5 commonly requested endorsements for contractors

Things to know when you're entering into a contractor for a construction project.

Lawsuits concerning construction defect often give contractors cause to rethink their insurance and consider adding endorsements to enhance their policy. Building owners, lessees and general contractors are now adding requirements to their contracts. When a contractor is entering into a contract for a construction project, the insurance agent can help with coverage and help identify potential issues.

Here are the 5 most common situations where an endorsement is needed on a contractor's general liability policy:

Situation: Adding general contractors as insureds on your policy.
Common Endorsements: Additional Insured (CG 20 10) and Blanket Additional Insured (CG 20 33)

This is the most common request that contractors get from owners, lessees or general contractors. When a general contractor hires an electrical subcontractor on a new home build, the general contractor wants to be listed on the electrician's general liability insurance policy in case they get sued for the electrician's  work.  The Additional Insured endorsement is important in this scenario because it proves to the general contractor that the subcontractor has insurance, and, based on the additional insured form used, the coverage that is available.

If a subcontractor is entering into a number of contracts where this endorsement is requested, it may be more cost effective to have a Blanket Additional Insured Endorsement on the general liability policy instead of adding it each time. This gives automatic status when required in a construction agreement with you, as long as a contract between the two parties is in place.

Situation: When a subcontractor is liable, this provides that their policy pays first.
Common Endorsement: Primary/Non-Contributory (CG 20 01)

If there's a request for the Additional Insured endorsement, there's typically one for the Primary/Non-Contributory endorsement, too. If you're a subcontractor adding this endorsement to your insurance policy, you're accepting that your insurance policy will respond on a primary (pays out first) basis to any applicable potential claim. The use of this endorsement is widely debated because of the potential ambiguity and lack of clarity surrounding the terms "primary" and "noncontributory".  The International Risk Management Institute attempts to explain the questions around this endorsement and actually recommends that risk managers not include this requirement in contracts.

Situation: Ensuring the subcontractor's insurance company won't go after the general contractor.
Common Endorsement: Waiver of Subrogation (CG 24 04)

The A/C installation contractor drops an A/C unit on the electrician at the job site, causing injury and damage to the electrical work.  If the Waiver of Subrogation endorsement is in place, the electrician's insurance company should not look to the general contractor for payment or participation in the loss.

Situation: The general contractor is sued for the subcontractor's work after it's completed.
Common Endorsement: Completed Operations (CG 20 37)

Most Additional Insured endorsements only apply while work is ongoing. Once work is completed, there can be gap in coverage if the subcontractor's work causes a loss and the general contractor gets sued. The Completed Operations endorsement, used along with the Additional Insured endorsement, helps to eliminate this potential gap. This endorsement is carefully underwritten on a per project basis.  If the electrical subcontractor's work causes a fire weeks after the project is completed, and the homeowner sues the general contractor, this endorsement can provide coverage.

Situation: Providing enough limits for multiple projects at the same time.
Common Endorsement: Designated Construction Project(s) General Aggregate Limits (CG 25 03)

This endorsement was designed to make a separate general aggregate limit available for each construction project/site that the insured was involved in and listed in the endorsement. This option applies for "ongoing" operations, and the insurer will pay the same aggregate limit for all claims which occur from any listed project. The project might even require you to have a specific amount of coverage designated for that project alone.

Say a general contractor has a general liability policy with $1M/$2M limits. At the same time, they have three projects: a housing development, a strip mall and a commercial warehouse being built. If the per project liability limits endorsement is included, each project is listed, and each one of those projects has the same $2M limit available. So, if all 3 projects have a $2M loss, the insurance company could potentially pay out $6M.  If this endorsement is not on the policy, and all three projects have $2M losses, the most the insurance company will pay out is $2M. The general contractor is left with $4M in losses that are not covered by insurance. 

It's not as simple as always agreeing to whatever requests for endorsements are made when entering into a contract. Always, always, always talk with your insurance agent. You need to make sure you can afford the extra cost of the endorsement required. And, the agent can assist in identifying potential policy limitations.

State Auto Insurance makes no representations or guarantee as to the correctness or sufficiency of any information contained herein, nor guarantees results based upon use of this information. State Auto does not warrant that reliance upon this document will prevent accident and losses or satisfy federal, state and local codes, ordinances and regulations. The reader assumes entire risk as to use of this information.


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