. 01/01), applicable to commercial general liability for construction contractors. Both forms afford coverage to the additional insured "solely for liability due to your negligence specifically resulting from 'your work' for the additional insured."
Neither form applies to completed operations unless the underlying written construction contract requires that additional insured coverage extend to completed operations, and the G-17957-G form limits completed operations coverage for the additional insured to a maximum of five years.
When reviewing additional insured endorsement forms with your insurance adviser, verify coverage generally is limited to claims caused by the named insured but additional insured coverage will be provided if the roofing con-tractor's insurance obligation in the construction contract is more extensive.
Language found in Additional Insured Endorsement form LG 10 17 05 01 is a good example: "The coverage afforded to the Additional Insured is limited to liability incurred as a result of some negligent act or omission of the Named Insured, its employees, agents or subcontractors in the conduct of the Named Insured's ongoing operations.
"If the written agreement to procure additional insured coverage requires that the insurance provided for the Additional Insured be broader than as provided in the preceding paragraph, then the coverage for the Additional Insured shall conform to that contract; … The insurance provided by this endorsement applies only to coverages and limits of insurance required by written agreement, but in no event exceeds either the scope of coverage or the limits of insurance provided by this policy."
Although naming others as additional insureds under your CGL insurance policy expands the entities that are entitled to insurance coverage, the types of claims and damages covered and excluded do not change. Keep in mind, CGL insurance policies apply to bodily injury and property damage claims; repairs or replacement of your work are excluded.
For example, a claim brought by an owner or general contractor for breach of contract to replace or repair an allegedly defective roof, in the absence of any personal injury or property damage, is not covered by CGL insurance.
If an indemnification provision is not limited to bodily injury and property damage claims and a contract requires you to obtain insurance covering your indemnification obligation, modify the insurance provision to comport with available CGL insurance. This could be done by adding the phrase "to the extent such insurance coverage is provided in standard ISO CGL insurance policies" at the end of the provision requiring you to maintain insurance covering the indemnification obligation.
Statutes
Several states have enacted anti-indemnity statutes that make indemnification provisions unenforceable in construction contracts seeking to make indemnitors liable for claims caused by indemnitees.
Connecticut, Delaware, Illinois, Massachusetts, Minnesota, Missouri, Nebraska, New York, North Carolina, Ohio and Rhode Island will not enforce indemnification provisions that require a subcontractor to indemnify a negligent general contractor, architect or owner but place no barrier on having a subcontractor's insurance carrier being held responsible for the negligence of the general contractor, architect or owner. In these states, general contractors seek to avoid the effect of the anti-indemnity statute through additional insured requirements and generally have been successful.
For instance, in the 2005 California case American Casualty Co. of Reading, Pa. v. General Star Indemnity Co., the named insured's insurance carrier was required to pay a claim caused by the additional insured even though the California anti-indemnity statute barred contractual indemnification provisions that made the indemnitor liable for claims caused solely by the indemnitee.
At the urging of the American Subcontractors Association, several states have considered legislation that would extend anti-indemnity statutes to additional insured requirements where the named insured's carrier is liable for claims caused by an additional insured's negligence.
In 1995, Oregon enacted an anti-indemnity statute that specifically includes insurers. The Oregon statute states, "Any provision in a construction agreement that requires a person or that person's surety or insurer to indemnify another against liability for damage arising out of death or bodily injury to persons or damage to property caused in whole or in part by the negligence of the indemnitee is void."
In the 2005 case Walsh Construction Co. v. Mutual of Enumclaw, the Oregon appellate courts made clear an additional insured requirement would be subject to the anti-indemnity statute.
Ron Rust Drywall Inc., Portland, Ore., was a subcontractor hired by Walsh Construction Co., Portland. Per the terms of Walsh Construction's subcontract, Ron Rust Drywall was required to procure liability insurance and name Walsh Construction an additional insured. Ron Rust Drywall's CGL insurance policy included a blanket additional insured endorsement that automatically provided additional insured coverage whenever Ron Rust Drywall was required to do so.
In this case, a Ron Rust Drywall employee was injured. There was no allegation that negligence caused the injury. When the employee brought suit against the general contractor, Walsh Construction tendered the suit to Ron Rust Drywall's insurer based on Walsh Construction being an additional insured.
The insurance company refused the tender, and Walsh Construction, after settling the claim, sued the insurance company. Because Oregon's anti-indemnity statute voids any provision in a construction contract requiring a person or that person's insurer to indemnify the indemnitee for claims caused in whole or in part by the negligence of the indemnitee, the Oregon Court of Appeals and Oregon Supreme Court ruled Ron Rust Drywall's insurance carrier had no obligation to Walsh Construction.
Similar to Oregon, Montana and New Mexico have enacted anti-indemnity statutes that encompass insurance provisions in construction contracts so additional insured provisions that make the named insured's insurer pay for claims caused by the additional insured's negligence are void and unenforceable. However, most states' anti-indemnity statutes do not restrict additional insured requirements.
Careful consideration
Just as you should scrutinize indemnification provisions in contracts, carefully consider limiting liability exposure when naming others as additional insureds. The insurance coverage provided for additional insureds should apply to claims you caused. In addition, avoid use of overbroad additional insured endorsement forms such as CG 20 10 11 85 and do not expect an anti-indemnity statute will limit application of an additional insured provision.
Stephen M. Phillips is a partner in the law firm Hendrick, Phillips, Salzman & Flatt, Atlanta.
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