Because of the growing number of construction claims, more and more owners, developers and general contractors are requiring the purchase of additional insured coverage in connection with their projects. However, as with all insurance, no two endorsements are created equal. Although two additional insured endorsements may have similar names, they may provide very different coverage. As a result, in this issue of The E&O Report we will review the difference between some of those endorsements.
We do note, however, that some construction contracts require particular ISO endorsements or particular additional insured language. Regardless of what you may think is the better coverage, or what may actually be the better coverage, if the contract contains such details, and the requested coverage is available to the insured and obtained, it will eliminate any doubts as to whether the coverage will be sufficient to satisfy the insured’s obligations.
Scheduled vs. Blanket Endorsement
There are two main types of additional insured endorsements – blanket and scheduled. A blanket additional insured endorsement covers all persons and entities who meet certain criteria, while a scheduled endorsement covers the person(s) or entity(ies) specifically identified in the endorsement. Notably, some insurance carriers use scheduled additional insured endorsements to create blanket additional insured endorsements, by including blanket language in the schedule, rather than specific names. For example, a scheduled endorsement may list in the schedule “as required by written contract.” There could be many reasons why an insurance carrier does this, including that they simply do not have a blanket endorsement that they use. However, it may also indicate that there is language in the blanket endorsements they do not want to adopt. As a result, it helps to look carefully at the language in the schedule, as well as the terms of the endorsement, to determine whether it fits a particular insured’s needs.
A common misconception is that purchasing a blanket additional insured endorsement is always better because it will cover anyone the insured may need to include. However, that is not necessarily true. The test of whether an additional insured endorsement is better than a scheduled endorsement will depend upon the nature of the contracts the insured enters into and the interests the insured needs to protect. For example, if your customer is a small contractor who never enters into formal contracts, but orally agrees to purchase additional insured coverage, a blanket additional insured endorsement may not provide any coverage at all, since a typical blanket additional insured endorsement will require that the agreement be in writing. Additionally, many subcontractors enter into contracts requiring them to purchase additional insured coverage not only for the contractor who hires them, but everyone “upstream” (e.g., general contractor, construction manager, owner, etc.). However, as discussed below, certain additional insured endorsements only trigger coverage for the person or entity with whom the insured directly contracted. Depending upon the situation, it may still be appropriate to purchase a blanket additional insured endorsement, but you may need to supplement it with a scheduled endorsement.
Unfortunately, there is no sweeping rule that can be applied across-the-board to determine what coverage is appropriate because every situation is different, particularly since insurance carriers use various endorsements (some using their own manuscript endorsements) and not every insured will qualify for coverage with every insurance carrier. However, to assist with any determinations on this, we provide below a summary of the most common issues to consider when reviewing the coverage, followed by a chart providing a comparison of the main distinctions between the most common ISO endorsements (based upon the 2013 revisions)1 for entities in connection with construction projects.
“Blanket” Coverage Limited to Only Those in Contractual Privity with the Insured
As noted above, there are a number of endorsements, including the current ISO endorsements, which include language limiting coverage to only those with whom the insured has contracted. If the additional insured endorsement contains such limiting language, another endorsement (either a broader blanket endorsement, or a scheduled endorsement) would be needed in order to provide coverage for entities with whom the insured did not directly contract.
The following are examples of policy language which courts have found limit coverage to only those with whom the insured has contracted (note that this language is often found in the first paragraph of a blanket endorsement or can be found in the schedule on a scheduled endorsement):
- “any person or organization for whom you are performing operations when you and such person or organization have agreed” (found in CG 20 33 04 13; see (Harco Constr., LLC v First Mercury Ins. Co., 148 AD3d 870 [2d Dept 2017]);
- “with whom you have agreed to add as an additional insured” (Gilbane Bldg. Co./TDX Constr. Corp. v St. Paul Fire & Mar. Ins. Co., 31 NY3d 131 [2018]);
- “when you and such person or organization have agreed” (AB Green Gansevoort, LLC v Peter Scalamandre & Sons, Inc., 102 AD3d 425 [1st Dept 2013]);
- “with whom you have agreed ... to provide insurance such as is afforded under this Coverage Part” (Dynatec Contr., Inc. v Burlington Ins. Co., 184 AD3d 475 [1st Dept 2020]).
Scope of Coverage Limited to Acts or Omissions of the Named Insured
The scope of additional insured coverage provided by the additional insured endorsement varies based upon the endorsement included in the policy. Of particular note is that some endorsements, such as CG 20 10 04 13, CG 20 33 04 13 and CG 20 38 04 13 limit additional insured coverage to liability for injuries:
caused, in whole or in part, by [the named insured’s] acts or omissions; or the acts or omissions of those acting on [the named insured’s behalf]; in the performance of [the named insured’s] ongoing operations for the additional insured(s) at the location(s) designated above.
