Facts About the Progressively Narrowing Coverage of Contractors and Additional Insured Endorsements

The three most commonly used additional insured endorsements in construction relationships are the Insured – Owners, Lessees Or Contractors – Scheduled Person Or Organization (CG 20 10); Additional Insured – Owners, Lessees Or Contractors – Automatic Status When Required In Construction Agreement With You (CG 20 33); and Additional Insured – Owners, Lessees Or Contractors – Completed Operations (CG 20 37).

Analysis of these forms reveals some intriguing facts.

First, the 11/85 edition of the CG 20 10 extended additional insured status to the scheduled entity not only during the operations but even after the operations were completed (as evidenced by the inclusion of “Your Work”). No one who works with contractor and construction clients is surprised by this statement; this has been a source of tension between insurance professionals and general contractors (and their lawyers) for some time. It is not unusual to still find a contract requiring the CG 20 10 11 85 “or its equivalent” being used. The lawyers and the general contractors have, to some extent, conceded that this option does not exist, yet the contractual language remains. These parties have agreed instead to accept equivalent protection. Newsflash, the CG 20 10 coupled with the CG 20 37 does not provide “equivalent” protection.

To exemplify how deep the root of this contractual language requirement goes, about 18 months ago I attended a contractors’ liability class sponsored and taught by a major national insurance carrier and designed for agents who insured general contractors. During the class, the instructor stated that the underwriters wanted to review the general contractor’s contractual risk transfer requirements as part of the underwriting process. As part of that review, they wanted to confirm that the general contractor was asking for the CG 20 10 11 85. I immediately raised my hand and reminded the instructor that they, the insurer teaching the class, didn’t even offer that endorsement to their insureds. I continued on to what I thought was the next logical question, “How can you ask for something you won’t even offer?”

The answer was not at all satisfying or settling. Something like, “Yes, we know we don’t offer the endorsement but we still want to see the request. We’ll take equivalent wording.” (I’m paraphrasing, but this is essentially what was said.) There is no equivalent wording from ISO. There may be some proprietary company form that provides something equivalent, but that is limited to very few carriers (I’m aware of one or two). Surprisingly, there are some specialty carriers that still have the option to use the 11/85 edition, but it can be costly.

Second, the protection extended to additional insureds was narrowed to apply only to “ongoing operations” when the 10/93 edition was adopted. This change in wording resulted in the removal of additional insured status once the job was done (no completed operations coverage). It was eight years before this loss of additional insured status was fixed with the introduction in 2001 of the CG 20 37.

Third, “arising out of,” was replaced by, “caused … by,” in the 07/04 edition of all three listed forms. This may seem minor, but it may have amounted to another narrowing of applied coverage (although not necessarily the intent of coverage).

Fourth, prior to 1997, ISO provided no specific way to extend additional insured status to any entity without that entity being specifically scheduled. In 1997, ISO introduced the automatic additional insured edition of the CG 20 10 — the CG 20 33. Additional insured status was automatically extended when a signed contract required the subcontractor to name the general or upper-tier contractor as an additional insured. Underwriting opinion differs regarding the use of this form, then and now. Some underwriters want to know or even control to whom additional insured status is granted; others aren’t concerned. Wording in the CG 20 33 is essentially the same as the CG 20 10 with the only major difference being the additional wording stating that additional insured status ends when the work contracted for is completed (no completed operations coverage is extended to the additional insured).

An errors and omissions problem is created when agents depend on this form to grant additional insured status: there is no automatic extension providing completed operations coverage to the additional insured.

The CG 20 33 says that any entity requiring additional insurance status via a contract is covered; however, the CG 20 37 states that additional insured status is granted only when the entity is scheduled. It can be very easy to forget to schedule the entity when on one form (the CG 20 37) it is necessary to schedule, and on another (CG 20 33) it is not necessary. This also creates a problem when a certificate of insurance (COI) is issued stating that additional insured status is provided for both the operations exposure and completed operations claims.

Care is required when an automatic status endorsement and scheduled entity endorsement are required to comply with the contract. Unless the underwriter agrees to allow the entity to be scheduled on the CG 20 37 (completed operations coverage), issuing a certificate that states this coverage has been extended to the additional insured is a misrepresentation of the policy provisions.

Reduction in Available Coverage

In the past, adding an additional insured by use of the CG 20 10, CG 20 33 or CG 20 37 may have, although unintentionally, extended some coverage to the additional insured; affecting the limits available to the named insured. This coverage extension was apparently not intended when the forms were written, but rather created by the courts. The 07/04 edition of these endorsements appears to have corrected this unintentional coverage extension, limiting coverage to nothing more than the additional insured’s vicarious liability for the actions of the named insured.

A 2007 court case is used to explain the difference between the 07/04 forms and all previous contractor additional insured endorsements in part two of this series to be published in the Jan. 26 issue.