How Additional Insureds Can Negatively Effect General Contractors

Additional Insured Endorsements are intended to protect the General Contractor from being sued by their Subcontractors for faulty workmanship and liable occurrences that arise out the course of a job. The way it works is as follows: you are not allowed to file suit against a person or entity listed on an insurance policy where you are the Named/Primary Insured. It would be like a husband suing his wife under their Homeowners Policy for slipping in the kitchen after the wife mopped the tile floor. Because they are married and considered to be equal owners in the insured property, they are both considered Named Insureds no matter which is listed as the Primary Insured. One cannot sue the other for liable or any other reason, for that matter.

Additional Insured Endorsements on Commercial General Liability policies work the same. The General Contractor cannot file suit against the Subcontractor and the Subcontractor cannot file suite against the General Contractor, as well. Where this gets complicated is when the Subcontractor is doing work for more than one General Contractor and is listing all the General Contractors on his Commercial General Liability policy. A broad example of how this could negatively affect a General Contractor is as follows: the Subcontractor does work for GC1 and is found liable for damages to the job’s property owner who contracted the work with GC1.

The lawyer for the property owner discovers that the Subcontractor has GC2 listed on his Commercial General Liability policy as an Additional Insured. Tort law will allow the property owner’s lawyer to file suit against all entities listed on the liable party’s Commercial General Liability policy, this case, the Subcontractor, GC1 and GC2. The GC2, who has no interest in the contracted work for which the claims was brought against, could be named as a defendant in the lawsuit solely because he was listed on the liable party’s insurance policy. Therefore, GC2 will have his Commercial General Liability insurance carrier represent him in this instance, unless, he is willing to hire his own representation and pay the cost out of his pocket. The GC2 will have lost productive time giving depositions and possibly attend any trial proceedings, depending on the circumstances. This is an Economic Cost that the GC2 will not be able to make up or recoup from the Subcontractor or GC1.

Insurance carriers understand the need for the Adina Insured Endorsement from the stand point of protecting their insureds from liable actions of their Subcontractors. However, General Contractors are not properly informed of how to effectively utilize the Endorsement and if they are informed, they usually feel it is more upfront work/cost to have the proper documentation drawn up then the cost they will experience if the above mentioned scenario arises.

General Contractors should have contracts constructed for each Subcontractor outlining specific duties to be performed on each and every specific job. The General Contractor, requiring the Subcontractor to list the General Contractor as an Additional Insured on the Subcontractor’s Commercial General Liability policy, should then retain the job specific contract for a minimum of three years (the maximum time a claim can be filed against a ‘per occurrence’ insurance policy) in case a claim arises from the actions of the Subcontractor on jobs overseen by other General Contractors. The General Contractor’s insurance carrier will be more than pleased to submit the job specific contract between their insured and the Subcontractor in order to be removed as named defendants in any liable lawsuit brought about on behalf of the Subcontractor.

Another document that can be used to protect all parties on contracted jobs is a Hold Harmless Agreement. Just like it states, this document is intended to protect each contracted party from the liable actions of the other party. It simply states that each party will Hold Harmless or Indemnify the other party regarding their liable actions. Unfortunately, this document does not seem to have the teeth to hold up in a high stakes, multi-million dollar liable case involving bodily injury or extensive property damage. Small cases have effectively used Hold Harmless Agreements to quickly settle all claims without going to trial or prolonging outcomes.

General Contractors and Subcontractors can effectively use Additional Insured Endorsements, Hold Harmless Agreements and job specific contracts to properly protect their respective interests. Contractors, both general and sub, once explained how these endorsements and documents can be used in concert for their protection, are more likely to take the necessary time and steps to complete the needed details in their contracts. From an insurance agent’s point of view, that is the hardest part of my job: getting my contractors to listen, understand and act on the advice and tools I give them.

About the Author

Sean Kimbrough
Big Boy Toy Insurance
1690 N Stone Ave.
Suite 106
Tucson, AZ 85705
520.908.7866 office
866.450.6297 toll free

http://www.bigboytoyinsurance.com

sean@bbtimail.com

Charley Toppino & Sons Inc. Florida Keys General Contractors

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