Additional Insured Certificates: What Do They Mean?

By James R. Harvey, Partner, Vandeventer Black LLP

Shifting the significant risk of loss is a basic part of construction contracting. Contractors are familiar with requirements to provide proof of insurance and to name the owner, architect and general contractor as an additional insured on the commercial general liability policy. Most parties accept any certificate of additional insured thinking that they are covered if anything goes wrong with the subcontractor’s or contractor’s work, but may be later surprised that the certificate does not explain the whole story. Recent changes in the standard insurance forms published by the Insurance Services Office operate to limit coverage, and additional insureds should be aware of the following concerns:

• Does the policy provide for coverage for each additional insureds – you won’t know unless you see the Policy – for instance an owner may not have a direct contract with a subcontractor, and as a result, may not be entitled to additional insured status under the subcontractor’s policy;

• Is the indemnity clause enforceable? Virginia law prohibits indemnity provisions in construction contracts that disclaim liability for a party’s own negligence. An unenforceable indemnity clause, may jeopardize insurance coverage.

• What is the limit of coverage? If the limits in your contract differ from the policy limits, then the lesser amount may only apply.

• Does the loss relate to any professional services? A broad range of services may be excluded under the policy including engineering services for shop drawings, consulting and inspection services, or even supervisory services.

• Is it “Your Work”? Most policies exclude coverage for defect work performed by the insured. If you are now a named additional insured, then the defective work performed by the subcontractor may not be covered under the Your Work exclusion.

It is imperative that contractors review the insurance requirements with both legal counsel and your insurance agent. Do not simply rely on the certificate, but get the entire policy and make sure you have adequately accounted for risk on that next big project.

These articles are meant to bring awareness to these topics and are not intended to be used as legal advice.

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