How to Get Rid of Additional Insured Status in Construction Contracts
As a contractor, you’re often asked to add the Owner, General Contractor (GC), or EPC contractor, and sometimes a long list of third parties, as additional insureds to your General Liability and Completed Operations insurance policies. By doing so, you grant them full access to your insurance—for free—which includes covering their defense costs. Ask yourself: Are you an insurance company or a construction company?
The Hidden Cost of Additional Insured Status
Agreeing to add others as additional insureds can be a financial risk. When a claim arises, your insurance policy, which you pay for, may be used to cover liabilities stemming from the other party’s negligence. In effect, you’re providing them insurance coverage—often without receiving anything in return. It’s essential to consider how you can protect yourself from this unnecessary exposure.
ISO Endorsements to Limit Additional Insured Coverage
If you must add someone as an additional insured, consider using the ISO CG 20 10 04 13 (Scheduled Person or Organization) or ISO CG 20 33 04 13 (Blanket Endorsement) and their equivalents for Completed Operations. These are among the most restrictive additional insured endorsements available today, offering some protection to contractors.
Negotiating Contract Terms to Protect Your Insurance
Everything in a construction contract is negotiable, including insurance terms. If you must agree to provide additional insured status, consider negotiating clauses that protect you if the Owner, GC, or EPC fails to fulfill their obligations. For example, add wording like this to the payment terms:
“It is agreed and understood without exception by both parties that in the event the Owner (or GC or EPC) is one day late in making Contractor’s payment, the obligation for Contractor to provide additional insured status on its General Liability and Completed Operations insurance policies becomes null and void and no longer enforceable.”
This kind of clause ensures that if your client falls behind on payments, their additional insured status is revoked. It’s a straightforward way to protect both your cash flow and your insurance coverage.
Creative Restrictions for Additional Insured Coverage
In addition to payment terms, you can negotiate other restrictions on additional insured coverage. Here are some ideas to consider:
Make Additional Insured Coverage “Excess”: This means your insurance only kicks in after the Owner’s, GC’s, or EPC’s own insurance is exhausted.
Limit or Eliminate Waiver of Subrogation: Subrogation allows your insurance company to pursue the responsible party for reimbursement after paying a claim. You can negotiate to eliminate this waiver or limit it to a small dollar amount.
Tie Coverage to Timely Payment Approvals: Add a clause that states if the Owner, GC, or EPC doesn’t approve your payment submissions on time, their additional insured coverage is negated.
Link Coverage to Time Extensions and Delay Compensation: If the Owner, GC, or EPC delays your work but refuses to grant time extensions or additional payment, you can revoke their additional insured status.
These types of restrictions protect your business from becoming the de facto insurer for your client’s negligence or poor project management.
Does This Sound Preposterous?
Some contractors may feel that these suggestions sound far-fetched, but they’re no more unreasonable than an Owner, GC, or EPC contractor expecting you to act as an insurance company. At the end of the day, you’re a construction company. You need to protect your business by negotiating fair and balanced terms in your contracts.
A Final Note on Credit
This idea of adding conditions to providing additional insured status was inspired by the President and CEO of a successful construction company. It’s a smart strategy that protects contractors from unnecessary risk, and it’s worth considering for your next project.
By negotiating fair terms and carefully managing additional insured clauses, you can safeguard your insurance coverage and keep your focus where it belongs—on your construction business.
