January 11, 2023
In construction, risk management is critical to the success of any project. One of the most effective ways to mitigate risk is through construction insurance and bonds. In this article, we’ll dive into a key aspect of construction insurance: the role of Additional Insureds.
What Does Being an Additional Insured Mean in Construction?
In construction projects, each party involved typically obtains insurance coverage through their own carriers. However, it’s common for one party to add another party (or multiple parties) to their insurance policies as “Additional Insureds.” This designation is an important risk management tool for contractors and project owners.
Additional Insured Coverage serves to protect a party (the additional insured)[1] from liability arising due to the negligence of the named insured. For example, if a contractor’s negligence leads to a liability issue, the owner may be covered under the contractor’s insurance policy as an additional insured.
This protection works by covering the vicarious liability of the additional insured, which can arise from the actions or omissions of the named insured (e.g., a contractor or subcontractor).
The Benefits of Being an Additional Insured
There are two key benefits of being named as an additional insured:
- Vicarious Liability Coverage: The additional insured receives protection from liability caused by the negligence of the named insured, such as a contractor’s mistakes.
- Protection Against Subrogation: Insurance companies generally cannot sue their own insureds for reimbursement of claims. By becoming an additional insured, the added party (e.g., a project owner) gains protection from being sued by the insured’s liability carrier.
In this sense, the role of an additional insured is similar to that of a waiver of subrogation, which we discussed in Part 4 of this series.
Do AIA Contracts Contain Insurance Requirements Related to Additional Insureds?
Yes, AIA Contracts (such as the A101-2017) include specific insurance requirements for additional insureds, especially regarding commercial general liability (CGL) insurance and property insurance.
For instance, the Insurance and Bonds Exhibit (Exhibit A) of the A101-2017 includes the following obligations under section A.3.1.3 Additional Insured Obligations:
- The contractor is required to ensure that the CGL insurance policy includes the Owner, Architect, and Architect’s consultants as additional insureds for claims resulting from the contractor’s negligent acts during operations.
- The contractor must also ensure that the Owner is an additional insured for claims arising from negligent acts that occur during completed operations.
Additionally, the policy must specify that the coverage provided to additional insureds is primary and non-contributory to any insurance policies held by the Owner. This ensures that the Owner’s insurance is not affected by the contractor’s policy.
AIA also mandates that the coverage should meet or exceed certain standards set by the Insurance Services Office (ISO), including forms CG 20 10 07 04, CG 20 37 07 04, and CG 20 32 07 04 for different parties involved, such as the Owner and Architect.
Why Understanding Additional Insureds is Critical in Construction Projects
Understanding the concept of additional insureds is essential for both contractors and project owners. It not only helps mitigate liability risks but also ensures that each party’s insurance policies align with their legal obligations under the contract. By designating additional insureds, contractors and owners can safeguard their interests and limit their exposure to claims related to the other party’s actions or omissions.
Stay tuned for Part 7 in our series, where we’ll explore insurance bonds in construction and their role in risk management!
AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.
[1] Scope of additional insured coverage—Narrow view, 4Pt2 Bruner & O’Connor Construction Law § 11:330.