Meeting Insuance Needs
As most everyone in Southern California's construction business is well aware, the insurance industry is in crisis. General liability rates are increasing dramatically and some higher risk contractors may not be able to buy insurance at all.
Meanwhile, coverage in the typical commercial general liability policy is becoming more restrictive, and once commonplace "additional insured" endorsements are now becoming difficult to obtain from subcontractors.
This has caused some developers and general contractors to rethink their subcontractor insurance requirements.
The underlying problem is that subcontractors are not able to provide the preferred form of additional insured endorsements that their clients require. Form CG 20 10 (11/85), commonly referred to as the "20 10 11 85," is published by the Insurance Services Office (ISO).
This form essentially provides additional insured status for any liability (subject to the policy's terms and conditions) arising out of the named insured's operations. This would include liability during the construction process (premises and operations), as well as liability after the work is completed (completed operations).
Subsequent additions of the CG 20 10 restricted the additional insured's status to premises and operations or to "ongoing operations" only. In other words, if liability arose during the course of the named insured's operations, additional insured status would apply. However, if the project were completed, additional insured status would not apply.
Most owners, developers and general contractors require their subcontractors to provide the CG 20 10 (11/85) additional insured endorsement. However, many insurance companies no longer allow this endorsement and some speculate that it may become unavailable.
For those requiring coverage, it may be extremely difficult, if not impossible, to get additional insured status that extends to completed operations. Manuscripted additional insured endorsements also will make it clear that they will not pick up the additional insured's sole negligence. In certain cases, the ISO CG 20 10 (any edition) has been held to pick up the additional insured's sole negligence if the liability arose out of the work being performed by the subcontractor.
What Can Be Done?
Owners, developers and contractors requiring the CG 20 10(11/85) will need to decide whether the inability to provide this endorsement by a subcontractor is a "deal breaker." If it is, they may still be able to find some subcontractors who can provide the preferred form.
If the availability of this form disappears entirely, or if preferred subcontractors cannot provide it, it may be necessary to rely on the more limited protection provided by alternate endorsements. Carefully review any additional insured endorsements that don't meet typical requirements. A qualified insurance consultant or broker should be able to provide assistance.
Contractors who cannot provide the required additional insured endorsement should advise their clients right away -- before clients find out on their own. Explain the problem with the insurance marketplace and the general unavailability of the preferred endorsement. Provide a copy of the available endorsement for their review and approval in advance.
Those requiring additional insured status should not overlook their indemnity agreements. There are two ways to get coverage under a subcontractor's general liability policy:
* With additional insured status; and
* Through the contractual coverage provided by the general liability policy.
ISO's general liability policy (Form CG 00 01) provides what is commonly known as broad form contractual liability coverage. It allows the named insured to assume the tort liability of another party.
For example, the owner of a project is 99 percent at fault and the contractor is one percent at fault. Yet, the contractor agreed to hold the owner harmless from any and all liability excepting the owner's sole negligence. In this scenario, the contractor's general liability policy would cover 100 percent of any and all damages.
Note that from the owner's or general contractor's perspective, it is critical that their subcontractors provide contractual liability coverage equivalent to that included in the ISO Form CG 00 01. This should be part of the owner or contractor's insurance specifications.
The restriction in coverage provided by subcontractors makes it even more important for owners, developers and general contractors to review their own insurance programs. If they can't transfer the risk to their subcontractors, it remains with them. All exclusions should be thoroughly reviewed to make certain that coverage is clear. Subcontractor warranties also should be reviewed to make sure that general contractors are in compliance with them.
The Bottom Line
For years, the CG 20 10 (11/85) has been the preferred format for additional insured status. Now, it is becoming difficult to obtain, and may soon disappear altogether.
Owners, developers, and contractors need to reconsider their subcontractor insurance requirements and make changes where necessary. Even if they can't get additional insured status for completed operations, they can still get coverage from the subcontractors' policy with a well-written indemnity agreement.
Subcontractors need to alert their clients regarding their insurance programs, and they should get their additional insured wording pre-approved.
The construction insurance marketplace is in terrible shape. Increased pricing and dwindling coverage will force all parties in the construction process to re-evaluate and rethink the way they are conducting business. This will be a necessary first step in order to meet insurance requirements in today's hard market.
