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Insurance 101 for Contractors - What You Should Know

August 26, 2013

Part 1 of a 5-Part Series on Insurance Issues Concerning Contractors
What does it mean to be an Additional Insured?

Almost every general contract provides that the general contractor must obtain liability insurance and that the general contractor must name the owner as an “Additional Insured.” And the subcontracts also require the subcontractors to purchase insurance naming the general contractor as an “Additional Insured.” But what does that actually mean? Taking the example of the general contract, this means that the general contractor is agreeing to pay for insurance that will protect an owner from any claims arising out of the general contractor’s work. If a third-party (someone other than the owner or general contractor) suffers property damage or bodily injury that somehow arises out of the general contractor’s work on the project and that third-party sues the project owner, the general contractor’s insurer must provide attorneys for the owner to defend against the lawsuit and pay any settlement or court award. Likewise, if a third-party claim arises out of a subcontractor’s work and the general contractor is sued, the general contractor should make a demand on the subcontractor’s policy on which the general contractor is named an Additional Insured. Obviously this is a very general description of the meaning of these policy terms and the facts of each claim will impact coverage.

Here are a few key points to be aware of when dealing with Additional Insured provisions:

  • First, being named as a “Certificate Holder” is not the same as being an “Additional Insured.”  The Certificate of Insurance must be endorsed to specifically name the Additional Insured.  This is a representation that the policy has been modified to add another insured.  
  • Second, be aware of your rights as an Additional Insured and upon receipt of claim be sure to provide notice of the claim to your own insurer as well as the insurers of any other policies on which you are named as an Additional Insured.  
  • Last, it is important that the Additional Insured coverage be consistent with the indemnity obligations in the general contract.  For instance, if the general contractor is required to indemnify the owner for third-party claims even in situations where the owner is partly responsible for the damage to the third-party, you want to make sure the Additional Insured coverage is sufficient to cover such claims.  When procuring Additional Insured coverage you should consult with your insurance broker and provide the relevant contracts to the broker.

If you have any questions about the information contained in this Alert, please contact your Murtha Cullina attorney or any of the members of our Construction Law Group

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