What You Need to Know About ISO’s New Additional Insured Endorsements

FreeWe all like “free,” right?

Free samples at Costco. Jamba Juice’s buy one, get one free deals. Free wi-fi at your neighborhood Starbucks. And, if you’re in the construction industry, free insurance coverage when you’re named as an “additional insured” under someone else’s insurance policy.

But do you really know what you’re getting?

You better read the fine print. The Insurance Services Office (“ISO”), which issues insurance coverage forms widely used in the industry, released new additional insured endorsement forms on April 1, 2013. The new forms include a number of new limitations which contractors and others involved in the construction industry should be aware of.

Coverage Is Now Limited To The Extent Permitted Under the Law

Under the new ISO additional insured endorsements, coverage is now limited “to the extent permitted under law.” This change is intended to address the increasing number of states which have adopted anti-indemnity laws which limit the scope of additional insured coverage.

As I wrote in an earlier post, California recently enacted new anti-indemnity legislation which effectively prohibits Type I indemnity clauses in commercial construction contracts in which one party is required to indemnify another party for their active negligence or willful misconduct. The new legislation also prohibits clauses that “purport to insure” a general contractor, construction manager, or other subcontractor from claims involving the “active negligence or willful misconduct” of the contractor, construction manager, or other subcontractor . . . like additional insured provisions.

So, in California, even if another party agrees to add you as an additional insured and to indemnify you for everything under the sun, the additional insured endorsement will be limited “to the extent permitted under the law,” and will not cover you for your own active negligence or willful misconduct among other things.

Coverage “Scope” Is Now Limited to That Required by Contract

In addition, under the new ISO additional insured endorsements, the scope of coverage “will not be broader” than the coverage the insured is “required by the contract or agreement to provide.”

Additional insured provisions in construction contracts vary widely, from you will “add us as an additional insured” to detailed descriptions of the scope of additional insured coverage or reference to specific ISO additional insured endorsement forms or their equivalent. Under the new additional insured endorsements, owners and contractors will need to specifically identify the scope of additional insured coverage or risk having no coverage at all despite being named an additional insured.

Coverage “Limit” is Now Limited to That Required by Contract

And finally, under the new ISO additional insured endorsements, the limits of coverage are limited to the lesser of: (1) the amount “required by the contract or agreement”; or (2) “the applicable Limits of Insurance shown in the Declarations.” This change is intended to limit the insurance carrier’s maximum liability.

Under earlier ISO additional insured endorsements, an insurance carrier providing additional insured coverage of say a $2 million policy limit, might be obligated to extend its full limit to an additional insured even though the contract only required a $1 million limit. Under the new additional insured endorsements, owners and contractors will need to specifically identify the limits of additional insured coverage. And, although it’s unclear how the courts will interpret the new endorsements since they’re so new, I would suggest including language stating that the limits of additional insured coverage are the “greater” of the limits set forth in the contract or under the policy holder’s limits.

Conclusion

So, while we all like “free,” when it comes to being named an “additional insured” make sure you know what you’re actually getting.

And for you loyal readers, here’s another freebie: When you’re named as an additional insured, don’t just rely on the party naming you as an additional insured giving you a certificate of insurance.

Certificates of insurance are often just pre-printed forms used to show that a policy holder has insurance coverage. Certificates of insurance do not . . . I repeat, do not . . . confer insurance coverage or insured status. In fact, they often state in their fine print that they do not confer any rights under an insurance policy and that the information provided is subject to additional insured endorsements that may or may not exist under the actual policies.

So what do you do? Demand an actual additional insured endorsement that specifically names you as an additional insured. It also wouldn’t hurt to get a copy of the underlying policy.

2 Responses to “What You Need to Know About ISO’s New Additional Insured Endorsements”

  1. MK

    Hi, Garrett.

    I work for a General Contractor. Our subcontractors often resist giving additional insured endorsements that specifically name us or any other parties as AIs. They offer blanket endorsements but either they refuse altogether to list specific names or they want to charge substantial amounts to do so. I think blanket endorsements are probably OK to cover us as GC (because we have a direct contract with the sub and the blanket language covers that), but our contracts with our clients (project owners) usually require that we provide endorsements — from us and from our subcontractors — that name the owner (and often a landlord or sometimes a lender as well) as additional insureds, and I’m not sure if a blanket would cover those parties. What do you think?

    Reply
    • Garret Murai

      Hi MK. Excellent question. In general, a blanket endorsement should be fine so long as your contract with your sub includes the additional insureds you are required to cover in your contract with the project owner. It does, however, also depend on the language in the blanket endorsement. Some blanket endorsements such as ISO’s CG 20 10 03 97 has language which states “Who Is An Insured (Section II) is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of your ongoing operations performed for that insured.” IRMI, the Insurance Risk Management Institute, has warned that this language may be used to limit claims which, while arising during a project, are filed after the project is completed: “Although ISO contends this sentence merely clarifies that no completed-operations coverage is intended, this phrase could be invoked by some insurers to attempt to eliminate coverage for losses that occur while the work is in progress but do not get filed as claims until after the project is completed. We find this wording troublesome enough that, until it is remedied, we recommend sticking to manuscript endorsements that do not include this type of statement.” No California court that I am aware of has yet to address this issue. So, bottom line, be careful.

      Reply

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