Construction subcontracts often contain “additional insured” provisions. This legal language requires a subcontractor to name the owner, general contractor (GC) and higher-tier subcontractors (if applicable) as additional insureds under the subcontractor’s commercial general liability (CGL) policy. These provisions are designed to protect the other parties from liability in connection with the subcontractor’s activities on the project. But the existence of such a provision is no guarantee that you’re protected. A recent federal appeals court case illustrates the dangers of assuming you’re covered without studying the relevant policies.

Details of the Case

In Cincinnati Insurance Co. v. Harleysville Insurance Co., a sub-subcontractor’s employee was injured while working on a construction project and sued the owner, the GC and the subcontractor. The contract between the subcontractor and sub-subcontractor required the sub-subcontractor to name these parties as additional insureds.

The sub-subcontractor’s CGL policy, however, contained a “Privity Endorsement,” which essentially limits additional insured status to parties with whom the sub-subcontractor contracts directly — in this case, the subcontractor.

The owner and GC claimed that they were entitled to additional insured coverage under the sub-subcontractor’s policy, but the U.S. Circuit Court of Appeals for the Second Circuit disagreed. Although the sub-subcontractor’s failure to obtain insurance for the owner and GC as additional insureds may constitute breach of contract, the court said, “… the validity of such a claim does not modify the insurance policy to say something that it does not.” Provisions in a construction contract don’t affect the terms of a policy that’s “complete and clear and unambiguous on its face.”

The court also rejected the argument that an “Automatic Status Heading” in the policy overrode the Privity Endorsement. The Automatic Status Heading provided that “owners, lessees, or contractors are automatically entitled to additional insured status when required in a construction agreement with [the sub-subcontractor].” But to accept the argument that the Automatic Status Heading governs interpretation of the policy would have rendered the Privity Endorsement meaningless. The court observed that the Privity Endorsement itself cautioned the parties, “This endorsement changes the policy. Please read it carefully.”

No Assumptions

To determine whether you’re covered as an additional insured under another party’s CGL policy, review the policy itself and carefully examine any Privity Endorsements or other provisions that affect additional insured status. Don’t assume you’re protected simply because the other party is contractually obligated to name you as an additional insured. And don’t rely on certificates of insurance. Rather, you should request a certified copy of the policy and scrutinize the relevant language.

Beware that the scope of coverage extended to additional insureds may be narrower than that provided to the policyholder. For instance, some policies limit coverage for additional insureds to personal injuries or property damage for which the policyholder is at least partially responsible. In other words, coverage may be denied if the additional insured is solely responsible. Also, some policies exclude additional insured coverage for claims that arise after the project has been completed.

Scope and Relevance

Before you enter into a construction contract, be sure you understand the scope of all relevant insurance policies and the level of additional insured protection provided by other parties’ policies. Your insurance broker can help verify your insured status and review your options in the event coverage is insufficient.