The Risk of Utilizing Additional Insureds
Kegler Brown Construction Newsletter November 1, 2001
The construction industry has increasingly utilized "additional insured" requirements where the owner, architect or contractor are to be named additional insureds by the subcontractor. This endorsement gives these third party additional insureds (often contractors) the right to make claims directly against the subcontractor's insurance policy. This means that the subcontractor's insurance policy will ultimately pay for any loss, regardless of who is at fault.
This practice also means that the benefits of Ohio's anti-indemnity statute are lost in that the subcontractor is agreeing to a "broad form indemnity" otherwise unenforceable in Ohio.
Examples of insurance provisions for a subcontractor to avoid include:
- Blanket additional insured endorsements (particularly the general contractor who is more likely to be involved in accidents than the owner);
- Waivers of subrogation for claims covered by third party insurance — such as worker's compensation and general liability insurance.
Subcontractors are also warned to avoid subcontract language requiring "additional insured" on the "11/85" form or any other that includes "completed operations coverage" in that many insurers are refusing to provide this coverage, particularly in Western states experiencing a flood of construction defect claims.
Some general contractors will allow subcontractors to substitute Owners and Contractors Protective (OCP) liability insurance in lieu of "additional insured" coverage. This is a more subcontractor friendly approach. Another good alternative, and one favored by the AIA documents is for the general contractor to purchase a Project Management Protective Liability (PMPL) policy.
If forced to use an additional insured endorsement, subcontractors are encouraged to provide a "manuscript" endorsement saying that the additional insured is covered only "to the extent of bodily injury and property damage caused by the negligent acts or omissions of the subcontractor."
Regardless of the insurance strategies utilized, we strongly recommend that the client fax a copy of the relevant insurance and indemnity provisions to its insurance agent and request the precise type of policy necessary to cover this risk.