1. Additional Insureds April 18, 2012
Steve Coombs, CPCU, ARM
Risk Resources

2. Exploration of Three Areas
Primer: Contract Indemnification and Insurance
Additional Insured Endorsements/Provisions
Takeaways

3. Contract Language and Insurance
Flow of Contract Terms: Indemnification and Insurance
Owner
Others
Design Team
GC/CM
Trades
Lower Tier Trades

4. Permissible Indemnification (Illinois)
740 ILCS 35 Construction Contract Indemnification for Negligent Act
Applies to indemnification provisions:
Sec. 1. With respect to contracts or agreements, either public or private, for the construction, alteration, repair or maintenance of a building, structure, highway bridge, viaducts or other work dealing with construction, or for any moving, demolition or excavation connected therewith, every covenant, promise or agreement to indemnify or hold harmless another person from that person’s own negligence is void as against public policy and wholly unenforceable.
Does not apply to insurance requirements/policies:
Sec. 3. This Act does not apply to construction bonds or insurance contracts or agreements.

5. Current Insurance Environment for Contractors:
Illinois is a “horizontal exhaustion” state (see Kajima Construction Services, Inc. V. St. Paul Fire and Marine Ins. Co., Docket No , Ill )
Illinois doctrine of “targeted tender” does not supersede “horizontal exhaustion”
Upstream parties often impose stringent insurance requirements
Owner/CM/GC increasingly require higher primary CGL and Auto limits ($2 million)
Owner/CM/GC often require Umbrella/Excess liability which “follows form”
Required “Additional Insured Endorsements” are often specified by form number; primary/non-contributory requirements are common
Builders Risk insurance arrangements/requirements are not always clear

6. Additional Insureds What Do Additional Insured Endorsements Do?
Provide upstream parties with some degree of insurance coverage maintained by downstream parties
Why Do Parties Demand Additional Insured Status?
Greater protection than hold harmless/indemnification agreements
Direct rights under the policy
Protects against subrogation
What Insurance Policies Allow Additional Insured Status?
CGL
Auto
Umbrella/Excess
Pollution
Builders Risk

7. Additional Insureds: Commercial General Liability
What Endorsements Are Currently Used?
ISO forms (six for construction industry)
Non-ISO forms (300+)
ISO Construction Related Forms
Engineers, Architects or Surveyors (CG )
Engineers, Architects or Surveyors- Not Engaged by the Named Insured (CG )
Owners, Lessees or Contractors- Scheduled Person Or Organization (CG )
Owners, Lessees or Contractors- Completed Operations (CG )
Designated Person or Organization (CG )
Owners, Lessees or Contractors- Automatic Status when Required in Construction Agreement With You (CG )

8. Non-ISO Forms
Manuscripted by individual insurers
May incorporate portions of ISO language
Level of protection is wholly dependent on wording contained therein
Range of protection: From non-existent to good
Most Popular Upstream Requirements
Owners, Lessors or Contractors- Scheduled Person Or Organization (CG )
Owners, Lessors or Contractors- Completed Operations (CG )
These two endorsements are commonly required because language is largely tested and are readily available.

9. Owners, Lessees or Contractors CG 20 10 07 04
A scheduled endorsement– Name and location of covered operations
Refers to the person or organization as an additional insured
Limited to on-going operations for the additional insured
Injury or damage “caused in whole or in part” by your acts or omissions or those acting on your behalf
Whole = 100%
In part: > 0% and < 100%

10. Owners, Lessees or Contractors–Completed Operations CG 20 37 07 04
A scheduled endorsement– Name and location of completed operations
Limited to completed operations for the additional insured
Injury or damage “caused in whole or part” by your work
Often used in conjunction with CG 20 10

11. Blanket Additional Insured Endorsements: Use Caution
Very common approach today with no scheduling of names
Usually tied to “written” or “executed” contracts
Breadth of coverage is dependent on the “fine print”
May not provide for “in whole or part”
May not provide completed operations
Often limited to limits or coverages required by contracts

12. Ideal Blanket Endorsement
Additional Insured– Where Required By Contract
Who is an Insured is amended to read any person or organization to whom you become obligated to include as an additional insured under this policy, as a result of any contract or agreement you enter into which requires you to furnish insurance to that person or organization of the type provided by this policy, but only with respect to liability arising out of your operations or premises owned by or rented to you.

13. Recent Chink in the Armor
Westfield Insurance Co. v FCL Builders, Inc., 407 Ill. App. 3d 730; N.E.2d 115 ( )
Sub—Subcontractor’s “CGL” policy included an additional insured endorsement:
“…any person or organization for whom you are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy.”
Since no direct contract existed between GC and sub- subcontractors additional insured endorsement did not apply to GC
It is unlikely that other courts will follow this decision

14. Additional Insureds: Umbrella and Excess
What endorsements are currently used?
Manuscript policies (embedded language)
Manuscript endorsements
What to look for?
“Follow form” on persons or organizations
“Follow form” on coverage
Primary/non-contributory as required by contract

15. Additional Insureds: Auto Liability
What endorsements are currently used?
ISO Business Auto Policy (CA ) “Who Is Insured” includes “anyone liable for the conduct of an ‘insured’ described above (named insured and permissive users) but only to the extent of that liability
ISO Designated Insured (CA ) was developed to respond to multiple requests for a separate endorsement. It does nothing more than repeat what is provided in the base policy
Manuscript endorsements

16. Additional Insureds: Pollution
What endorsements are currently used?
Manuscript policies (embedded language)
Manuscript endorsements
What to look for?
Copy of policy or endorsement
Obtain assistance from agent/broker/advisor

17. Additional Insureds: Builders Risk
What does the construction contract require?
Standardized Contracts
AIA: “Interests…In the project”
Consensus DOCS: “As Named Insureds”
EJCDC: “As Loss Payees”
DBIA: “As Additional Insureds”
What endorsements are currently used?
Manuscript policies and endorsements
“Named Insured” status is recommended

18. Takeaways
Additional insured provisions/endorsements are not created equal
Review and understand contract requirements from upstream parties
Require specific endorsements from downstream parties
Confirm endorsements comply with the contract requirements

19. Steven A. Coombs, CPCU, ARM
Steve joined Risk Resources as President in 1992 after serving eight years as an officer and a risk management consultant with a national consulting firm. Prior to that he spent seven years developing his skills as a national accounts underwriter for a large international insurance group.
Steve brings his special knowledge of underwriting and risk financing techniques to benefit Risk Resources’ clients. He has presented many seminars related to insurance, with special emphasis on construction risk issues. He has authored various articles and is the co-author of The Builders Risk Book (IRMI).
Steve is a graduate of Western Michigan University with a Bachelor of Business Administration. He also holds an M.A. from DePaul University with a concentration in risk management and insurance. He has earned the Associate in Risk Management (ARM) certificate from the Insurance Institute of America and received the Chartered Property Casualty Underwriter (CPCU) designation.
He is currently a member of the Chartered Property Casualty Underwriters (CPCU) Society and Society of Risk Management Consultants (SRMC). He is a former President of SRMC.