by Quenda Behler
You're starting to get contracts on bigger and bigger jobs,
even — can you believe it? — government contracts.
Good for you. But it's important to know what you're getting
into: These contracts may contain terms you don't typically see
on smaller jobs.
Sometimes, for instance, the construction contract between the
contractor and the property owner requires the contractor to
name the property owner as an "additional insured" on the
contractor's liability insurance policy.
The same is true of many contracts between the prime contractor
and the subcontractor — they name the contractor as an
"additional insured" on the sub's own liability policy.
So what's this "additional insured" business all about?
Basically, it has to do with protecting a person or company
from the impact of someone else's negligence.
The people who want you to name them as additional insureds on
your liability policy are afraid that you're going to do
something careless or reckless, and that not only you will be
sued for it, but they will be, too. They want to be an
additional insured because their liability insurance protects
them from only their own acts of negligence, not yours.
Protecting the property owner. Let's look at an example. The
general contractor erects staging without installing the
required guardrails. An inspector visits the site, climbs the
staging to inspect something, falls and is injured, and sues
the GC for negligence.
The GC's liability policy should protect the GC against this
claim — but it won't protect the property owner if the
inspector sues him. Why would the inspector sue the property
owner? For one, the property owner may have more assets than
the GC. The inspector could claim that the property owner had a
duty to pick a GC who knew how to run a safe site.
Even if the property owner wins the lawsuit, he will still owe
legal fees — so who, in this example, pays his legal fees
and whatever claim he has to pay? He does. The only way the
GC's liability policy will cover it is if the GC has named the
property owner as an additional insured.
Thus, when the property owner asks you, the contractor, to name
him as an additional insured on your liability policy, he is
trying to make sure that he does not become liable for a claim
caused by your negligence.
Protecting the GC. For similar reasons, as the prime contractor
— even on smaller jobs — you may want to require
your subs to name you as an additional insured on their
liability policies in case their negligence causes a problem
Let's say, for example, that the masonry sub forgets to put a
piece of plywood over the hearth opening in the floor and later
that day the property owner or another sub falls through the
opening and is injured. The mason was clearly negligent and can
be sued, but so can you: As the GC, you allowed this to happen
by "failing to supervise."
Your own liability policy may or may not cover you for this,
which is why you would want to be an additional insured on the
sub's liability policy. That way, you can make sure that
someone other than you — your insurer or the sub's
insurer — pays this claim.
Workers' comp. How does workers' comp fit into all of
Here's how: If your roofing sub's employee falls off the roof,
he can sue only his employer for workers' compensation. But he
might be able to sue the property owner and the GC for
negligence, because he's not their employee.
If the injury happened because the roofing contractor allowed
his crew to work without safety harnesses, for instance, the
roofing sub's injured employee could plausibly claim that the
property owner and the GC were at fault for "failure to
supervise" by allowing the roofing sub to send his crew onto
the roof without harnesses.
Ask Your Insurance Agent
In sum, the idea is to protect the additional insureds (the
property owner or the prime contractor) from paying for the
negligent acts of the insured. That's good.
Still, there are things you have to watch out for when you are
getting that protection, because we're talking about insurance
companies, and they don't like to pay claims.
You might want to ask if the additional insureds are covered
for problems that show up after the work is completed. That
they would be covered is a logical assumption; after all, the
problems were caused by something that happened during the
process of construction. But sometimes insurance doesn't work
that way, so if it's important for you to be covered for
something like this, you need to check with your insurance
Certain words in the policy endorsement should tip you off to
the fact that coverage is being limited to problems that occur
while the work is being done, not problems that show up later
on. Endorsements that cut off protection as soon as the work is
finished use phrases like "ongoing operations" or include
exclusions for claims "after all work ... has been completed"
or for claims "after" the project has already been put to "its
To cover problems that show up after the work is over, you need
an endorsement that covers "completed operations."
Remember too that even endorsements that cover completed
operations have an expiration date. After that point, it
doesn't matter how the endorsement was written.
Something else you may want to ask your insurance agent to
clarify — because it's too complicated to explain here
— is whether the endorsement for additional insureds has
a requirement that everybody else in the potential chain of
liability carry additional insured endorsements as well. This
is an issue that could potentially exclude you from coverage
you thought you were paying for.
Added cost. No discussion of insurance would be complete
without mentioning cost. If the customer expects to be added to
your policy as an additional insured, you need to find out how
much the insurance company will charge you for that
The company won't do it for free, because the addition
increases the amount that might have to be paid out if there is
I can't tell you how much more you should expect to pay,
because the cost and availability of liability insurance varies
greatly from place to place.
Quenda Behler Story,
author of The Contractor's Plain-English Legal Guide, has
practiced and taught law for more than 25