Courts have found that this language limits coverage for the additional insured to injuries proximately caused by the named insured and will not provide coverage where the additional insured (or anyone other than the named insured) is the sole proximate cause of the injury. (See, Burlington Ins. Co. v NYC Tr. Auth., 29 NY3d 313 [2017]). In other words, additional insured coverage will only trigger where the additional insured can show that the named insured was negligent or otherwise at fault in causing the injury. (Old Republic Gen. Ins. Corp. v Consol. Edison Co. of NY, 193 AD3d 595, 597 [1st Dept 2021]).
Ongoing Operations vs. Completed Operations
Some additional insured endorsements provide coverage for ongoing operations as opposed to completed operations. For example, while endorsements CG 20 10, CG 20 33, CG 20 26 and CG 20 38 provide coverage for liability arising out of ongoing operations,2 endorsement CG 20 37 provides coverage for completed operations.
Although it would seem pretty straightforward what would fall within the scope of each of these categories, there has, not surprisingly, been some litigation over this issue as well. For example, where an insured installed an electromagnetic locking system and guaranteed the system for two years after the installation, a loss which occurred after installation, but during the guarantee period was found not to arise out of the insured’s ongoing operations because the insured had not been called back to repair the system. (NY City Hous. Auth. v Merchants Mut. Ins. Co., 44 AD3d 540 [1st Dept 2007]). However, in a case where the plaintiff sued the insured and the City of New York for negligence in maintaining traffic control devices at the intersection where the plaintiff was struck by a car, the court found that the insured’s operations were still ongoing at the time of the accident. (City of NY v Endurance Am. Ins. Co., 98 AD3d 900 [1st Dept 2012]). We expect the distinction between these may lie in the fact that the insured in NY City Hous. Auth. v Merchants had been hired to install a locking system – the guarantee was simply a feature of that contract, but not what they were hired to do. As a result, the operations were not considered ongoing because the insured had not been called to make repairs. On the other hand, in City of NY v Endurance the very thing the insured had been hired to do was to maintain the traffic light. As a result, its operations were ongoing as long as the contract remained in force.3 However, the close set of facts between these cases demonstrates that there could be situations where only a slight sway of the facts may be the difference between coverage and no coverage.
COMPARISON CHART
CG 20 10 04 03
| CG 20 26 04 03
| CG 20 33 04 03
| CG 20 37 04 03
| CG 20 38 04 03
|
Scheduled
| Scheduled
| Blanket
| Scheduled
| Blanket
|
No written contract required
| No written contract required
| Written contract required
| No written contract required
| Written contract required
|
Designated Location
| No contractual privity required
|
| Designated Location
| |
No contractual privity required
|
| Contractual privity required
| No contractual privity required
| No contractual privity required4
|
Scope limited to acts or omissions of named insured
| Scope limited to acts or omissions of named insured
| Scope limited to acts or omissions of named insured
| Scope limited to named insured’s “work”
| Scope limited to acts or omissions of named insured
|
Ongoing
| Ongoing
| Ongoing
| Completed
| Ongoing
|
| | | Architectural, engineering and surveying exclusion
| | Architectural, engineering and surveying exclusion
|
Conclusion
It may not always be possible to obtain for every insured the exact coverage that they request. But, by understanding the different features of additional insured coverage, and also understanding a client’s needs, an insurance agency or brokerage can better assist a customer and avoid potential E&O issues related to the procurement of any requested additional insured coverage.
Submitted by:
Debra M. Krebs, Esq.
Keidel, Weldon & Cunningham, LLP
1In 2019, ISO revised a number of the additional insured endorsements and added two new endorsements (CG 20 39 and CG 20 40). Although these 2019 versions of the additional insured endorsements have been accepted in some states, they are not accepted in New York.
2As noted above, however, some of these endorsements provide such coverage limited to liability arising out of the insured’s “acts or omissions.” See chart below for a comparison of the relevant terms.
3Similar to the decision in City of NY v Endurance, courts addressing snow plow contracts have found that accidents occurring while the snow plow contracts remain in force arise out of the insured’s “ongoing operations.” (See, Wausau Underwriters Ins. Co. v Cincinnati Ins. Co., 198 Fed. Appx. 148 [2d Cir 2006]; Mack-Cali Realty Corp. v Peerless Ins. Co., 115 F Supp 3d 449 [SDNY 2015]).
4 Although the provision does not require contractual privity, the coverage does have a limitation for those not in contractual privity with the insured. Such entities will only gain additional insured status if the insured is required to name them as an additional insured under a contract with an entity who the insured is also required to name as additional insured – for example, an owner will only be an additional insured on a subcontractor’s policy if the subcontractor enters into a contract with the general contractor which requires the subcontractor to name both the owner and the general contractor in the same contract. It is not clear whether this will trigger additional insured coverage if the contract with the general contractor requires the subcontractor to purchase the additional insured and to comply with any other additional insured obligations the general contractor has undertaken, since, in that case, the obligation to name the owner as an additional insured is arguably under a different contract (though we believe the specific language of the contract would most likely dictate how the obligation would be interpreted).