Cavignac is the president and principal of San Diego-based commercial insurance brokerage firm Cavignac & Associates.
Meanwhile, coverage in the typical commercial general liability policy is becoming more restrictive, and once commonplace "additional insured" endorsements are now becoming difficult to obtain from subcontractors.
This has caused some developers and general contractors to rethink their subcontractor insurance requirements.
The underlying problem is that subcontractors are not able to provide the preferred form of additional insured endorsements that their clients require. Form CG 20 10 (11/85), commonly referred to as the "20 10 11 85," is published by the Insurance Services Office (ISO).
This form essentially provides additional insured status for any liability (subject to the policy's terms and conditions) arising out of the named insured's operations. This would include liability during the construction process (premises and operations), as well as liability after the work is completed (completed operations).
Subsequent additions of the CG 20 10 restricted the additional insured's status to premises and operations or to "ongoing operations" only. In other words, if liability arose during the course of the named insured's operations, additional insured status would apply. However, if the project were completed, additional insured status would not apply.
Most owners, developers and general contractors require their subcontractors to provide the CG 20 10 (11/85) additional insured endorsement. However, many insurance companies no longer allow this endorsement and some speculate that it may become unavailable.
For those requiring coverage, it may be extremely difficult, if not impossible, to get additional insured status that extends to completed operations. Manuscripted additional insured endorsements also will make it clear that they will not pick up the additional insured's sole negligence. In certain cases, the ISO CG 20 10 (any edition) has been held to pick up the additional insured's sole negligence if the liability arose out of the work being performed by the subcontractor.
What Can Be Done?
Owners, developers and contractors requiring the CG 20 10(11/85) will need to decide whether the inability to provide this endorsement by a subcontractor is a "deal breaker." If it is, they may still be able to find some subcontractors who can provide the preferred form.
If the availability of this form disappears entirely, or if preferred subcontractors cannot provide it, it may be necessary to rely on the more limited protection provided by alternate endorsements. Carefully review any additional insured endorsements that don't meet typical requirements. A qualified insurance consultant or broker should be able to provide assistance.
Contractors who cannot provide the required additional insured endorsement should advise their clients right away -- before clients find out on their own. Explain the problem with the insurance marketplace and the general unavailability of the preferred endorsement. Provide a copy of the available endorsement for their review and approval in advance.
Those requiring additional insured status should not overlook their indemnity agreements. There are two ways to get coverage under a subcontractor's general liability policy:
* With additional insured status; and
* Through the contractual coverage provided by the general liability policy.
ISO's general liability policy (Form CG 00 01) provides what is commonly known as broad form contractual liability coverage. It allows the named insured to assume the tort liability of another party.
For example, the owner of a project is 99 percent at fault and the contractor is one percent at fault. Yet, the contractor agreed to hold the owner harmless from any and all liability excepting the owner's sole negligence. In this scenario, the contractor's general liability policy would cover 100 percent of any and all damages.
Note that from the owner's or general contractor's perspective, it is critical that their subcontractors provide contractual liability coverage equivalent to that included in the ISO Form CG 00 01. This should be part of the owner or contractor's insurance specifications.
The restriction in coverage provided by subcontractors makes it even more important for owners, developers and general contractors to review their own insurance programs. If they can't transfer the risk to their subcontractors, it remains with them. All exclusions should be thoroughly reviewed to make certain that coverage is clear. Subcontractor warranties also should be reviewed to make sure that general contractors are in compliance with them.
The Bottom Line
For years, the CG 20 10 (11/85) has been the preferred format for additional insured status. Now, it is becoming difficult to obtain, and may soon disappear altogether.
Owners, developers, and contractors need to reconsider their subcontractor insurance requirements and make changes where necessary. Even if they can't get additional insured status for completed operations, they can still get coverage from the subcontractors' policy with a well-written indemnity agreement.
Subcontractors need to alert their clients regarding their insurance programs, and they should get their additional insured wording pre-approved.
The construction insurance marketplace is in terrible shape. Increased pricing and dwindling coverage will force all parties in the construction process to re-evaluate and rethink the way they are conducting business. This will be a necessary first step in order to meet insurance requirements in today's hard market.
Cavignac is the president and principal of San Diego-based commercial insurance brokerage firm Cavignac & Associates.
posted by David Coleman at
5:11 PM
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